FMCGs producers groan over 34% unsold inventory

Adebayo Obajemu

The harsh economic weather occasioned by rising prices, a fall in demand of manufactured goods and exchange rate collapse together with other ancillary factors have all conspired to fuel a 20 percent fall in the production of food and beverages, a development, which has in turn, led to jump in the stock of unsold inventory to 34 percent.

Following the declining demand from consumers as a result of persistent rise in prices reflected in further rise in food inflation rate to 31.52 per cent in October, manufacturers of food and beverages have called out to government to do something to reverse the trend.
The fall in demand has also created spanner in the work for these manufacturers to sell finished goods as their stock value of unsold finished goods rose by 34.03% year-on-year to N78.82 billion in the nine months ending September 30, 2023 (9m ’22).
It’s no brainer that the inflationary trend in Nigeria has continuously been on a constant upward spiral, rising by 5.95 percentage points to 26.72 percent in September 2023 from 20.77 percent a year ago, fuelled in large measure by various intertwining variables including rising energy cost, insecurity, especially in the farming communities in Nigeria, Russia-Ukraine war among others.
Dr. Olufemi Omoyele of the Department of Entrepreneurship, Osun State University told Business Hallmark that “the rise in the stock of unsold inventory not only in food and beverages, but other manufacturing sub sectors can not be divorced from the larger picture of dismal state of the economy, the rise in the pump price of petrol by 127.8 percent this year alone from N257.12 per litre in January 2023 to an average of N560 per litre in September, all these combining to pressure consumer wallets and undermine their purchasing power.

Consumer apathy

The end- users, who are consumers have been forced to cut their demands drastically or to look for suitble alternative if need be. As consumers are reducing demand or quantity of food and beverages they buy, dealers say they are not finding it funny.
Some dealers in food and beverage products complain of low patronage and consumer apathy. A development they attribute to rising prices, which have made these products unaffordable .
Venting her frustration in an encounter with Business Hallmark’s correspondent, Mrs. Ayorinde Onuola, a wholesale dealer in different brands of beverages and dairy product (Milk), at Balogun Market, Trade Fair, Lagos, stated that the constant increase in the prices of the products her company buys wholesale by the manufacturers has affected her market, causing a drop in the level of patronage and switch by consumers to unbranded alternatives where necessary.
According to her, many a customer that comes makes on the spot adjustments when they see that the prices have again gone up far above what it was when last they bought.
She said some of them only buy the most important or shelve the transaction all together.
She stated: “Let me be frank with you, let us talk about 20 customers now that come to our shop to buy something, from recent experience, only about seven will make the purchase without pricing. About eight will trudge on murmuring, while the rest, who, probably, are retail customers, will first lament the price increment and then try to price down the commodity before finally making an adjustment on what to buy.
“Imagine a retail customer, who has for instance, budgeted about N18,500 for a carton of his or her preferred product. Based on the last price, which was N17,000, by the last market price, he or she may withdraw from buying totally or reduce the number of purchase planned. That is the situation with us now”, she said.
Another dealer, Zainab Mohammed, CEO of Zainab Stores, Sango Ota, said business was dull, imploring government to reduce the cost of doing business by fixing the economy.
Mohammed deals on products of brands like Honeywell, Dangote Sugar Refinery, Flour Mills of Nigeria Plc and Golden Penny, but she insisted that business has been badly affected by the current inclement weather, saying that sales have dropped so much that, most times, he hardly record any sales some days.
“The constant changes in price is too bad now that the capital we were using before has been badly eroded. It is affecting us everyday. For our customers, when we tell them the price of the products they demanded for, sometimes, they will leave without buying what they came for because of the high cost. Sometimes, we just sit here and sleep,” he lamented.
Dr. Omoyele says companies will continue to record low sales and high inventory of unsold goods in stock until the economy is fixed and there’s more liquidity and increase in the purchasing power of consumers.
Amusa Oloyede of Statistica, a data analysis concern told Business Hallmark that “Why we are witnessing low demand is the fall in the purchasing power of consumers. And as a result of the rising trend of low demand from consumers, manufacturers of food and beverages can not but experienced huge increases in the stockpile of finished goods, which prompted a 20 per cent reduction in production. This had to be so because manufacturers can not buy their own products, and the consumers who can buy do not have money to do so.”
A recent report by the Central Bank of Nigeria (CBN), reveals that capacity utilisation of food and beverage manufacturers fell to 49 percent in the half year to June 2023 (H1’23) from 61 percent in the corresponding period in 2022, indicating a 20 percentage point decline.
Big companies like Dangote are not immune from this unfortunate development, as research has shown that heavy weights as Dangote Sugar Refinery Plc, BUA Foods Plc and Okomu Oil Palm Plc recorded the highest stockpile of unsold goods during the nine month period.
According to report, Dangote Sugar Refinery absorbed the most hit as its stockpile of unsold goods jumped by 287.05 percent to N23.61 billion from N6.1 billion in 9M’22.
This was closely followed by Okomu Oil Palm Plc with 156.9 percent increase to N3.52 billion from N1.37 billion in the corresponding period of 2022.
For BUA Foods Plc, the total value of its unsold goods rose to N7.65 billion in 9M’23 from N3.56 billion in 9M’22, indicating a 114.9 percent increase, while Cadbury Nigeria Plc recorded 66 percent increase in its stock of unsold goods to N3.66 billion from N2.2 billion in 2022.
Meanwhile, the Manufacturers Association of Nigeria (MAN) in its First Half 2023 Economic Review blamed the worrisome development on the weakened purchasing power of the consumers brought about by diminishing real household income resulting from the ongoing escalation of inflationary pressures.
According to the Director General, MAN, Segun Ajayi-Kadir, the situation was made worse by the scarcity of naira in the first quarter of the year and the aftermath of the subsidy removal and currency weakness.

Dr. Muda Yusuf, Director General, Center for the Promotion of Public Enterprise (CCPE), agreed with Kadiri as he also blamed the mounting inventory of unsold goods on the naira redesign policy and fuel subsidy removal among others, saying that consumers are now reviewing their priorities in terms of spending and are concentrating only on essentials.

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He said there’s the need to bring down the exchange rate and energy cost in order to effect a reduction in companies’ cost of production.
He said: “If you look at the past nine months or past six months of the year as the case may be, the manufacturing sector, the Fast Moving Consumer Goods (FMCGs) included, experienced a lot of headwinds.
“First, you remember the crisis of election, which had a very negative impact on investors confidence, and the disruptions that the Naira redesign policy caused, particularly for the FMCGs because their operations are driven largely by cash.
“That Naira redesign was a major disruption to the entire distribution chain, especially at the retail end. That was a very big issue.
“Typically, elections normally come with a lot of slowdown in economic activities; demand normally drops; economic activities drop because of uncertainty and all the confidence issues that come with elections.
“Apart from those that deal in foods, the demand for others like bottling companies and beverages firms have dropped because their costs have gone up because of the energy price and the exchange rate issue.

“So, the energy cost and the exchange rate challenges have driven up their cost of production, and have led to an increase in prices of their products. So, because consumers can no longer afford their products, that must have been responsible for the high inventory that we have seen.”