Yale, Ok Foods, A&P lead Nigeria’s $617m biscuit market

Nigeria’s biscuit maker Yale Foods is leading the industry with a market share of 37 percent, according to a 2016 KPMG report.

The firm is trailed by OK Foods with 20 percent market share and A& P Foods, which occupies 14 percent of the market.

While Deli Foods has a market size of nine percent, Niger Biscuit comes next with a share of five percent. The ever-expanding Beloxxi Industries has a share of four percent.

“Annual production is estimated at 152,490 tonnes. The five major players control almost 90 percent of the market share, with small players making up the balance,” the report says.

Other players in the country share the rest 11 percent of the market.

The biscuit industry remains attractive to foreign players with a pan-African expansion strategy, with major deals completed in the segment in the last few years. Deals include the United Biscuits acquisition of A&P Foods in 2014, Olam acquisition of Titanium Holding Company SA (owners of OK Foods) in 2012 and Tiger Brands acquisition of Deli Foods in 2010.

“We expect the segment to remain attractive to both local and foreign investors, in view of the potential growth of 6 percent CAGR from 2015 to 2019,” says the report.

The report shows that operating margins in the industry remain thin, given the volume-driven nature of the business. Price elasticity of demand is also high, owing to the wide availability of substitute products, and aggressive competition among market participants.

“Hence, biscuit manufacturers are unable to pass on significant increases in cost of production to the final consumers,” states the report.

According to the KPMG report, infrastructure challenges, specifically power, Naira devaluation and the foreign exchange restrictions are negatively impacting the operations and squeezing the margins of companies in the segment.

“Prior to the introduction of new foreign exchange restrictions, hydrogenated vegetable fat, a key raw material in biscuit manufacturing, was sourced from overseas, primarily Indonesia. However, post-inclusion of the raw material on the foreign exchange import restriction list by the CBN, the product is now locally sourced. Based on our discussions with a key player, the cost of sourcing this key raw material locally is significantly higher than importation and of lower quality,” the report further shows.

Real Sector Watch found that competition is driving innovation in the industry as local firms compete with foreign brands which are sometimes cheaper and better packaged.

According to Euromonitor International, a research-based firm, Nigeria’s fast-growing biscuits market is benefiting from population growth and increased variety of biscuits which tend to be higher priced than previously, catering to a group of consumers whose incomes are growing.

In 2016, Beloxxi Industries attracted an $80 million investment from a consortium led by sub-Saharan Africa-focused 8 Miles.

ODINAKA ANUDU