Applying Indian FMCG Lessons in Nigeria Page 1

Applying Indian FMCG Lessons in Nigeria

Sunil Kumar Singh, PGP 2009-11, Indian Institute of Management Bangalore

Introduction

Indian market, especially the rural market has presented many challenges to firms trying to make inroads there. Besides systemic deficiencies, issues like scattered populace, cultural differences further compounded the challenges. At a time when the potential of rural markets are the cornerstone of all major firms, it makes sense to take stalk of how these firms have overcome some of these hurdles in the past. While doing such evaluation, it makes sense to check universal applicability of these lessons. To explore this theme, we turn to Nigeria for such an evaluation.

A recent Citigroup report pips Nigeria to become world’s sixth largest economy by 2050, in PPP terms. It is expected to reach a GDP of $9.51 trillion. The main reasons cited for this bullish expectation are improvement in policy environment, better governance and prudent management of oil revenues1.

Nigeria is poised to grow at a CAGR of 6.9% for the next 40 years, one of the highest rates of growth, surpassing even India and China. This makes it a very lucrative investment destination. The increase in disposable income makes it especially attractive for FMCG firms, as brand proliferation and product depth can be increased in such an economy. Also, Nigerians are a brand loyal consumer segment which translates to better return on corporate spending on products and marketing efforts, provided these efforts are geared towards meeting the needs of the market. At present though, the country still has a long way to go forward especially in terms of infrastructure development. Though FMCG firms are present in Nigeria, their reach and product portfolio is still not adequate.

FMCG firms in India had faced similar situations in India before. Instead of letting go, they devised innovation strategies on all fronts. Creation of sachets for greater affordability to devising new cost effective promotion strategies; by innovating at all parts of the value chain , Indian FMCG firms overcame these hurdles and posted a robust year-on-year growth.

In this paper, we try to apply the lessons learnt from the Indian FMCG firms to Nigeria. To set the context, we first do a comparative study of India and Nigeria on the macroeconomic parameters. The next step is identifying these innovations in the Indian context itself. Three distinct features are studied: How to enter a highly competitive space, Innovative Promotion strategies and Innovative Product Strategies. Each concept’s applicability to Nigeria is then evaluated.

Nigeria: An Introduction

Nigeria is the most populous country in Africa, with a population of more than 150 million (as of year 2010). It is also one of the largest oil producing countries of the world. Though Nigeria became a free nation in 1960, democracy has embarked in Nigeria only since 2003 being ruled mostly by military rulers. It maintains a status of federal republic. Government is marred by prevalent corruption and low

1 http://www.rediff.com/business/slide-show/slide-show-1-budget-2011-why-india-will-be-the-number-1-economy-in-the-

world-by-2050/20110224.htm This paper is based on an academic term paper “Applying Indian FMCG Lessons in Nigeria” written by Rahul Pramanick , Marianna Laensitalo, Sawan Kumar, Sumit Kumar and Sunil Kumar Singh (for the course Engaging with Africa) under the guidance of Prof. Hema Swaminathan

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effectiveness. Transparency International ranks Nigeria as one of the most corrupt nations in the world (142nd out of 163).

Figure 1: Nigeria - PEST Analysis

As a country, Nigeria is very diverse with many ethnicities (>250) and languages. Nigeria is dominated Muslims, Christians and indigenous tribes. Religious tension between Muslim dominated northern Nigeria and Christian dominated southern Nigeria is not very uncommon. Every few km, ethnicity and language change. Nigerians love movies and football. After Bollywood, Nollywood (Film industry of Nigeria) produces largest number of movies in the world however is severely affected by rampant piracy. Nigerian Football team ranks among top 40 teams worldwide and 3rd in Africa according to latest FIFA ranking.

Nigerian economy is growing rapidly however much of growth is fuelled by rising oil prices. Oil exports contribute a significant proportion of Nigeria GDP. Most of wealth generated by oil industry is controlled by a handful of people and it is not tricked down to the lowest strata of the society (indicated by high Gini coefficient). High inflation and high unemployment rate mars the economy. Lack of robust banking institutions (recently run on bank was observed) as well as standard practices of credit rationing (family relationship and tribes are considered as criteria for risk assessment) further hurts the economy. Import of critical inputs to the system puts pressure of foreign reserve of the country. A large part of population (>55%) still has to live under $1 per day.

