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Slowdown in Accommodation and Food Services; Sector Contracts by -6.4% YoY in Q2’16

Proshare

Tuesday, November 08, 2016 9:18 AM / FBNQuest Research

Today we turn our attention to Nigeria’s hotel, restaurant and quick service meal industry (also referred to as accommodation and food services). Given the macro challenges which have affected the broader economy, the sector has contracted steadily since Q2 2015.

Based on data from the National Bureau of Statistics (NBS), the sector has contracted by an average of –6.3% over the past five months. The most recent data from the NBS reveal that the accommodation and food services sector contracted by -6.4% y/y in Q2 2016.

Industry sources suggest that the country’s quick service restaurant (QSM) segment accounts for 25% of Nigeria’s food industry which is estimated to be worth N1trn.

The lingering fx sourcing issues continue to strain the restaurant and food services industry as a significant proportion of food products used in preparing meals are imported. However, a gradual shift to locally sourced food products will bring some respite over time.

September’s inflation report showed that prices of restaurants and hotels in the Restaurant and Hotel sector rose by 9.4% y/y compared with 9.7% in August. This component has a 1.2% weighting.

Amidst the economic downturn, there are some bright spots within this industry: one of such is the carbonated soft drink (CSD) segment which appears to be holding up well relative to other segments.

Another is the packaging industry; local packaging firms should experience increased patronage as food services companies seek ways to cut costs and capitalise on the FGN’s import substitution strategy.

Recently, the Federation of Tourism Association of Nigeria (FTAN) committed to exploring methods through which hotels across the country could be upgraded in order to attract both local and foreign investors.

Currently, the trend in the hotel segment tilts towards corporate Nigeria, not retail or tourists. The squeeze on household wallets has led consumers to restructure their spending patterns; as such, hotel accommodation for leisure purposes is widely seen as a luxury expense.

In the medium term, we expect GDP growth to recover; our forecast for 2017 is 2.0% y/y compared with a forecast of -1.0% in 2016.

This recovery should ultimately translate to improved naira liquidity, thus boosting household incomes and purchasing power. The hotel industry should be a beneficiary of this.

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