FrieslandCampina, Promasidor, Chi, Lactalis carve tuffs in Nigeria’s fledgling dairy industry

The food drink production industry is a thriving sector of the economy of most countries of the world. Information obtained by business a.m. reveals that in Nigeria the industry generates well over N40 billion annually from more than 150 registered food and drinks available on the market. Industry sources say trends in the industry suggest it has profited from increased demand over the last five years.

According to the sources, as the economy grew, discretionary income levels also experienced upward movement; a factor which the industry benefitted from.

The market for dairy product is vast and undersupplied, particularly in the urban and semi-urban areas. Analysts attribute this to the scarcity of quality brands duly approved by relevant agencies in Nigeria.

They note that even in the rural areas, patronage is fast increasing. They consider children and vegetarians regular consumers of dairy drinks.

Experts say Nigerian dairy industry is largely subsistence and consists of milk production, importation, processing, marketing, and consumption. According to them, 95 percent of total herd size of about 20 million belongs to pastoralist. Few imported cattle breeds such as Friesians, Jerseys and Brown Swiss, and their crosses are kept by few private commercial dairy farms.  Zebu breeds are mostly dual-purpose reared by pastoralists for both milk and meat.  Traditional milk products include nono (sour milk), Kindirmo ( sour yoghurt) maishanu (local butter), cuku (Fulani cheese) and wara (Yoruba cheese). Urbanization, improving household incomes and general population growth are factors pushing demand for dairy products with growth estimated at 3.2 percent to 3.5 percent.

However, according to a report by PricewaterhouseCoopers (PWC) Nigeria, Nigeria’s daily output of milk per cow stands at one litre, compared to other African countries like Kenya and Uganda producing between 30 to 40 litres of milk per cow daily. PWC notes that Nigeria’s 0.6 million tonnes of milk production is the lowest in the world.

The report, which was authored by PwC’s team of seven experts, added that Nigeria’s annual production deficit of over one million tonnes of milk is being met by importation, which costs an average of $480.3 million, about N173.3 billion, annually. It attributed the country’s low milk production output to low yield.

PwC identified production as a key upgrade segment in the dairy value chain and suggested breed improvement as a strategy to increase dairy production. “The establishment of suitable grazing reserves, provision of extension services, and setting up milk collection centres, improved access to pasture and water will also enhance dairy production,” it added.

Experts say there are enormous opportunities for growth in the dairy value chain as the market has over the last ten years recorded increasing demand for higher quality dairy products such as evaporated milk, sachet powder milk, UHT, ice-cream, yoghurt, and butter. They also say that increasing consumer incomes, a growing middle-class and high population are indices that will aid growth in the value chain. Added to these is that there is also high urbanisation rate, which is expected to grow subsequently. The rebasing of Nigeria’s economy in 2014 also put Nigeria in good stead for investment having favourable returns on investment, analysts note. The commercial companies are rapidly innovating – and super/retail markets are rapidly expanding, providing market opportunities for dairy products. Additionally, hotels, restaurants, and shopping malls in major cities across the country are spurring further demands for dairy products, according to industry players.

 In response to changing consumption trends in urban centres, commercial processors are introducing numerous marketing and product innovations to attract new dairy consumers. Such innovation and dynamism in the Nigerian dairy industry include, introduction of flavoured milk based drinks with children as targets of this innovation; smaller packaging of milk-based drinks which has  price-sensitive consumers as target audience, small sachets for condensed/evaporated milk (targeting those using milk complements for tea, other beverages and foods. Increased visibility and widened distribution of smaller commercial players in certain dairy segments.

business a.m. found that imported milk powder is the dominant input into the dairy industry, accounting for over 75 percent of inputs. Nigerian dairy processors are known to import and repackage milk powders or to reconstitute imported milk powder into liquid milk and other dairy products. The use of imported milk powder is a growing practice also among most local yoghurt processors.

Experts are of the view that government’s use of monetary policy to indirectly discourage imports of powdered milk will enhance backward integration of dairy value chain. This effort will encourage the participation of large-scale commercial players in the dairy foods industry and create opportunities for partnerships.

Looking at how various products have performed, researchers at Euromonitor notes that cheese posted current value sales growth of seven percent (7%) in 2017, which was a marked improvement on the decline of 49 percent recorded the previous year. The category’s poor performance in 2016, which negatively skewed the current value compound average growth rate (CAGR) for the entire review period, was the result of economic stagnation and the steep price hikes that accompanied the sharp depreciation of the local currency. According to them, prior to this, the cheese had been expanding at a modest but steady pace in line with growing exposure to western food trends among Nigerians, rising disposable incomes and improvements in product distribution via both modern and traditional grocery retailers’ channels.

They note that Lactalis International remained the dominant player in cheese in Nigeria in 2017, claiming a retail value share of 100 percent with its Président brand. This brand benefits from strong recognition among consumers, thanks to its first mover advantage and wide distribution via key modern grocery retailers chains such as Shoprite and Spar.

According to researchers at Euromonitor, over the forecast period, cheese is expected to see retail value sales at a CAGR of two percent (2%). This would be a marked improvement on the negative constant value CAGR recorded during the review period, which was largely due to the impact of the economic crisis in 2016. They also hint that economic recovery will help to drive the development of the cheese towards 2022, as will growing exposure to western food trends among Nigerians, particularly middle-income consumers. Rising disposable incomes and improvements in distribution, via rapidly expanding modern grocery retailers’ chains, will also bolster the performance of the category.

