Retail hotspots in Nigeria

Not everywhere in Nigeria commands the same level of retail activity, Obodo Ejiro examines the major retail markets in the country

The major beauty of retail in Nigeria is the share number of individuals a retailer can access and in most cases, at low costs.

Though some may argue that 60% of people living in Nigeria live on less than one dollar daily, it must be underscored that the remaining 40% is 14.9 million people more than South Africa’s total population.

That is the single factor that makes retail in Nigeria standout.

In recent times, more attention has turned on Nigeria’s retail capability and boom. What is even more interesting is that the boom cuts across not just groceries, but also electronics, personal care products and clothing.

It is exciting to note that in this economy; more than 850,000 new flat screen television sets were sold in 2013 alone, according to data provided by JFK, a global market research consultancy located in Nigeria.

According to GFK, “what is most remarkable is the preference for bigger screen sizes. Nearly 8 out of every 10 TVs being sold is 32 inches and above. This shows a remarkable shift from the previous CRT-TV models that were mostly 21 inches and below that were in most Nigerian homes”.

BusinessDay’s Research and Intelligence Unit (BRIU) estimates that at least N60bilion was spent on new televisions sets last year; this is apart from expenditure on phones, desktop computers, laptops, and other gadgets.

But this is just a segment of this epic tale of consumer resurgence. What is equally important, especially for retail trade investors, is the socio-geographic colouration of this trade.

Our report on the retail industry, which is presently available to the public, shows that there are retail hotspots in Nigeria.

We observe that what constitutes a hotspot is determined, firstly, by population density, then [more importantly] the purchasing power of the people. We note that not everywhere is the purchasing power the same, but in most cases the population numbers more than complement for the vagaries in purchasing power. Therefore, high population gives an indication of where the retail Naira really is.

Our estimates based on National Population Commission (NPC) figures show that Nigeria has nine cities whose population figures have hit the one million mark. The largest of these cities are Lagos city with a population of 10 million people, Kano with a population of 4.1 million people and Ibadan with population of 3.8 million people.

Cities like Kaduna, Port Harcourt and Benin City have population figures estimated at 1.8 million, and 1.3 million respectively. Aba, which is the least of the nine most populated cities, has a population of 1 million people.

The most attractive locations for new retail outlets are often the first tier cities of Lagos, Port Harcourt and Abuja, due to the sophistication of the population, the population density, ease of access to retail outlets, and superior infrastructure. But we note that second tier cities also hold opportunities that retailers cannot ignore, albeit, we believe that winning in these markets will be the result of carefully thought-out strategy.

Our finding is that one model does not fit all Nigeria’s mega retail markets. However, so far the markets have remained profitable, for those who understand it. Little wonder, retail investment inflows, which came into Nigeria in trickles, are now flooding the country. Between 2012 and 2013, Nigeria attracted over $1.3 billion worth of fresh retail sector investments. Investment has come in form of fund flows into new retail outlets construction/renovation, expansion of outlets, investment in trainings, etc.

The South Africans have had strong representation so far but that does not mean locals have not been aggressive too. Indigenous and small retailers like Addide, Best Choice, The Everyday Group (mostly present in Port Harcourt), Grocery Bazaar, just to mention a few, have made strategic strides. At present, Best Choice, operates about 118 stores in Lagos alone, while Addide, which began operations in 2008, now has 22 stores in Lagos.

Among “bigger” retailers, SPAR Hypermarket, which came into Nigeria in its present form in 2010,  is set to spread further across the country in the near future.  According to company sources, a number of new stores are in the works, and are in various stages of progress, from drawing board to brick and mortar.

Information provided by the company shows that, soon, places like Calabar, Uyo, Abeokuta and many more cities across Nigeria will start experiencing the services of SPAR in no distant time. Apart from new geographies, SPAR will strengthen its presence in Lagos, Port Harcourt and Abuja.

Also, Shoprite which opened its first Nigerian mega store in December 2005 now has seven retailer outlets. By year end 2014, it plans to bring its total number of outlets to 14. It plans to open seven new outlets; they are to be opened in Abuja, Anambra, Delta, Lagos and Oyo states (Some of the cities which we consider as power points in the battle for retail naira.).

 While these investments are apt, we believe that small retail store hold a formidable place in the future of retail in Nigeria. Often run as franchises, these stores like, Addide, The everyday group, Best Choice and Grocery Bazaar, have a way of drilling through to small localities. Like their foreign counterparts, more Nigerians are enchanted by these convenience stores (In America they are Called C-stores.) where they operate.

Retail in Nigeria has always been a mix of traditional open markets, semi formal market/traders or western style large shopping malls. However the old is giving way to the new as more individuals prefer modern retail outlets.

But there have been challenges to all the modernization going on. Perhaps the biggest obstacle facing retail in Nigeria is the absence a reliable, cheap distribution network. The cost of doing business also has negative impact on retail margins which are already very low.

Those who will perform well in this market are those who can identify where their niche market is, and develop the right model that achieves both low cost of doing business and profitability.