WAMPCO ignites competition, acquires PZ’S Nutricima to ramp up production volume

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The Nigerian dairy industry has potential for growth which has not been realized. With an estimated population of 180 million, consuming about 1.3 billion tons of milk annually, this provides an opportunity for locally produced milk and diary products considering that about 60percent of diary products consumed are imported.

The recent announcement by PZ Cussons on the planned sale of its Nigerian dairy segment, Nutricima, to Frieslandcampina WAMCO Nigeria Plc, would change the market dynamics in the milk industry.

With this announcement, it brings to an end PZ Cussons foray into the diary market entered in 2005 through a joint venture with Glanbia Plc with an immediate goal to supply evaporated milk and milk powder in Nigeria. This joint venture was however short-lived as PZ Cussons in 3015 bought Glanbia’s 50 percent stake in Nutricima, for £21 million in cash, giving PZ Cussons full ownership and control.

Even though the partnership achieved few results such as the construction of a second facility for the manufacture of UHT products which was opened in 2009, Nutricima has also developed market leading consumer brands including Nunu, Olympic and Yo.

Sadly this has not impacted positively to

bottomline of PZ Cussons. It is however not surprising that the consumer goods company which recently celebrated its 120years in Nigeria decided to spinoff the unprofitable business due to intense competition in the milk industry.

In its profit warning issued in March 2018, the makers of Joy soap and morning fresh detergent noted that significant cost inflation in Nigeria kept discretionary income under pressure subduing milk sales in the country, hitting prices and margins.

“As a result the usual peak season has not occurred to the expected level with inventory levels in the trade remaining very high leading to intense competition, most noticeable in the milk category, which in return is resulting in lower volumes,prices and margins” the company said.

The Nigerian milk Indus is not new to rivalry and over the years, major players in that segment have made various value propositions for their brands, through campaigns and innovations in the bid to gain a market edge.

While some brands have survived this battle of the fittest, others, especially the reigning ones in the 70s have bitten the dust. Over time, the milk segment has witnessed an increase in the influx of different brands (foreign and local) jostling for a prime place in the consumer’s heart.

Since its Nigeria’s emergence from economic contraction in the second quarter in 2017, the purchasing power of consumers in the country have continued to plummet, largely due to double-digit inflation rate, worsened by sluggish economic growth.

The February inflation rate figures released by the Bureau of Statistics stood at 2.2percent, while GDP figures for the fourth quarter 2019 was 2.55percent.

This has forced consumers to adopt affordability as the key factor in consumption decisions, rather than brand names.

In recent times, the battle for market share in the milk segment has assumed a new dimension, as new smaller brands riding on the back of smaller packs in sachets and cheaper brands are challenging the big players for market share. The key weapon in this ‘war’ is affordability.

Major diary brands in Nigeria have also double down on their backward integration program following the apex bank’s restriction for foreign exchange to players who have made significant move in their locally sourced raw materials.

The increase activity in the segment has essentially been triggered by increasing demand for safe and affordable milk and dairy products in Nigeria, occasioned by improving living standards and growing enlightenment about the nutritional benefits of milk and dairy products to humans’ physical and mental wellbeing and growth.

Notable brands includes Peak milk, a product from the stables of Frieslandcampina WAMCO, Promasidor’s Loya and Cowbell milk, the first to challenge Peak’s dominance with the introduction of powdered milk in smaller sachets; Dano milk produced by Arla Foods, an international cooperative based in Århus, Denmark.

The acquisition by WAMPCO is expected to ramp up its production volume leveraging existing facilities of Nutricima. This move could prompt more mergers and acquisition in the diary industry as big players would be ready to cash in on smaller brands who are still struggling to find their feet in the market.