Manufacturers operating in the consumer goods sector are battling with rising input costs, which are inflation-infused. Eight firms analyzed recorded an 85.7 percent surge in input costs to N3.12 trillion in 2024.
Analysts believe that the impact of rising inflation on consumer goods firms has caused most goods and services to record about a 100 percent rise in input costs over the past year.
Nigeria's headline inflation increased marginally to 34.8 percent in December 2024 from 34.6 percent in December 2023, according to the national bureau of statistics. The inflation figure in December 2024 was primarily driven by increased demand for goods and services during the festive season.
The consumer goods firms have seen a high input cost environment, and naira depreciation has weighed heavily on the prices of raw materials, resulting in higher production costs.
"The double-digit inflation and currency volatility witnessed in 2024 are a major drag on the earnings of consumer goods firms, especially those that rely heavily on imported raw materials," said kayode eseyin, lead consumer goods and agriculture analyst at cardinalstone securities.
"Going into 2025, the expectation of a moderation in inflation and less volatility in the fx market suggests that cost pressures are likely to abate. Companies that have taken steps to de-risk their supply chains and backward integrate could benefit even more from improved macroeconomic conditions," he said.
Nigerian consumer goods firms have recorded higher costs of raw materials, driving input costs to new record highs. The analysis of five consumer goods firms that recorded raw materials costs in their financial books revealed a cumulative 99 percent year-on-year growth in 2024.
A sharp rise in raw material prices and shortages of key components have created a logistical nightmare for consumer goods firms whose earnings have been depressed amid macroeconomic headwinds.
Analysts suggest that firms should step up local sourcing of inputs to reduce reliance on imported materials while implementing stricter cost-control measures to improve operational efficiency and ease rising production expenses.
The need for locally sourced materials has become even more important as firms continue to be exposed to foreign exchange volatility, leaving manufacturers with no choice but to raise prices.
"The consumer goods firms should focus on local sourcing of made-in-nigeria raw products, which will be cheaper than importing. They should also cut other wastes, such as carrying a lot of inventory; they can opt for downsizing if needed," said uzo uchenna, a professor of marketing at lagos business school.
He urged consumer goods firms to employ cost management initiatives that holistically impact their business environment.
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Since 2020, Nigerians have battled persistent increases in the prices of goods and services, aggravated by insecurity, naira depreciation, and supply chain disruptions caused by the covid-19 pandemic.
The eight firms analyzed in this report recorded N3.12 trillion in input costs in 2024, up from N1.68 trillion in 2023.
These higher input costs could hurt the profitability of companies for a longer period if they are unable to pass the increased expenses to consumers. Rising input costs are squeezing profits in the manufacturing sector, driven by higher raw material expenses and weakening demand.
The cost of raw materials importation for consumer goods firms significantly increased in 2024, indicating that backward integration remains low, leaving firms vulnerable to high importation costs driven by exchange rate fluctuations.
As costs outpace sales growth, the manufacturing sector faces pressure in maintaining profitability. This has led to reassessments of pricing strategies and a visible slowdown in industry growth.
BUA foods' input cost rose to N984.9 billion from N468.9 billion, while nestle nigeria recorded an input cost of N958.8 billion from N547.1 billion.
Dangote sugar refinery's input cost grew to N634.6 billion from N355.1 billion, and guinness nigeria's input cost grew to N200.6 billion from N96.7 billion.
Unilever nigeria's input cost grew to N149.8 billion from N103.9 billion, and cadbury nigeria's input cost also rose to N111.7 billion from N63.04 billion.
Nascon allied industries' input cost rose to N64.9 billion from N36.5 billion, while champion breweries' input cost rose to N12.2 billion from N7.63 billion.
The rising input costs highlight the challenges entrepreneurs face, especially those in nigeria's real sector. Consumer goods manufacturers are bearing the brunt of economic policies that they believe are affecting business growth.
Nigeria's manufacturers continue to struggle with rising operational costs amid high borrowing rates and low consumer spending.
firms comment on their financial performance
Ayodele abioye, managing director of BUA foods, said, "The results underscore the company's ability to navigate challenges with agility and resilience, as it continues to create value for all stakeholders.
"We are delighted to report an exceptional performance in FY 2024. Despite significant macroeconomic challenges, our business navigated supply chain costs and foreign exchange losses effectively.
"The cumulative impact of our expansion strategy has enabled us to meet increased customer demand while enhancing internal operational efficiencies," abioye said.
Wassim elhusseini, managing director of nestlé nigeria, highlighted the positive side of the company's 2024 results.
"Our 2024 results demonstrate the resilience of our brands and teams and underscore our strong fundamentals in a challenging business environment," he said.
"The impressive 75.2 percent revenue growth for the year, as well as a 35.6 percent improvement in operating profit to N167.9 billion, reflect the robustness of our operations.
"Our net profit and equity were impacted by high finance costs associated with the revaluation of foreign currency obligations due to the unprecedented devaluation of the naira.
"I am pleased to state that our Q4 2024 results mark a return to profitability, with a net profit of N19.7 billion against a loss of N36.4 billion in Q4 2023," elhusseini stated.
Tobi adeniyi, managing director of unilever nigeria, said, "Our year-on-year sustained growth trajectory is a testament to our commitment to serving consumers with our best brands to meet their daily needs for improved health and hygiene.
"While we are pleased with our performance progress, riding on the pillars of operational efficiency, cost optimization, purposeful brands, and increasing market share across key categories, we are committed to growing our business to enhance our socioeconomic impact in the country."
Hans essaadi, managing director/CEO of nigerian breweries plc, speaking on the company's results, said, "The impressive year-on-year revenue growth was largely driven by strategic pricing initiatives, market expansion, successful innovations, and operational efficiencies.
"Despite macroeconomic headwinds, our group operating profit surged by 54 percent, reflecting the success of cost management, process optimization, and strong operational performance."
