“The security issue is bad for quite a number of them, [actually] for all of them if I may say so because that limits the distribution onto the Northern states. Quite a number of them over there have had to close shop while some have had to operate at hours they consider safe,” Tajudeen Ibrahim, Head of equity research, Chapel Hill Denham securities, told CNBC Africa.
Insecurity has limited operating powers in fast moving consumer goods (FMCG) companies and affected sale volumes in the North for many companies listed on the Nigerian stock exchange (NSE).
“Quite a number of people have tried to find ways around distribution of their goods to the north but it is costlier. So, they are left with options of trying to increase their penetration in regions that are relatively safe,” said Ibrahim.
Regions like the Eastern and Southern parts of the country do not experience the same insecurity threats that the North propose thus making these parts of the country more favourable for FMCG companies.
“The strategy of you trying to sell your product or rebrand to cost price or make your price competitive to competitors has proved inefficient at least for the current period given the weak consumer spending discretionary goods,” he explained.
According to Ibrahim, Increased M&A activities and more merges and acquisitions are expected in the food space.
“The key drivers will be the strong macro-economic outlook for Nigeria and also the supportive demography. We have a country of about over 160 million Nigerians with an average age of 18 years, which is an extremely youthful population,” Ibrahim said.
Last year, spending on utility bills really had an effect on consumer spending, however, income growth is expected to occur over the next couple of years.
“As we expect consumers to gradually adjust their spending over the next couple of years and for them to have additional income, so we [can] expect an improvement on that front at least in three to five years,” explained Ibrahim.