Indigenous operators as drivers of resurgence in modern retail sector

When news broke last year that Shoprite, Africa’s largest grocery retailer, was selling off its stake in Nigeria, the announcement sent shock waves around the country. The anxiety was not unfounded. Until then, the retail giant was regarded as the poster boy for modern retail and Foreign Direct Investment into the country. And rightfully so too. The decision to halt the 16-year romance that had largely sparked a rejuvenation in modern retail business in Nigeria was perceived, by industry analysts, to be a pointer to the dire state of affairs within the sector.

At the time, Shoprite had said the exit was “due to approaches from various investors and in line with our re-evaluation of the group’s operating model in Nigeria.” But sector analysts thought otherwise. According to them, Shoprite simply could not cope with Nigeria’s tough operating environment and had to throw in the towel. And though Shoprite also pulled the plug on some other African markets around the same period, its decision on Nigeria remained a puzzle given the country’s strategic position as the largest economy in Africa.

Interestingly, Shoprite’s exit from Nigeria brings to mind the exodus of other global retail players such as Mr. Price, Massmart, WoolWorth and Truworth, among others, from the country.

However, the latest exit and current trends suggest the sector may be set for a realignment, given the growing influence of a new crop of indigenous players. First, the South African owners of Shoprite Nigeria have since been replaced by a local firm, Ketron Investment via franchise agreement. Another wholly indigenous brand, FoodCo, presently the fastest-growing supermarket chain in the country, doubled its brand footprints within the last three years. Despite the devastating effects of the COVID-19 pandemic on the sector, FoodCo maintained a growth trajectory, opening five outlets during the period.

Still, challenges abound for the sector. The façade that Nigeria’s humongous population, estimated at about 206 million, will forever remain an attraction to investors has long worn off. The World Bank estimates that about 89 million (43 percent) of citizens live below the poverty line while another 53 million (25 percent) are vulnerable. Thus, the real dilemma for operators is figuring out how to sieve the addressable market from the population.

With shrinking disposable income and a huge poverty burden riding on the back of a depressed economy, the looming question is: where will the customers for modern retail come from?

Other challenges ranging from poor infrastructural support, disruptions to supply chains and the ubiquitous wet markets and open markets have combined to limit the penetration of the sector to a mere five percent of the population or less.

Ade Sun-Basorun, Chief Executive Officer of FoodCo Nigeria Limited, holds an optimistic view of the future. Speaking at a webinar organised by the South Africa-Nigeria Business Chamber, themed: Nigeria’s Consumer Market: Ready For Recovery?, Sun-Basorun, while acknowledging the low penetration of 0.12 percent per 1 million people, stated that 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 consumer class who prefer the convenience, quality assurance and hygiene that modern retail offers.

“When one compares the formal retail segment in Nigeria to its peers in South Africa or Kenya, it could paint a gloomy picture. On the average, the top retailers in Nigeria have about 14 stores, while in Kenya, with a fraction of Nigeria’s population, the industry leader has well over 60 hyper markets. In South Africa, the leaders have a store count of between one and two thousand. Nevertheless, from what we are witnessing, there is growing demand for modern retail in Nigeria which, if industry operators pay attention, will enable scale for it. We are very bullish about the prospects in the sector because from the adoption rate and consumer matrix, we are seeing, the Nigerian retail sector could be set for an unprecedented period of growth over the next couple of years,” he said.

Sun-Basorun’s optimism is not misplaced. The 2018 report, Finding The Dynamic African Consumer, an extensive research into Africa’s consumer class, estimated that Nigeria could have up to 52 million people within the category who have the means and sophistication to patronise formal retail. Using the generally accepted classification to map Nigeria’s social economic segments, the report stated that segments A and B have the means to purchase premium products regularly while C1 may not indulge in premium purchases regularly, yet their frequent purchases qualify them to be categorised as a target market.

Also, a recent Mckinsey Global Institute analysis aligned with the Finding The Dynamic African Consumer’s projection. According to the report, household consumption in Africa will rise from $1.9 trillion to $2.3 trillion from 2020 to 2025 with Nigeria accounting for the highest spend at $96 billion. All these portend a favourable outlook for modern retail in the country and could be the basis for which the local players are making in-roads.

Unlike their moneyed foreign counterparts with concretised structures that may have caused them to become inelastic to the fluid dynamics of a yet developing market like Nigeria, what the indigenous operators lack in deep pockets, they make up for in local knowledge and nimbleness. Their major strategy also appears to be the regional or local focus, which helps deepen their penetration and build affinity with local communities. While Lagos is the hub of modern retail in Nigeria, the sector has growing presence in other cities with indigenous operators driving the growth.

The Finding The Dynamic African Customer identified 10 Nigerian cities among the Top 50 urban consumer markets in Africa. For instance, before branching outside Oyo State into Lagos and Abeokuta, FoodCo was predominanty identified as an ‘Ibadan’ brand, growing a strong customer base that stretched back three generation of Ibadan families. Lesser-known brands like Everyday and Market square, two retail chains with a combined brand footprints of 17 outlets spread across South-South and South-East Nigeria are flying the flag of modern retail in both regions.

Up North, San Husseini, a major retail chain is responding to the demand for modern retail with eight outlets spread across Gombe, Adamawa and Jalingo.

However, the local players have their work cut out for them if they are to surmount the multiple challenges and bridge the gap preventing modern retail from achieving scale in the country. According to Sun-Basorun, FoodCo has had to dig deep in order to cement its place as a key player in the sector.

He said: “We have had an interesting journey throughout the 39 years of our existence and we continue to evolve and reinvent ourselves as the market dynamics changes. For us at FoodCo, our emphasis is on ensuring accessibility to quality products at affordable prices as well as delivering convenience with a cheery of excellent customer service. Also, we have been able to meet our customers’ needs through our growing stable of unique products some of which we stock and others we manufacture.”

With indigenous operators leading a resurgence, the next step for key stakeholders may 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 behold the future of the sector with indigenous players as major drivers.