In a climate of escalating economic uncertainty, Nigerian businesses find themselves navigating a daunting challenge: surging inflation. Recent statistics reveal a concerning trend, with Nigeria’s annual inflation rate spiking to 22.79 percent in June, up from 22.41 percent the previous month, according to the National Bureau of Statistics (NBS). This upward trajectory, characterized by a 0.38 percent increase compared to May’s headline inflation rate, has far-reaching implications for the country’s business landscape.

As the inflation rate swells, the ripple effects become evident. Notably, the food inflation rate has surged to 25.25 percent in June, further amplifying the financial strain on both consumers and businesses. President Bola Tinubu’s decision to eliminate fuel subsidies has spurred a series of domino-like increases, causing transportation fares and the prices of goods and services to skyrocket by significant margins.

In this feature article, we delve into the innovative strategies Nigerian businesses are adopting to maneuver through these challenging times. By examining real-world examples and expert insights, we shed light on five effective approaches that entrepreneurs are embracing to weather the storm of surging inflation. Through prudent pricing models, technological integration, diversification, and a commitment to backward integration, these businesses are not just surviving but thriving, demonstrating their resilience and adaptability in the face of economic adversity.

1. Embracing Local Sourcing of Raw Materials

As foreign exchange scarcity exacerbates inflation, manufacturers are turning to local sourcing of raw materials. The Manufacturers Association of Nigeria reported that the utilisation of local raw materials in the manufacturing sector increased to an average of 52.8 percent in 2022, compared to 51.5 percent in the prior year. Manufacturers are compelled to shift inward due to forex challenges, despite the higher associated costs.

2. Diversifying Flavors to Attract Consumers

To appeal to Nigeria’s youthful demographic, Fast-Moving Consumer Goods (FMCG) companies are introducing a variety of flavors. Golden Penny Foods, a subsidiary of Flour Mills of Nigeria Plc, recently unveiled Golden Penny Jollof Hot Hot Noodles, while Dufil Prima Foods launched Indomie Jollof Chicken. This strategy aims to create consumer excitement and engagement, with Gbolahan Ologunro, portfolio manager at FBNQuest, emphasizing that new flavors entice consumers to explore novel tastes.

3. Adoption of Sachetisation or Smaller Packages

The practice of sachetisation, packaging consumer products in smaller units, is on the rise as businesses adapt to the inflation-driven reduction in consumer purchasing power. FMCG companies are repackaging their products into smaller units to make them more affordable. This approach allows consumers to purchase smaller quantities more frequently, providing a sense of control over their finances amidst inflation. Ignatius Akpabio, Chief Growth Officer at TradeDepot, noted that smaller package sizes offer better value for money and respond to consumer sensitivity to rising prices.

4. Strengthening Partnerships with Logistics Firms

To mitigate delivery costs, companies are increasingly outsourcing logistics rather than investing in vehicle maintenance. Partnerships with courier services like Jumia Food and SHiiP are becoming more prevalent. Flutterwave’s collaboration with SHiiP offers merchants a variety of domestic and international couriers, aiming to reduce transportation costs. Glovo, a major logistics player, has teamed up with local brands to facilitate efficient and cost-effective deliveries.

5. Prioritizing Financial Health

Inflation has heightened the emphasis on financial health for businesses. Uchenna Uzo of the Lagos Business School (LBS) emphasizes the need for alternative success metrics, scenario planning, and understanding evolving customer behaviors in the face of continuous inflation. The volatile economic landscape demands a holistic approach to financial well-being, moving beyond traditional profitability analyses.

As Nigerian businesses continue to grapple with surging inflation, these five strategies offer a glimpse into their adaptive resilience. The ever-changing economic environment calls for innovation, flexibility, and a willingness to embrace new approaches, ensuring that businesses not only survive but thrive in the midst of economic uncertainty.