Growth in drinking milk products current value sales in 2017 was up significantly on the previous year, and also slightly faster than the corresponding review period CAGR. The review period CAGR was negatively skewed by the category’s poor performance in 2016 when consumer spending power was weakened by economic stagnation and sharp price hikes arising from the depreciation of the Nigerian currency. In 2017, however, the category showed a markedly better performance, thanks to a nascent economic recovery, population growth and rising awareness of the nutritional benefits of drinking milk products, particularly for growing children and teenagers. The category’s performance was also lifted by innovation, with companies investing in new launches to meet consumer demands for products that combine novel flavours with nutritional benefits. At the same time, the increasing availability of smaller pack sizes helped to boost demand for drinking milk products among lower-income consumers who would have previously considered such products to be too expensive to buy on a regular basis.

 According to researchers at Euromonitor International, Promasidor Nigeria Ltd remained the leading player in drinking milk products in 2017 with an overall retail value sales share of 29 percent. Promasidor was the first company in Nigeria to introduce powder milk products in smaller pack sizes, which appeal to price-sensitive consumers and children of school age. Advertising and the sponsorship of school events have also helped the company to strengthen brand loyalty and widen its consumer base. Its Cowbell Chocolate brand is very popular among children, who constitute a large proportion of drinking milk products consumers in Nigeria.

Drinking milk products retail value sales at constant 2017 prices are expected to grow at a CAGR of five percent (5%) over the forecast period. This would be a marked improvement on the negative constant value CAGR recorded during the review period, which was mainly the result of the economic downturn in 2016. Economic recovery in Nigeria will bolster the category’s performance towards 2022, as will investment in the development of innovative new products and packaging formats by companies seeking to maintain and strengthen their value shares. The increasing popularity of flavoured milk drinks among Nigerians as a substitute for impulse product types like soft drinks will also support the positive development of drinking milk products as a whole.

The negative performance of yoghurt and sour milk products in 2016 was due to economic recession and the depreciation of the Nigerian currency, which resulted in higher import costs and price hikes. However, the category bounced back quite quickly in 2017, with economic recovery supporting robust growth in retail volume and current value sales. This was in keeping with the category’s review period performance prior to 2016, when it benefited from a growing trend of consumers switching from unbranded home-made yoghurt and sour milk products to packaged and branded alternatives. Local unpackaged yoghurt varieties such as “kunnu” are traditionally popular in Nigeria, and in recent years manufacturers have attempted to capitalise on this by offering consumers higher quality packaged and branded products with more novel flavours. Packaged drinking yoghurt products are typically positioned as filling and nutritious alternatives to soft drinks. Nigerians can now choose from an increasingly wide variety of drinking yoghurt brands for at-home and on-the-go consumption, and parents are becoming more aware of how such products can help to ensure a sufficient intake of essential nutrients that their children might not always get from drinking milk products.

Euromonitor analysts note that western-style spoonable yoghurt products are also gaining popularity, thanks to improvements in distribution via modern retail channels and the return of many Nigerians who developed a taste for such products while living abroad.

Market analysts say Chi Ltd remained the clear leader in yoghurt and sour milk products in 2017 with an overall retail value share of 43 percent. Its Hollandia brand is available in a broad range of pack sizes, and is more widely distributed than other drinking yoghurt brands thanks to the fact that Chi has a well-established network for the distribution of its bands. The company also provides strong advertising support for Hollandia, especially via electronic media and billboards. Advertising campaigns for the brand mainly target women, children and young adults.

Euromonitor expects yoghurt and sour milk products retail value sales at constant 2017 prices to grow at a CAGR of six percent (6%) over the forecast period. This would be a marked improvement on the review period constant value CAGR of one percent (1%), though it should be noted that the latter was skewed by unfavourable economic conditions over 2016-2017.  Economic recovery in Nigeria will bolster the development of the category towards 2022, as will growing consumer appreciation for the convenience, novel flavours and nutritional benefits of yoghurt and sour milk products, particularly those positioned as healthier alternatives to soft drinks, the analysts noted. They further noted that population growth in Nigeria will also help to drive demand for yoghurt and sour milk products over the forecast period.

The other dairy category has traditionally been dominated by condensed milk. Together with economic recovery, the enduring popularity of this product type among Nigerians ensured that the category developed positively in 2017 with current value sales growth of 10 percent. Strong advertising of leading brand Peak and increased marketing support for competing brands such as Hollandia also bolstered the category’s performance. However, the development of the other dairy category, specifically of condensed milk, was tempered somewhat by growing competition from powder milk, which offers greater convenience.

FrieslandCampina remained the clear leader in the other dairy category with an overall retail value share of 50 percent. According to Euromonitor, the company’s Peak was the most popular brand in condensed milk, benefiting from strong loyalty among consumers, thanks to its reputation for high quality. It also offered Three Crowns, the third leading condensed milk brand, at a lower price point. The company’s nationwide distribution network and aggressive marketing strategies also contributed to the overall lead in 2017.

Researchers at Euromonitor also project that other dairy retail value sales at constant 2017 prices are expected to grow at a CAGR of three percent (3%) over the forecast period, which would be a marked improvement on the corresponding negative CAGR recorded during the review period. Aside from economic recovery, this improvement, according to them, will be supported by population growth and the traditional popularity of condensed milk among Nigerians. The continued availability of smaller pack sizes aimed at low-income consumers will also bolster the development of the category, as will investment in marketing campaigns and the expansion of distribution networks by manufacturers. Per capita milk consumption in Nigeria is still relatively low, hence the category has significant room for further expansion, they note.