Afrinvest revises FMCG sector forecast upward, advocates for cost-efficiency strategies

Afrinvest, a leading investment and research firm in Nigeria, has upgraded its outlook on the Fast-Moving Consumer Goods (FMCG) sector, citing signs of resilience amid economic pressures and urging companies in the sector to prioritize cost optimisation strategies to sustain profitability.

The firm made this announcement in its latest sectoral review report, highlighting both emerging opportunities and persistent challenges facing FMCG companies in the country.

According to the report, the FMCG sector, which includes producers of food, beverages, personal care, and household items, is beginning to show early signs of recovery despite the headwinds of inflation, naira depreciation, and rising production costs. Afrinvest attributes this to adaptive strategies employed by leading players in the industry, including pricing adjustments, product size reductions (shrinkflation), local sourcing of raw materials, and innovative distribution models that have helped firms remain competitive.

The revised outlook reflects a more optimistic view of earnings performance across the sector in the second half of 2025. While the sector is not entirely out of the woods, Afrinvest notes that stabilising macroeconomic policies, gradual improvement in supply chains, and rising urban consumption are contributing to improved demand in key product categories such as packaged foods, personal hygiene products, and beverages.

Speaking on the findings, the Head of Research at Afrinvest, Abiodun Ajayi, stated that though margins remain under pressure, companies that can effectively manage their cost structures and build operational efficiency will have a better chance of thriving in the current environment.

“In the face of elevated input costs and logistical challenges, FMCG companies must go beyond survival mode,” Ajayi said. “What we are seeing is a shift from defensive strategies to more proactive measures that focus on optimising costs, embracing innovation, and deepening market penetration.”

The report also suggests that the weakening Naira, which has significantly increased the cost of imported inputs, has become a catalyst for increased localisation within the sector. Several companies are now investing more in domestic supply chains and local manufacturing capacities to hedge against forex volatility. This shift is helping to reduce exposure to currency shocks and also aligns with the Nigerian government’s push for economic diversification and local content development.

Afrinvest also highlighted that the Central Bank of Nigeria’s recent efforts to stabilise the foreign exchange market and curb inflation could create a more conducive environment for FMCG growth in the medium term. However, the firm cautioned that companies must remain agile, particularly as consumer purchasing power remains weak and competition continues to intensify.

In terms of performance, Afrinvest identified some leading players in the sector, such as Nestlé Nigeria, Unilever, and Cadbury, as examples of firms that have demonstrated resilience through strategic product pricing, cost-saving initiatives, and digital transformation. These companies, the report noted, have managed to grow revenues even in the face of falling volumes, indicating that pricing power and brand loyalty remain strong assets in the sector.

The firm also underscored the importance of technology and data analytics in the evolving FMCG landscape. With changing consumer behavior, accelerated by digital adoption and shifting income patterns, companies that can leverage data to understand market trends, optimise their supply chains, and personalize offerings are likely to gain a competitive edge.

Furthermore, Afrinvest’s analysis points to the rise of smaller, agile FMCG brands that are capitalising on niche markets, particularly in health and wellness, organic foods, and eco-friendly products. These startups, while still limited in scale, are gaining traction with younger consumers who demand authenticity, sustainability, and affordability.

Despite the more positive forecast, Afrinvest warned that macroeconomic uncertainties, including fuel subsidy removal impacts, high energy costs, and insecurity in key regions, continue to pose risks to sectoral stability. The firm recommends that FMCG players focus on energy efficiency, technology integration, and strategic partnerships as key drivers for sustainable growth.

Investors, according to the report, are beginning to show renewed interest in FMCG stocks, as valuation levels become more attractive and the sector begins to show signs of bottoming out. The improved outlook is expected to stimulate cautious optimism among stakeholders, particularly those seeking exposure to Nigeria’s growing population and expanding consumer base.

Afrinvest concluded its report by urging policy consistency and regulatory support to help unlock the full potential of the FMCG sector. The firm called on government agencies to improve the operating environment by investing in infrastructure, supporting SMEs in the value chain, and facilitating access to finance for local manufacturers.

In the coming quarters, the performance of the FMCG sector will likely depend on how well companies can adapt to cost pressures, deepen their local content strategies, and connect with consumers in an increasingly price-sensitive market. Afrinvest’s revised outlook serves as a timely reminder that resilience, innovation, and efficiency remain the cornerstones of sustainable growth in Nigeria’s consumer goods landscape.