Government has taken several initiatives to improve level of education and increase research and development activities in the country. Though internet penetration is quite low, mobile penetration is quite high (48%).

Political

•Nascent democracy, since 2003

•Federal republic – President both head of state & government

•36 states dived into 774 LGAs

•High level of corruption, government effectiveness is low

Social

•3 major groups – Muslims (50%), Christians (40%), Indigenous tribe (10%);

•Religious tension between the Muslims & the Christians

•People love watching movies (Nollywood makes the 2nd largest number of movies after

Bollywood)

Economic

•High economic growth rate, but highly volatile due to dependence on commodities

•High unemployment & inflation rates

• Interest rates are very high – affects businesses adversely

• Imports most of its food items, so high world food prices affect the economy

•55% of population live under a $1 a day

Technological

•Spends 0.05 - 0.1% of GDP on R&D per year

•60 Universities and colleges

• Internet penetration is low (less than 10%), but increasing rapidly

•Government is encouraging R&D and has increased its focus towards scientific

innovations

Nigeria

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Comparative Analysis of Nigeria with India

There are a many similarities between India and Nigeria in terms of demographics, religious and cultural diversity and fast economic growth. What Nigeria is going through today (economically and politically), India has gone through the same phase 20 years before. So, in terms of the economy, Nigeria is very similar to India after liberalization (high economic growth, high levels of poverty, less developed markets, high tariffs etc.). The tables below give the comparison between India and Nigeria in both economic and non-economic terms.

Parameter Nigeria India

GDP (USD bn) 214 1,367

GDP per Capita (USD) 1,405 1,124

GDP Real Growth Rate 6.8% 8.3%

GDP - Composition by sector

Agriculture 31.9% 16.1%

Industry 32.9% 28.6%

Services 35.2% 55.3%

Labour Force - by occupation

Agriculture 70% 52%

Industry 10% 14%

Services 20% 34%

Unemployment rate 4.9% 10.8%

Inflation 13.9% 11.7%

Exports (USD bn) 76 201

Investments (gross fixed) - % of GDP 11.6% 32.0%

Table 1: Economic Comparison between India and Nigeria

Nigeria is also witnessing high growth rate but experiencing high inflation rate just like India and has a comparable GDP per capita to India. And like India, large population of Nigeria is involved into agriculture (70%).

Parameter Nigeria India

Area (million sq. km) 0.92 3.29

Coastline (km) 853 7,000

Population (millions) 155 1192

0-14 years 42% 31%

15-64 years 56% 64%

65 years and over 3% 5%

Median Age (years) 19.1 25.9

Population Growth Rate 2% 1%

Urban Population - % of total population 48% 29%

Rate of urbanization 3.8% 2.4%

Gini Coefficient 43.7 36.8

Sex Ratio - male(s)/female 1.06 1.12

Literacy Rate 68% 61%

Male 76% 73%

Female 61% 48%

TV Penetration

Mobile + Telephone 48% 59%

Internet Users 28% 5%

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Railways (km) 3,505 64,015

Roadways (km) 1,93,200 33,20,410

Table 2: Non-Economic Comparison between India and Nigeria

Nigeria population is very young with median age of just 19 years. Notable difference between India and Nigeria is that in the age group 0-14 years, population is Nigeria is much higher than India. In 2030, Nigeria is going to have a very young population. Literacy rate is comparable to India. However, in terms of rail and road infrastructure, India is much ahead of Nigeria.

FMCG Market in Nigeria

An overview of the FMCG market in Nigeria is captured in Figure 2: FMCG Market in Nigeria. The sector is growing at a very healthy CAGR of 15%, though the current size is relatively small. Currently global firms dominate the sector but their product line and depth in Nigeria is also limited. One important thing to note is the North vs. South divide. South Nigeria is better-off on all economic indicators compared to North Nigeria. There are both economic as well as historical reasons for this divide. The difference in economic levels also leads to difference in spending and consumption patterns.

Figure 2: FMCG Market in Nigeria

FMCG market in India: Lessons for Nigeria

Many of the challenges faced by FMCG companies in Nigeria were also faced by FMCG companies in India. Infrastructure, though getting more and more investment from government and private player, is still poor and is marred by lack of regular electricity supply, poor road network. Diversity level in Nigeria is similar to that in India with numerous castes, languages and they all have different tastes and preferences in terms of consumption pattern. Poverty level is quite high in India with GDP per capita around $1100 and a

Growing Market

•Growing at CAGR of 15%

•Market Size relatively small ($887 m)

•Rising disposable income and middle class

•Very young population (Avg. age 19 yrs.)

