Culled—Proshare

March 27, 2017/Cordros Research

We met with a leading distributor of NESTLE and CADBURY products for feedback on the “market-side of things” ahead of our update reports.

The distributor’s annual turnover is in excess of N4 billion. It is headquartered in Lagos, has offices in three other South-Western states, and sells its goods in the North and South-South regions through tier-2 distributors. The company is also a key distributor of UNILEVER and WAMCO products.

Overall, outlook for sales is less optimistic, the biggest concern defined to be producers’ tough stance on pricing amidst a still fragile consumer environment.

Notwithstanding, we understand that companies (NESTLE leading) with strong brand reputation, which have hitherto shown resilience, will continue to stand out.

Findings

• Volume obviously has suffered under the weaker purchasing power but consumers have rarely changed in terms of consumption pattern.
• Producers have intimated relationship with distributors under the current tough operating environment. Distributors now receive encouraging terms, in form of credits, guarantee of relatively lower-priced bank facilities, producers-paid sales agents, shared distribution van services e.t.c.
• Relative to the pre-2015 era, the environment has become less competitive from market share perspective, as producers concern more about survival.
• Price movement in 2016 was highly erratic. So far, only CADBURY gives notice ahead (a month) of price increase. Pricing remains a major concern in 2017, with the two companies having already increased prices this year.
• NESTLE (as the market leader), in addition to always being the first to announce price increase, hiked prices the most in 2016. NESTLE’s Milo is about N200 more expensive than CADBURY’s Bournvita equivalent. Yet, demand for Milo is double Bournivita.
• Distributors believe the producers are the winners in terms of pricing. The distributors, wholesalers, and retailers often have to absorb additional prices from the top.
• Distributors rarely face supply challenges. Products delivery is timely, and in most cases using trucks paid for by the producers.
• As stated earlier, conviction for NESTLE’s products remains very high.

NESTLE

• Milo, Maggi, and Golden Morn are the high conviction products.
• Increased price across SKUs in February.

CADBURY

• Bournivta (500g) and Tom-Tom are the high conviction products.
• Increased Bournvita price (excluding 20g sachet) in January and February, with a third hike expected in April.
• Has improved RTM significantly and was rated the best in RTM in 2016.

Tom-Tom is unrivaled in the candy category.

However, despite the heavy expenditure on rebranding and promoting Bournvita, the product continues to lag Milo in terms of consumer preference. Distributors do not see this pattern changing in the near term.