Manufacturers of fast-moving consumer goods (FMCG) face significant challenges due to a continuous increase in unsold inventory in their warehouses. This trend is expected to further reduce output levels in the sector.
The rise in unsold goods is attributed to two main factors: the escalating cost of living and the declining purchasing power of consumers. According to findings by Financial Vanguard, the stock of unsold goods in the FMCG sector increased by 27 percent year-on-year during the financial year ending December 31, 2023. The situation has worsened in 2024, with an expected over 30 percent rise in unsold goods in the first quarter alone.
As a result, output levels have been steadily declining since mid-last year. For instance, capacity utilization in the food and beverages sector fell to 49 percent from 61 percent in the corresponding period in 2022, indicating a 20 percentage point decline.
Nigerians have been grappling with inflationary pressures, which have diminished their purchasing power over the past eighteen months. The headline inflation rate has continuously risen, reaching 28.82 percent in December 2023 from 21.34 percent in December 2022. Factors such as high energy costs and insecurity in farming communities have contributed to this trend. Food inflation has also surged, reaching 33.93 percent from 23.75 percent a year ago.
The situation has persisted into 2024, with headline and food inflation increasing to 33.69 percent and 40.53 percent, respectively, in April. This massive inflation, coupled with the depreciation of the naira, has compelled manufacturers to raise prices to cover high input costs. However, this has led to consumer resistance and a slowdown in sales.
Financial Vanguard’s findings from the operations of 15 major FMCGs reveal a burdensome price index, resulting in unsold goods amounting to N104.45 billion despite a significant reduction in production quantity.
Several companies, including BUA Foods Plc, Dangote Sugar Refinery Plc, Nestle Nigeria Plc, and others, have experienced a rise in their stock of unsold goods. Palm oil producers, such as Okomu Oil Palm Plc and Presco, have been particularly affected, recording substantial increases in their inventory of unsold goods.
According to industry observers, the high level of unsold inventory reflects the challenges faced by manufacturers in the FMCG sector, including high production costs, energy costs, logistics costs, and the high cost of funds. These factors have led to significant price increases and consumer substitution of cheaper alternatives.
To address these challenges, the foreign exchange market must be stabilized and operating costs reduced. This includes moderating currency depreciation, lowering energy costs, and adjusting import duty rates to make products more affordable. Empowering consumers with increased purchasing power through initiatives like minimum wage increases could also boost demand for FMCG products.
In conclusion, the rise in unsold goods threatens the profitability and sustainability of FMCG companies. Addressing the underlying economic challenges is crucial to mitigating this risk and restoring growth in the sector.
