by Obodo Ejiro
Based
on data compiled by GFK, a global market research consultancy with office in
Lagos, 239,292 units of audio home theater systems were sold between January
and June 2014 in Nigeria. This figure supersedes the 180,391 units sold within
the same period last year.
In
the same vein, 44% more flat panel TV sets and 30% more smart phones were sold in
the first six months of this year, than within the same period last year.
This
trend in increased consumption plays out across several product lines and has
given the country the status of Africa’s retail Mecca. There is evidence that
more consumables, including toiletries, packaged food, and personal care
products are sold in Nigeria, than anywhere else on the continent and the
projections remain robust.
The
current state of the retail market and projections of its growth are responsible
for the optimism of global retailers who have pitched their tents in the
country.
Among other things, the average amount devoted to
consumption plays a major role in elevating Nigeria to the status of a retail
powerhouse. According to data provided by the National Bureau of Statistics
(NBS), the country’s over 28.9 million households expended circa N15.67
trillion on food in 2009/10 alone. By 2012, food worth N2.3 trillion was imported;
apart from other consumables used by thousands of households.
There is therefore research evidence that points
to the fact that Nigeria has capacity to support more malls across its major
cities. A Rand Merchant Bank report released two
weeks ago pointed to Nigeria, Egypt and Ethiopia as countries that offer “some
of the best opportunities for retailers looking to invest in Africa.”
Underscoring
the place of Nigeria on the continent, the report states that “with about 173
million people, Nigeria is Africa’s most populous nation and has the
continent’s biggest economy.” Also, McKinsey & Co. said in a July report
that “the West African nation [Nigeria] could be one of the world’s top 20
economies by 2030 with a consumer base exceeding the current populations of
France and Germany.”
But it
takes more than a cursory view to identify where the opportunities really are.
For instance, in 2008, Mr. Samuel Ejeh, fresh from business
school in the United States, ventured into retail. He established Grocery Bazaar in Akesan, a large
sleepy neighbourhood near the main campus of Lagos State University.
Today, Grocery Bazaar is one of the most
successful start-ups in local retail. “At the beginning I planned on starting
the business at Ilupeju, which is a more developed part of the city of Lagos,
but the rent was just too high, my research pointed to Akesan as an equally
exciting opportunity, and it worked”.
In its first month, the 650
square-meter store made about N15 million in revenues. Currently, another
branch has been opened, not too far from the first, while Mr. Ejeh
plans to expand operations to a third branch as soon as possible.
But not only indigenous retailers are taking
advantage of what Nigeria offers. Shoprite, the South African retailers, has
perhaps the most aggressive expansion footprint among foreign retailers. It has
already set up shop in the key cities of Kwara, Ibadan, Kano, Lagos etc. It
currently operates 11 mega stores, and plans to have outlets in all major
cities in the near future. Shopite plans to open another outlet in Warri later
this year or early 2015.
Some foreign retailers specialises on specific products.
An example is Cash ‘N’ Carry which is a major player in the electronics section
of the market. Cash ‘N’ Carry plans to extend operations to Apapa, Festac,
Lekki, Ajah, Abuja, Port Harcourt, Kano, Owerri, and Delta State. But these are
not the only major players.
Equally important are outlets like Best Choice
which currently has 260 small outlets, Addide with 23 outlets, Park ‘n’ Shop
with 8 outlets and the Everyday Supermarkets with 6. But these are just a few
of the many thriving retailers, which all have ambitious expansion plans.
Also equally growing is the ecommerce trend,
which is fashionable among the young and the middle class, such brands as Jumia
and Konga have make a reputation for themselves delivering services across
Nigeria.
The most successful outlets in Nigeria are those
that have identified their niche
markets and set up shop. In which case, Nigeria has over 10 cities which have
population figures in excess of one million people. The opportunity areas are
those that have high population densities as well as individuals who have high purchasing
power.
The first tier cities of Lagos, Abuja, Port
Harcourt, Ibadan, Kano, Warri, Benin, Illorin and Onitsha are such. They are
composed of a rising middle class whose lifestyle favours
western values. And with improvement in Nigeria’s economic fortunes,
projections for sustained consumption are ubiquitous.
Retail and the macroeconomic environment
Apart from militancy in Nigeria’s north-east, Nigeria’s
stable political and macroeconomic environment in the past decade has deepened
retail. Stability (and to an extent, democracy) has meant that investors are
more confident about Nigeria.
The economy has grown consistently, sometimes
surpassing projections. Real GDP growth rate was 6.21% in Q1 2014, higher than
4.45% in the corresponding period of 2013. In the past decade growth almost
averaged 6.8% annually. The economy has also fared well across some other parameters.
While similar economies on the continent have exhibited
negative vagaries in key macroeconomic indicators, Nigeria’s case has been different:
in part because of the stance the country’s central bank has maintained on
exchange rate and inflation.
A report by Renaissance Capital, a global
investment bank, states that, “since 2009, the Naira has depreciated by 9%
against the dollar while the Kenyan shilling fell 17%, South Africa’s Rand fell
45% while the Ghanaian Cedi lost 166%.”
On the inflation score, inflation in the country
fell from 14.3%, in January 2010, to 8.5% in August 2014 but the opposite was
the case for most of the country’s peers in Africa. In Ghana, inflation climbed
from 10% in January 2010 to 15.9% in August 2014, in Kenya it leaped from 4.5%
in January 2010, to 8.36% in August 2014. South Africa’s inflation numbers have
also headed north in recent times.
The challenges
Given
the development and opportunities in the sector, it still faces a number of
important challenges that have prevented it from attaining its potential.
Some of the
challenges emanate from government policy while others are imposed by market
mechanisms. On the government front, retailers face challenges from double taxation,
poor clearing practices and unnecessary delays at the ports, security
challenges at shopping centers and poor property right laws.
On the other hand,
there is a dearth in key employees that are trained to manage retail floor,
therefore retailers often have to train staff from the scratch. But perhaps the
biggest challenge is the high cost of mortgage for retail business.
Over the past ten
years, since more investment has flowed into retail in the country and more
players have joined the fray, there have been efforts to solve many of the
problems which ail retail.
Expectedly,
government related challenges have been more difficult to tackle because of stringent
bureaucratic processes. In reality, most thriving retailers have worked round
these problems and recorded tremendous success in spite.
According to a report
released by BusinessDay’s Research and Intelligence Unit (BRIU), “in the next
decade, it is expected that the retail industry in Nigeria will further
expand.” Already, the data corroborates this assertion, but those who will
succeed in the market are those who are resilient and quick at recognizing the
opportunity.
