When news broke last year that Shoprite, Africa’s largest food retailer, was selling its stake in Nigeria, the news sent shock waves across the country. The concern was not unfounded. Until then, the retail giant was seen as the poster child for modern retail and foreign direct investment in the country. And rightly too. The decision to end the 16-year romance that had largely sparked a rejuvenation of modern retail in Nigeria has been seen by industry analysts as an indicator of the sector’s dire straits.
At the time, Shoprite said the exit was “due to approaches from various investors and in line with our reassessment of the group’s operating model in Nigeria”. But industry analysts thought otherwise. According to them, Shoprite simply could not cope with Nigeria’s difficult operating environment and had to throw in the towel. And although Shoprite also cut its grip on some other African markets around the same time, its decision on Nigeria remained a headache given the country’s strategic position as Africa’s largest economy.
Interestingly, Shoprite’s exit from Nigeria is reminiscent of the exodus of other global retail players such as Mr. Price, Massmart, WoolWorth and Truworth, among others, from the country.
However, the latest outing and current trends suggest the sector may be ripe for a realignment, given the growing influence of a new generation of indigenous players. First, the South African owners of Shoprite Nigeria have since been replaced by a local company, Ketron Investment via a franchise agreement. Another all-indigenous brand, FoodCo, currently the country’s fastest growing supermarket chain, has doubled its brand footprint in the past three years. Despite the devastating effects of the COVID-19 pandemic on the industry, FoodCo maintained a growth trajectory, opening five outlets during the period.
However, challenges abound for the sector. The facade that Nigeria’s huge population, estimated at around 206 million, will forever remain an attraction for investors, has long faded. The World Bank estimates that about 89 million (43%) citizens live below the poverty line while 53 million (25%) are vulnerable. So, the real dilemma for operators is how to separate the addressable market from the population.
With dwindling disposable income and the huge burden of poverty weighing on the back of a depressed economy, the question is: where will the customers of modern retail come from?
Other challenges ranging from poor infrastructural support, supply chain disruptions and ubiquitous wet markets and open markets have combined to limit sector penetration to just five percent of the population or less.
Ade Sun-Basorun, CEO of FoodCo Nigeria Limited, has an optimistic view of the future. Speaking at a webinar hosted by the South Africa-Nigeria Chamber of Commerce, on the topic: Nigeria Consumer Market: Ready for Recovery?, Sun-Basorun, while acknowledging the low penetration of 0.12 % per 1 million people said there are unmet consumer needs that will unlock opportunities for accelerated growth in the sector. He insisted that the key lies in the growing influence of an increasingly sophisticated class of consumers who prefer the convenience, quality assurance and hygiene that modern retail offers.
“When comparing the formal retail segment in Nigeria to its peers in South Africa or Kenya, it can paint a bleak picture. On average, major Nigerian retailers have about 14 stores, while in Kenya, with a fraction of the Nigerian population, the industry leader has well over 60 hypermarkets. In South Africa, the leaders have between one and two thousand stores. Nevertheless, from what we see, there is a growing demand for modern retail in Nigeria which, if the operators in the sector pay attention to it, will allow it to grow. We are very optimistic about the outlook for the sector as based on the rate of adoption and the consumer matrix, we see that the Nigerian retail sector could see an unprecedented period of growth over the next couple of years. “, did he declare.
Sun-Basorun’s optimism is not misplaced. The 2018 report, Finding The Dynamic African Consumer, an in-depth research into the African consumer class, estimated that Nigeria could have up to 52 million people in this category who have the means and sophistication to patronize the trade. formal detail. Using the generally accepted classification to map the socio-economic segments of Nigeria, the report indicates that segments A and B have the means to regularly purchase high-end products, while C1 may not regularly indulge in purchases high-end, but their frequent purchases qualify them to be classified as target. Marlet.
In addition, recent analysis from the Mckinsey Global Institute aligns with the Finding The Dynamic African Consumer projection. According to the report, household consumption in Africa will increase from $1.9 trillion to $2.3 trillion between 2020 and 2025, with Nigeria accounting for the highest expenditure at $96 billion. All of this portends a favorable outlook for modern retail in the country and could form the basis on which local players are entering.
Unlike their affluent overseas counterparts with entrenched structures that may have made them inelastic to the fluid dynamics of a still developing market like Nigeria, what local operators lack in deep pockets they make up for in knowledge and agility local. Their main strategy also seems to be regional or local orientation, which helps to deepen their penetration and create affinities with local communities. While Lagos is the hub of modern retail in Nigeria, the sector is increasingly present in other cities with local operators driving growth.
Finding The Dynamic African Customer has identified 10 Nigerian cities among the top 50 urban consumer markets in Africa. For example, before expanding out of Oyo State to Lagos and Abeokuta, FoodCo was primarily identified as an “Ibadan” brand, developing a strong customer base that stretched back three generations of Ibadan families. Lesser-known brands like Everyday and Market Square, two retail chains with a combined brand footprint of 17 outlets spread across south-south and south-east Nigeria, fly the modern retail flag in both regions.
To the north, San Husseini, a large chain store, caters to the demand for modern retail with eight outlets spread across Gombe, Adamawa and Jalingo.
However, local players have their work cut out if they are to overcome the multiple challenges and bridge the gap that is preventing modern commerce from gaining momentum in the country. According to Sun-Basorun, FoodCo had to dig deep in order to cement its place as a key player in the industry.
He said: “We have had an interesting journey throughout our 39 years of existence and we continue to evolve and reinvent ourselves as market dynamics change. For us at FoodCo, we emphasize accessibility to quality products at affordable prices as well as convenience with excellent customer service. Additionally, we have been able to meet the needs of our customers through our growing stable of unique products some of which we stock and some of which we manufacture.
As local operators lead a resurgence, the next step for key stakeholders could be to build capacity and structures for a sustainable business model that will drive real growth for the industry. And it would be interesting to see the future of the sector with local players as the main drivers.
