Nigeria’s retail: Major successes, minor challenges

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.