•Demographic dividend (high population in 0-14 years age bracket)

Consumers

•Brand Loyalty

•West is Best – Quality is important

•Major purchasing decisions of household goods with females

•Youth dictates purchase decisions in few items

•Diversity -North vs. South divide

Firms

•Dominated by global majors – P&G, Nestle, Unilever, GSK

•Product lines limited in terms of both width and depth

•Promotion focuses on sports and entertainment

Issues

•Marred by poor infrastructure – electricity, transport network

•Raw material not available in the local market – have to be imported (70%)

•Import duty high on finished goods

•Low penetration of organized retail

FMCG - Nigeria

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significant population living below poverty line. Reaching to the masses, especially in rural areas and enticing the poor population to use product remained the biggest challenge to FMCG firms in India.

To address the underlying problems, FMCG firms in India responded with several innovative approaches. Products of different quality and quantity were launched to satiate the tastes and preferences of various segments of consumers. Some companies realized that people always do not want the best quality and want something which is just good enough at an affordable price. Introducing recyclable packaging reduces the overall cost of the product by reducing the packaging cost. A single product can be put to different uses such as coconut oil which is used differently in North and South India. Amul is an example of a co-operative movement which created supply chain from scratch.

How to enter a highly competitive FMCG market: Lessons from Nirma

Nirma is one of the most successful Indian FMCG brands today and rewrote the rules in marketing to win the heart of the consumer. This example provides different lessons for companies, how to enter the highly competitive FMCG market.

Nirma was established in 1969 and today has an annual turnover of over Rs. 2,500 crores. In India, Nirma is the largest detergent and the second largest toilet soap brand with a market share of 38% and 20%. The success of Nirma is especially visible in the fact that in 2004 the company sold one of the world’s largest volumes (800,000 tonnes) of washing powder under a single brand.

In the 1960s and 70s the domestic detergent market had only very few players who offered products in the premium segment, this is when Nirma aptly concentrated all its efforts towards building and creating a strong consumer preference towards its ‘value-for-money’ products. The company captured the market share by offering value-based marketing mix of the four P’s, perfect match of product, price, placement and promotion. It has been persistent effort of Nirma to make sure finest consumer products are available to the mass at an affordable price. Nirma has gone for massive backward integration and has a distinct market vision and robust infrastructure which enables Nirma to pursue a cost leadership strategy. Furthermore a lean distribution network and low profile media promotions allow it to offer quality products, at affordable prices2.

All these lessons from Nirma entering the Indian market can be applied when entering the Nigerian market because of the high similarity of the counties, the FMCG market and the very diverse consumer tastes.

Innovative Promotion Strategies

To tap the scattered populace of Rural India, firms have adopted many innovative marketing strategies. Some of these concepts are listed in the table below:

Concept Idea

Mandi (Village Fairs)

In India, the rural population is widely dispersed in the villages with poor road connectivity and infrastructure. The problem for FMCG marketers was to reach these rural customers at one location.

To reach the rural population at one location the FMCG companies targeted village fairs where rural population meet every week to buy and sell things. Point of purchase becomes quite important here & marketers convince people to buy their products.

Sports India has vast cultural differences and appealing to such a diverse set of people and promoting to them is a problem for FMCG companies.

Cricket is one sport which binds the country together. Almost every Indian is passionate about cricket. Even in villages, people listen to radio to keep them updated about

2 Source: Company Website – Nirma

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cricket. Associating to cricket stars thus became a common route for promotion.

Self-help groups

Establishing an effective distribution in rural areas was a problem. Also, rural households are less exposed to media so it is difficult to educate them about new products. Also, rural women may not be comfortable to being educated about products like sanitary napkins in public.

Project Shakti3 was launched by HUL to create self-empowered rural women entrepreneurs. These women were given a small start-up capital and were used as medium to sell FMCG products in their area. P&G uses such self- help groups to create awareness of using sanitary napkins rather than unhygienic clothes.

Village Elders

Customer relationship management in rural areas.

