Nigeria’s consumer giants squeeze out bigger profits as shoppers pull back

Nigeria's major consumer goods firms reported significant profit increases in the first nine months of the year, despite shoppers spending less. This disparity highlights the uneven nature of Nigeria's economic recovery. Companies such as Nestle Nigeria, Guinness Nigeria, and Nigerian Breweries all saw their pretax profits rise, with profits from Nestle increasing by 52%, Guinness by 55%, and Nigerian Breweries by 33%.

However, six out of seven listed consumer companies grew their revenue more slowly than the 14.6% inflation rate, indicating they sold fewer goods in real terms. Despite this, five of these companies still managed to boost their profits by 18% or more. The improvement in corporate balance sheets is outpacing household budgets, thanks to President Bola Tinubu's economic reforms.

A stronger naira and cheaper raw materials have helped reduce manufacturing costs, but the poverty rate in Nigeria remains alarmingly high at 63%, according to the World Bank, up from 56% two years ago. Reduced sales of sugar and rice are attributed to "strategic and competitive market pricing initiatives," while floar sales suffered from "softer demand."

Rice revenue dropped by more than half, while cheaper pasta saw a 32% increase. Lower borrowing costs also contributed to these profits. Despite this, investors are skeptical that these consumer gains will be sustained, with the NGX Consumer Goods Index declining 1.09% in October. Meanwhile, the Industrial Goods Index, which includes cement makers, has risen by 16.85%.

The NGX Consumer Goods Index fell in October as profit reports came out, while the Industrial Goods Index, which includes cement makers, rose 16.85%. Investors appear uncertain about the durability of the consumer gains. Profit margins are, however, improving after the 2023-2024 currency crisis. Nestle's shareholders' equity rose to 116.3 billion naira from 12.9 billion naira in December, and Nigerian Breweries posted a third-quarter profit of 21 billion naira, compared to a 4 billion-naira loss a year earlier.

Nestle has been profitable for eight consecutive quarters since returning to profit at the end of 2024. The Central Bank of Nigeria cut its benchmark interest rate by 3.5 percentage points to 23% in September, described as the largest single cut in the bank's history by Dangote Cement. This move may help revive demand, but the profit gains that powered this year's results will be harder to replicate. For 2027, these companies must focus on selling more, not just earning more from less.