Black Friday Falls Short On the Street

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Thursday, December 07, 2017 / 9:35 AM /ARM Research 

Another Black Friday came upon us. The biggest retail period of the year failed to fundamentally shift underlying trends in spending as depressed income and less promotion remained the culprit. First off, while market feedback suggests volume increase across our coverage, we link the increase to festive-induced demand (like prior years) rather than black Friday sales as volumes growth was relatively weak. 

With inflation exceeding wage growth amid high interest rates, consumers are turning more cautious than last year. In fact, retailers have adjusted to this by spreading deals across several weeks. More so, while price pressure sustained its moderation in November, the bulk of the pressures occurred in the last week of the month. To our minds, retailers seized the festive-induced window to preserve margins.

Our Urban Retail Price Tracker—the PURP index—recorded a modest increase of 0.78% MoM to 102.0 ppts (vs 0.79% MoM in October and 0.82% MoM October urban inflation reported by NBS). We saw mixed retail price stories across our coverage segments with an overall modest pace of price increase. Like last month, sales volumes climbed higher underpinned by festive-induced demand as well as the end of the rainy season.

Key Summary
The PURP index suggested that urban retail prices rose by 0.78% MoM in November relative to 0.79% MoM increase in the prior month (vs. +0.82% MoM October urban inflation reported by NBS). 

Survey result showed a 0.6% decline in retail prices in the first three weeks of November followed by a 1.3% increase in the last week of the month.

The largest pace of price volatility in November occurred in the brewery space. Elsewhere, the consumer basket witnessed the least volatility in prices over the review period.

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Retail prices in the Brewery space
Average beer price expanded for the second consecutive month by 2.3% MoM to N2,725/crate in November. Our survey shows increases in price of all products in our brewery basket. 

Specifically, Trophy (+4.9% MoM) and Guinness (+3.3% MoM) recorded the peak price increase. Other price increases include Star (+0.5% MoM), Malta Guinness (+1.3% MoM), Goldberg (+3.2% MoM) and Satzenbrau (+1.1% MoM).

From our findings, festive-induced demand necessitated the modest increase in prices. Overall, volumes continued to track higher on the back of the festive season.

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Retail prices in the Cement space
Price movement in the retail space was largely mixed in the review month. 

While wholesale price of cement increased +0.5% MoM, retail cement price remained unchanged over the period. This is not far-fetched as the lagged-impact of price increase by retailers explains this trend. Consequently, we expect to see similar increase in retail price in December.

On balance, average retailers’ margin was down to 13% from 14% in the previous month.

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Retail prices in the Consumer space
Elsewhere, average retail price in our consumer basket increased by 3% MoM over the review period with price increases across almost all the component of the consumer basket save Dangote sugar and Dangote salt which was flat MoM. 

Breakdown shows major increase from close-up (+6.7% MoM) and Milo (+5.4% MoM). The increase in price of close-up reflected the need to match the recent price increase of its major competitor; Oral B.

Overall, market feedback linked the general increase in price to festive-induced demand. Also, volumes were largely flat to increasing across the consumer space in the review period.

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Retail Prices in the Commodities Space
In the commodity space, mean prices increased 4.4% MoM largely driven by a 12.6% MoM increase in price of vegetable oil. The increase in price of vegetable oil reflected stockpiling by retailers ahead of the festive period. 

On the other hand, crude palm oil and rice prices decline by 0.1% apiece over the period.

First, feedback from retailers revealed that most retailers had bought at certain prices in the beginning of the year with an expectation of making over 30-40% in returns; however, the market dynamics changed with most retailers’ margin currently less than 5%. Thus, informing the need to hold the product. Elsewhere, the decline in price of rice continued to reflect the bumpy harvest.

Volumes broadly increased in the review period.

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Retail Prices of Cooking Gas
For the fourth consecutive month, mean price of cooking gas continued to trend lower (-1.2% to N3,975/12.5kg) on the back of sustained intervention in the supply and distribution of petroleum products in the country. 

Feedback from retailers revealed the price of 5kg cooking gas however increased moderately over the period reflecting stronger demand of the 5kg cooking gas.

Also, volumes were largely flat over the review period.

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