Rural Relations4 is a company started about 15 years ago. Today it covers about 5,000 villages in 8 states providing important data about rural villages to FMCG giants such as HUL and P&G.

Music/Folk shows

Promotion to the rural customers while at the same time appealing to their local taste.

Music/folk shows serve as an ideal medium for FMCG companies to promote their products. Bollywood is equally popular amongst the masses. During movie intervals, products were advertised and rural people were convinced to buy product.

Mobile Phones

Promoting through a medium which has wide penetration

Indian mobile tele-density is 59% with rural tele-density of about 25%5. So, mobiles serve as major medium for promotion. Already firms like Rural Barometer are using this channel to penetrate the rural population.

Table 3: Innovative Promotion Strategies

These ideas do find application in Nigeria as well, showing that the innovative marketing strategies adopted by the Indian firms are applicable in the Nigerian context, though with small changes based on the local context. While the sports concept can be applied in Nigeria but with football as the target sport, the use of mobile phones for effective and low cost marketing campaigns is also an attractive proposition. Mobile marketing gains more importance because this medium is being effectively utilised for initiatives like mpesa6.

Idea Applicability (In Nigeria)

Mandi (Village Fairs) Such an idea can be applied to rural markets of Nigeria if there exists a mandi or village fair gathering happening every week or at periodic intervals

3 http://www.unilever.com/sustainability/casestudies/economic-development/creating-rural-entrepreneurs.aspx

4 http://www.ruralrelations.com/

5 http://www.trai.gov.in/annualreport/AnnualReport_09_10English.pdf

6 http://www.telecomcircle.com/2010/01/m-pesa/

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Sports Similar to cricket in India, football is extremely popular in Nigeria. Thus FMCG companies can use the football stars to promote their product. Many companies are already using this channel.

Self-help groups Such a business model can be easily applied to Nigerian markets as it creates an incentive for rural women to play a role in the promotion of FMCG products.

Village Elders In Nigeria also, villages have tribal heads/chiefs that have considerable influence over the people. So, this idea can be directly applied there.

Music/Folk shows People in Nigeria are also fond of music and movies. Thus this idea has great applicability in Nigeria as well.

Mobile Phones Similar to India, Nigeria has also high tele-density of 48%7 which presents an attractive means to promote to the masses.

Table 4 Applicability of Marketing Innovations

Innovative Product Strategies

Besides creating innovative marketing strategies to extend the reach of their products, firms also modified their products so that they could better address customer’s needs. Two such concepts are shown in the table below:

Concept Idea

Nano-Marketing Rural customers have lower income compared to the urban population, and as such find it difficult to afford the products designed for the urban consumer.

Miniaturization in the form of sachets, costly products became easily affordable for the poor and especially for the rural masses. Sachets of detergents, shampoos, small portion sized biscuits, curd, milk, and even 200 ml coke were some of the innovations that helped companies like Coca Cola and Pepsi to expand their customer base in India.

Price vs. Quality A higher quality means a higher price for the consumer, which makes it unaffordable to lower segment of the society.

There is always a trade-off between price and quality. A large customer group can be tapped by launching products at low price point.

Table 5: Innovation Product Strategies

These ideas have applicability in Nigeria as well. Nano-marketing is already being employed for dairy products8. This concept can easily be applied to other products as is done in India. Nirma had

7 CIA Factbook

8 http://www.frieslandcampina.com/english/news-and-press/news/corporate-news/2010-05-06-innovation-

award-for-milk-in-sachets.aspx

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understood the Price vs. Quality trade-off and used it to build one of the largest Indian detergent brands.

Idea Applicability (In Nigeria)

Nano-Marketing The idea can be easily replicated to the Nigerian market as large population of Nigeria lives below poverty line.

Price vs. Quality The exploitation of price and quality trade-off is clearly applicable to Nigeria.

Table 6 Applicability of Product Innovation Strategies

Conclusion

The lessons learnt on the erstwhile dusty roads of Rural India do have global relevance and impact. The applicability of the methods adopted by Indian FMCG firms to Nigerian markets shows that these methods can be used in other markets as well. Besides the MNCs which would copy these best practises across borders, it also creates new avenues for Indian entrepreneurs. Firms like Rural Relation for effective targeting should have good reception in Nigeria. Indian software firms can create software for hosting and running a mobile advertising campaign.