P&G exiting Kenya and Nigeria market on dollar woes

Kenyan and Nigerian stores will soon experience absence of Procter & Gamble (P&G) products, as the American multinational embarks on a phased withdrawal.
In Kenya, P&G has set its sights on leaving Nairobi by June 2024, citing high cost of doing business, dollar shortages, and dip in sales.
P&G’s response to these challenges involves increased pricing as a strategy to mitigate currency impacts, but this has seen it lose market share to rivals.

The shelves of Kenyan and Nigerian stores will soon experience a noticeable absence of Procter & Gamble (P&G) products, as the American multinational consumer goods manufacturer embarks on a phased withdrawal from these markets.

The decision stems from the challenging macroeconomic and fiscal conditions prevailing in both countries. Specifically, in Kenya, P&G has set its sights on leaving Nairobi by June 2024, citing a confluence of factors such as the high cost of doing business, dollar shortages, and a significant downturn in sales.

Maudhui House, reports that P&G has already communicated its exit plans to workers, contractors, and government officials in Kenya, signaling a significant shift in the dynamics of East Africa’s largest economy.

“We first heard it as speculation, but now it has been confirmed; they have even informed the Ministry of Labour that the last month of operation will be in June 2024,” a source told Maudhui House.

P&G departure from Kenya, Nigeria and Argentina

This strategic move is expected to impact approximately 30 direct workers and contractors, underscoring the magnitude of P&G’s decision. Over the past few years, the company has implemented stringent cost-cutting measures in Kenya, eliminating between 30 to 40 roles as sales experienced a sharp decline, coupled with a simultaneous rise in production costs.

The impending departure of P&G from these markets not only reflects the company’s response to the economic challenges but also raises questions about the broader implications for the consumer goods sector in Kenya and Nigeria.

As P&G recalibrates its market presence, the vacuum it leaves behind may pave the way for shifts in market dynamics, potentially creating opportunities for local and international competitors.

The withdrawal serves as a stark reminder of the delicate balance multinational corporations navigate in emerging economies and the impact that broader economic conditions can have on their operational sustainability.

What’s more, Procter & Gamble recently announced its decision to pull out of the challenging market of Argentina. With the firm now pulling out of Kenya and Nigeria – Africa’s biggest economy, these decisions are attributed to the complex economic landscapes in these nations, characterized by factors such as high inflation, rising debt levels, and dollar shortages. The simultaneous withdrawal from Africa and South America highlights the profound impact of global economic conditions on the strategies of multinational corporations.

Exit shows nexus of global economic shifts and local consumer markets

For consumers in Kenya and Nigeria, P&G’s departure signifies the end of easy access to a range of familiar household brands, including Ariel detergent, Pampers diapers, and Gillette razors. The company’s products have long been staples in these markets, and their absence is expected to create a void, leading to increased competition among rivals and potential job losses.

This exit further underscores the intricate connections between global economic shifts and the local dynamics of consumer markets, where multinational corporations play a significant role.

P&G’s 2023 Annual Report reveals the extent of its global footprint, with over half of its sales generated outside the US market. Notably, China, the United Kingdom, Canada, Japan, and Germany collectively contribute to more than 20 per cent of the company’s net sales.

The report highlights the vulnerability of P&G to various global factors, including geopolitical tensions, government policies, foreign exchange fluctuations, and challenges arising from operating in politically and economically unstable environments. These risks, as outlined by the company, have the potential to impact net sales, operating margins, and overall financial performance.

In the context of Kenya, where P&G’s departure coincides with a challenging economic climate, a Central Bank of Kenya (CBK) survey in November on CEOs across different sectors has revealed a concerning trend.

More than half of the surveyed CEOs, including those in the manufacturing sector, reported a drop in sales over the preceding three months. The anticipation of limited recovery, even with the onset of the festive season, suggests a broader economic challenge that extends beyond the consumer goods industry.

Weakening of Kenya, Nigeria currencies against US Dollar

The past three years have seen P&G grappling with the impact of currency fluctuations, especially concerning the weakening of certain foreign currencies against the US dollar. This scenario has led to significant foreign exchange impacts, resulting in lower net sales, net earnings, and cash flows for the multinational corporation.

As P&G navigates the complex global economic landscape, its experiences shed light on the intricate interplay between macroeconomic factors and the operational challenges faced by multinational companies in diverse markets.

In its latest annual report, P&G candidly acknowledges the profound impact of currency fluctuations on the company’s financial performance. The report highlights that these fluctuations have significantly affected net sales, net earnings, and cash flows, and the potential for such impacts looms in the future.

P&G’s response to these challenges involves increased pricing as a strategy to mitigate currency impacts, but it also recognizes the potential negative consequences. The report notes that such pricing actions may offset parts of the currency impacts but could also adversely affect the consumption of their products, leading to negative repercussions on net sales, gross margin, operating margin, net earnings, and cash flows.

P&G’s efforts to manage costs prove futile

Despite P&G’s efforts to manage cost impacts through pricing actions and consistent productivity improvements, a market survey conducted in Kenya and cited by Maudhui House paints a different picture. The survey reveals that the US multinational has been losing its market share to competitors. Notably, the price of Pampers newborn size one, a signature product, surged by 16 per cent to $10.21 (Kes1,565) in August this year from $8.77 (Kes1,345) in August 2021. This increase coincided with P&G losing its market leadership to Softcare, a rival brand, in terms of sales volumes.

Softcare’s strategic approach, characterized by a more modest price increase of 4.3 per cent, has propelled the brand to control 33.1 per cent of the diapers market in Kenya, surpassing P&G’s Pampers, which now holds 28.1 percent.

Another competitor, Molfix, with a price hike of 7.1 per cent, secures the third position with 23.9 per cent of the market. Meanwhile, Huggies, also a direct competitor to Pampers, experienced a substantial sales plunge of almost half (13.9 per cent of the market) after raising prices by 27 per cent. Bouncy, with a remarkable 201 per cent price hike to $7.65 (Kes1,173), witnessed sales dropping by over 90 percent.

These market dynamics highlight the delicate balance multinational corporations such as P&G must strike in navigating currency fluctuations, pricing strategies, and consumer preferences.

The Kenyan market, as reflected in this survey, demonstrates how competitive forces and pricing decisions impact market share, emphasizing the need for companies to continually adapt to ever-evolving economic landscapes.