Thursday, 1st June 2023

How modern retail boom is stimulating economic growth

By Olawunmi Ojo
19 June 2022   |   4:11 am
Nine years ago, when a McKinsey report forecasted a $40 billion growth opportunity in Nigeria’s food and consumer goods sector, the general outlook was towards a boom that would benefit all stakeholders within the space.

One outlet of the growing chain of modern retail stores being run by an indigenous operator

Nine years ago, when a McKinsey report forecasted a $40 billion growth opportunity in Nigeria’s food and consumer goods sector, the general outlook was towards a boom that would benefit all stakeholders within the space.

Riding on the winds of a burgeoning middle class, an accelerated real GDP Compound Annual Growth Rate (CAGR) of 7 percent and rapid urbanization, the thinking, particularly within the still fragile formal retail sub-sector, was that the market was finally coming into its own and could now focus on the serious business of actualizing its potential.

Sadly, that didn’t happen.

What nobody had anticipated was a global economic recession and the COVID-19 pandemic that combined to plunge the national economy into two cycles of recession within six years. The events also claimed a number of stakeholders within the formal retail category, not the least of which was Shoprite, Africa’s largest supermarket chain brand, which sold off its Nigeria business to local investors. Other major transnational retailers such as Mr. Price, WoolWorth and Mass Market (owners of the Game brand of retail stores), also closed their Nigerian operations.

However, as the world recovers from the debilitating effects of the pandemic and the global economy continues on a path to recovery, there just might be reasons for optimism again. London-based research firm, Euromonitor, in its report, ‘Retailing in 2021: The Big Picture,’ stated that the Nigeria consumer goods segment grew by 9.3 percent to a six-year high of N9.76 trillion. Breaking down the figure, the report indicated that store-based retailing accounted for N9.58 trillion of the total while online trading was N178.2 billion. The 2021 Global Retail Development Index similarly reported a three percent increase in total retail sales valued at $108m. Back home, the official statistics agency, the National Bureau of Statistics (NBS), noted an 8.62 percent growth in trade in 2021, a rebound from a six-year slump.

The bottomline is that the forecast is looking good for Nigeria’s consumer goods sector and the much-anticipated growth may yet come to pass. Which begs the question: what will be the main drivers of the recovery?

Ade Sun-Basorun, Chief Executive Officer of FoodCo Nigeria, a leading omnichannel retailer, puts it down to two factors: a strong demand for modern retail and the adaptability of operators within the sector. “What we have is a situation whereby the consumer class is getting increasingly sophisticated in their demand for retail services in spite of the economic pressures. They seem to be putting their faith in modern retail because it delivers on the aspirational lifestyle they crave. While pricing remains integral in the modern retail matrix, other factors such as convenience, quality assurance, and product availability are also playing a key role in sustaining the sector.

“Credit should also go to operators within the space. The COVID-19 pandemic presented an unprecedented challenge, especially in the areas of supply chain disruptions so much so that the market was forced to either innovate or die. It motivated sector operators to dig deep to seek out cost-effective strategies and also forced us to rethink the art and science of digitising our operations in order to save cost and maximise scarce resources. For instance, FoodCo was already thinking around how to deepen our digitisation processes but COVID-19 forced us to accelerate those plans and the gamble paid off,” he said.

Sun-Basorun’s FoodCo is a clear example of the resilience of Nigeria’s modern retail. Established 40 years ago as a small fresh fruits and vegetables store, FoodCo is one of the pioneers of formal retail and quick service restaurants in the country. In May this year, the company was ranked among Africa’s fastest growing companies by the Financial Times; the only Nigerian company within the retail sector to make the list. Even amid the thick of the pandemic, the company pursued an ambitious trajectory, doubling its brand footprints in the process.

While FoodCo is one of the oldest operators within the space, it is leading a new era where indigenous regional stakeholders like Roban Stores, EveryDay, Market Square, San Husseini and Addide, among others, are rewriting the narrative of the country’s formal retail sector, which was hitherto dominated by foreign brands.

For Sun-Basorun, the good days for Nigeria’s formal retail ecosystem are only beginning. “We are confident and excited about the future of modern retail in Nigeria. While we realise that we are well behind some of our contemporaries on the continent, we are buoyed by the fact that there is a huge opportunity for us in the market. As long as we continue to connect with the consumer class at the point of their demand, we can reasonably expect aggressive growth in the sector,” he stated.

A 2018 report, The Dynamic Customer, estimates that there are as many as 53 million people within Nigeria’s consumer class who have the means to sustain the country’s consumer goods sector. Additionally, McKinsey’s Global Institute Report predicts an 82 percent growth in Africa’s household consumption from 2020 to 2025 to the tune of $2.3 billion. Nigeria, Africa’s largest economy, is expected to play a key role in achieving this growth with an estimated $96 billion spend, the highest on the continent. Food, beverages and other consumer goods are expected to lead the pack.

While the other sectors of Nigeria’s economy continue to grapple with the after effects of the economic downturn, the success story of the organised retail sector will illuminate their path to navigate these tricky periods.