MARKET WATCH: Nigerian consumer: Domestic competition intensifying

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FRI, SEPTEMBER 8 2017-theG&BJournal-In the food category, the most telling observation in August was that Unilever made another price cut to Knorr Chicken. This follows the July reversal of the June cut. The most recent reduction implies that the price of the popular brand is now down 28% MoM and 6% YtD. It is now priced 8% lower than the average in the stock cube category and 3% lower than Nestle’s Maggi Chicken on a per gram basis. Another key observation was that in the home & personal care (HPC) segment, the options available in the washing powder segment have increased materially from three brands seen on the shelves in July to 10 in our most recent survey. With the return of imports and cheaper alternative brands, we believe 2H17 will be challenging for Unilever.

Unilever still playing with pricing?

In the seasoning cubes segment, the notable MoM swing was observed in the price of Unilever’s Knorr Chicken – the shelf price was cut from NGN690 per 400-gram pack to NGN500/400g. The price has varied significantly in the past three months. We observed a similar price cut in June which was then reversed in July. Given the seeming underperformance of Unilever’s food segment in 1H17, we believe holding prices at this level could attract increased demand. Having said that, we are also mindful of competition’s likely reaction although Nestle has yet to respond in this regard. While the price of Knorr was cut, the prices of Unilever’s Royco Goat and Beefwere raised by 4% and 2% MoM, respectively. Assuming the Knorr Chicken price cut was passed all the way through by the company, we understand the rationale given that the brand was priced at a 29% premium to the segment in the previous month.

HPC: A reloaded battleground

In our past surveys, we observed a limited number of brands in the washing detergent segment. We believe this was due to domestic producers and importers being unable to access FX for raw materials and this affected production and supply. In our most recent management meetings, this view was confirmed by most of the packaged and branded consumer goods companies we met. In our latest survey, there was an increase in the number of available washing powder brands (see Figure 5) from three in July to 10 as domestic brands returned to the shelves. The most popular of these is PZ’s ZIP – a 250g pack is priced at a 40% discount to the segment average while Unilever’s OMO is priced at a c. 24% premium. Given that we believe brand loyalty is low in this segment, with availability and pricing key purchasing factors, we look for increased competition from 4Q17 onward.

Nestle over Unilever on greater downside risks

We expect a crowded playfield in 4Q17 when the improvement in FX liquidity should drive imports and domestic production of alternatives to Nestle and Unilever brands. But we expect the impact of this to be felt more in the HPC segment given that consumers are more fickle and less brand loyal when it comes to HPC goods. We therefore look for flattening growth in 2H17 for HPC producers with volume growth expected to materially decelerate in 4Q17. This coupled with a higher base pricing from 4Q17 will negatively impact growth, in our view.- A Renaissance capital research note on the Nigerian Consumer​ made available to the G&BJournal

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