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Price Pressure Eats Up Retail Space

Proshare

Friday, August 18, 2017 7:00PM / ARM Research  

Price increases have been the dominant means of combating elevated cost-inflation for most Nigerian companies in 2017, with most of the discuss in the sphere related to potential or actual pass through to earnings. 

In this maiden edition of “The Pentad – Urban Retail Price Tracker”, we re-direct the discus to the retail side of things—which is of greater relevance to the average Nigerian, with a view to isolating weekly price and volume dynamics across five of our coverage sectors: breweries, cement, consumer goods, commodities, and oil and gas. 

Ultimately, we also look to guest mate the impact of inflation and CBN’s FX policies on the average Lagos (Urban) consumer. 

In the brewery space, our representative basket comprises Star, Gulder, Malta Guinness, Goldberg, Satzenbrau, and Guinness. Elsewhere in the retail sphere of consumer goods, we focus on Close up, Bournvita, Milo, Blue band, Omo, Lipton, Refined sugar, and Dettol.  

For commodities, we are only kin on crude palm and vegetable oils and rice just as we monitor retail developments in cooking gas in oil and gas space. 

Across the sectors, price evolution is monitored on a weekly basis while we adopt 0.6%, 0.0%, and -0.6% as indicators for volume expansion from prior week, no change in volumes, and week on week output contraction (respectively) in a manner slightly akin to CBN’s PMI methodology. 

In order to get a sense of how retail prices have moved on average, we also fashion out a Pentad Urban Retail Price Index (PURP) which adopts April 1st to April 8th as a base period. The PURP index accords 30% weightings apiece to consumer and commodities prices, 20% weighting to the brewery basket with a further 20% distributed evenly between cement and cooking gas prices.

 

 

Retail Prices in the Brewery Space

According to our market intelligence, mean drink prices (per crate) has risen 3% in the last 18 weeks with Star beer (+14%), Gulder (+9%), and Satzenbrau (+9%) experiencing the sharpest increases in the space. The increases remain consistent with higher price campaigns across product portfolios in Nigeria Breweries Plc. (NB) and Guinness.  

Over the same period, retailers reported largely flat to increasing week on week volumes sold. 

 

 

Retail Prices in the Cement Space 

With prices increases at the heart of company performances in the cement sector thus far in 2017, it was no surprise to see retail price of cement dilate a stronger 12% to N2,850 per 50kg bag April through August.  

Further feedbacks also revealed an average retailers’ margin of 15% on 50kg bag of cement in the 18 weeks period. Elsewhere, whilst data suggests flat-to-increasing cement volume sales in the first thirteen weeks of the period, rainfall-associated pressures got worse at the start of Q3 17 with our survey indicating flat-to-retracing volumes since the start of July.

 

 

 

Retail Prices in the Consumers Space

Mean prices in our consumers’ basket rose 10% over the last four months. The increase in the basket was mainly underpinned by strong growths in refined sugar prices (more than double to N250/250grams) and Lipton (+20% to N240 per 25 bags) which more than offset contractions in prices of Close up (-3% to N290/per 140 grams) and Blue band (-7% to N420 per 250 grams). 

According to market feedback, the strongest price increase in the basket occurred in the first week of May.On balance, we noticed that consumer response to price change was muted with retailers reporting largely flat-to-increasing weekly sales volume in the review period.

 

 

Retail Prices in the Commodities Space  

After seeing the price of rice and crude palm oil accelerate 29% and 10% to N20,000/50kg bag and N11,000 per 25 litre respectively, mean prices in the commodities segment rose 15% between April and the beginning of August. 

Based on our findings, the highest price increase occurred in the first week of May and was largely reflective of increased crude palm and vegetable oils stock-piling (+6% week on week growth) ahead of anticipated pressures on commencement of Ramadan. 

Over the period, retail sales volume was also higher for 56% of the time and stable for another 33%.

 

 

 

Retail Prices of Cooking Gas  

After accelerating 11% to N5000 per 12.5kg in the first week of July, cooking gas prices commenced a downturn in the remainder of the review period (i.e. -4% to N4,800 in August). 

According to NBS, the eventual moderation in retail cooking gas prices reflected improved supply and distribution to markets. 

Despite the simultaneous increase in demand (i.e. retailers reported higher sales volume for 50% of the time), stakeholders are also not expecting supply shortages or significant upward drift in the price of the product in the near term. 

 

 

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