F&B sector is the largest segment of the Nigerian manufacturing industry estimated at €16.5bn in aggregate output and generating 1.5m jobs

Increasing demand for packaged food products

The Food & Beverage Sector in Nigeria

Nigeria has a young and growing population of about 170m people. The Nigerian consumer market is estimated at €130bn and has been thriving on the market demand stemming from a robust demography. According to the Economist Intelligence Unit, household goods constitute 3.6% (approximately €4.75bn) of total consumer expenditure in Nigeria. As a result of a growing population and an emerging middle class, there is a growing demand for fast moving consumer goods (FMCG) in the country.

Growth in the FMCG sector is driven by key factors that have been instrumental in the growth of the Nigerian consumer market in general, these include:

• Rising disposable income
• Robust economic growth
• High population growth and urbanization
• Emerging middle class
• Increased levels in trade
• Technological innovation

The food and beverage (F&B) sector is the largest segment of the Nigerian manufacturing industry comprising 22.5%. It is estimated at €16.5bn in aggregate output and constitutes 4.6% of GDP, and 66% of total consumer expenditure. In 2013, total consumer expenditure in the food and beverage sector amounted to €80.69bn, compared to €72.18bn in 2012 and posted a growth rate of 16.4% after rebasing of GDB. The sector generates over 1.5m jobs in the country and thus employs 5% of the Nigerian workforce.

The Nigerian food and beverage sector has an oligopolistic market structure: about 15% of the market players control 90% of the sales volume, while the remaining 85% are small and medium sized enterprises (SMEs) and account for only 10% of total sales volume. Foreign investment is greatest in the soft drinks and beer industry. The soft drinks and beer companies invest about €1.13bn annually in capital expenditure, with about 60% of the total invested in machinery and equipment. Multinationals such as Coca-Cola, Nestlé, Heineken, Guinness and Cadbury have established themselves in the country many years ago. Nigerian companies are concentrated in the wheat flour, poultry, meat, bakery and confectionery industries. Recently, there has been a marked expansion in biscuits, fruit juice and pasta.

There are more than 20 food and beverage companies quoted on the Nigerian Stock Exchange (NSE), mainly captured by the fast moving consumer goods (FMCG) asset class on the NSE and with an approximate market capitalization of €13.5bn (23.5% of total market capitalization). In addition to quoted companies, many privately owned and unlisted companies exist. Investors in this sector have benefited from protective government policies, such as import bans and restrictions, high import tariffs and levies that are meant to protect infant industries and encourage local manufacturing. In addition, start-up businesses in the sector enjoy tax holidays, as they are considered to be “pioneers”.

In the food sector, vegetable oil/fat, dairy, baked goods, cereal and chilled foods are the most important products. Most of these products are imported, while local manufacturing is concentrated with the large multinational companies and a few local firms.

Packaged food in Nigeria is fragmented and produced by multinationals and domestic companies. Notable players in the industry include Cadbury Nigeria Plc, Nestlé Nigeria Plc, UAC Foods, De-United Foods Indus-tries, Dangote Industries Ltd, HJ Heinz Co. and Friesland Campina Wamco Nigeria Plc. While multinational firms account for 65% of total revenue in this sub-sector, it is common for them to form alliances with Nigerian companies to repackage and/or market their products in Nigeria. This lowers market entry risks and enables the international company to benefit from existing marketing and distribution channels of their Nigerian partners.

Most players in this industry have increased their capacity much faster than the market growth rate warranted for, but the value growth of packaged food remains strong and it is expected that the added production capacity will be easily be absorbed by the market. The young and dynamic Nigerian population which is experiencing growing per capita incomes shows an increasing demand for packaged food products. Other factors include improved product quality, growing sophistication of Nigerian consumers, increased advertising activities of companies and improved economic conditions leading to higher disposable incomes. The entry of numerous new players and products has made packaged foods one of the most dynamic industry sectors in Nigeria. There have been creative innovations in various packaged food categories, (noodles, dairy, bakery) as well as strong below-the-line and above-the-line marketing activities, with direct distribution being the key to companies winning over consumers.

The beverage sector is composed of alcoholic and non-alcoholic beverages:

a. Alcoholic beverages include:

• Brewed alcoholic: Stout, Lager
• Ready to drink (RTD) alcoholic: alcopops such as Smirnoff, Kiss Mix
• Spirits: imported and smuggled, such as vodka; locally distilled spirits such as local Schnapps

b. Non- alcoholic beverages include: brewed non-alcoholic (malt), RTD non-alcoholic (Alvaro)

c. Carbonated drinks: Coca Cola, Fanta, Pepsi Cola, 7Up

d. Water

The major players in the beverage industry are subsidiaries of Diageo, Heineken and SAB Miller (primarily in the beer and malt markets); franchises of Coca Cola and Pepsi Cola in the carbonated beverages market; and local players such as International Distillers Limited and Nigerian Distilleries Limited for spirits.

The Nigerian beverage industry is experiencing consolidation with the major players acquiring the smaller ones, especially in the brewery segment. For instance, Heineken bought Consolidated, Sona and Champion Breweries; Diageo bought Dubic; SAB Miller bought International Breweries. As a consequence brewing capacity has increased overall, leading to a price war among the major players.

Industry Potential and Attractiveness

• Nigeria’s population of approximately 170m offers a large and growing market for food products.
• Commercially processed food is fast becoming a trend amongst the emergent middle class
• Favorable government policies: Nigeria is a main exporter of consumer goods into the neighboring countries. Since 2002, the government reimburses 40% of the export value for agricultural products upon application and proof of export. The 40% rebate on agricultural exports, a government incentive to help exporters become more competitive, has motivated local producers and firms to improve product quality and packaging to meet international standards.

The 2014-2017 outlook for the Nigerian food and beverage sector is highly positive. Higher disposable in-comes and increasing company advertising are expected to boost value growth. The average Nigerian is expected to spend more on food, especially on items that were previously regarded as luxury goods. Value growth will also benefit from the rising sophistication of the Nigerian consumers and improving product quality. Food items that are fast and convenient, such as pasta and instant noodles will also continue to boost dynamic value growth.

Growth in the beverage sector will remain dependent on real economic growth, especially disposable in-come growth. The market will see increased investments by major players as competition intensifies.

Source: Aussenwirtschaft Austria, Branchenreport Nigeria – June 2014.

I believed strongly that information shared here is very useful.

Make it a date to be there in person as a Trade visitor.

For more information about this educative and insightful food and agricultural event, contact the organizers website at www.fairtrade-messe.de; www.agrofood-nigeria.com

For more information about us, contact

The Publisher, FoodpreneurNews

Telephone: 234-7059549741

Email: [email protected];