Making sense of Nigeria’s retail and open market landscape

The word boring does not come to mind when you think of Nigeria. Nigeria is one of the fastest growing markets.  Beyond the perceived risk and all of the hype, the fact remains that it represents Africa’s largest market. Companies in wide selection of industries have been successful in the country. MTN, La Farge, Coca-Cola, PZ Cussons and Diageo come to mind. Egypt, with more than 80 million people, comes a distant second to Nigeria, which boasts a population of over 140 million people.  Whether you are searching for market entry or looking to expand your business in the country, there are a number of Route-to-Market issues to consider:

Fragmented outlet base – One of they key barriers for most consumer goods companies remains distribution. In Nigeria the outlet base is fragmented and modern trade is still in the early stages of development. Reaching large numbers of traditional outlets is a difficult and costly business.

From “Table Tops” to “Go Slow”— It is also important to understand Informal trade channels; “Table Tops” and “Go-Slow” channels are two examples.  “Table Tops” are tables, set-up as temporary sales points to sell a limited number of stock keeping units. Mobile phone operator MTN successfully targeted table tops as a channel to expand their distribution footprint. The “Go-Slow” channel or hawking channel sells various types of merchandise that is normally easy to carry. It has been successfully targeted by mobile phone operators and snack companies e.g. biscuits.

Shopping malls – There are two Class A malls in Lagos, providing a high quality shopping experience.  These malls are high traffic areas and meeting points. Malls are often visited by “window shoppers” and often used by companies for brand building opportunities. Beyond the mall, shopping complexes offer a more organized shopping experience than traditional trade channels.  Shopping complexes are found in fast growing areas, e.g. Lekki, and are organized along a strip, similar to strip malls found in the United States.

Modern trade – While investment in shopping malls has begun, few supermarkets have entered Nigeria, constrained by capital constraints and land use rules. A number of supermarket chains have entered Nigeria, notably Shoprite (South Africa), Spar (Netherlands with Nigerian partner) and Game (South African, Walmart acquired a majority stake in the parent company Massmart). Supermarkets are increasingly purchasing directly from product principals and importers. Beyond the international supermarket chains, local chains are growing fast and they vary in the degree of their modernity and category mix.

Open air markets –In many cases products flow from agents who sell directly to wholesalers or directly in open markets. In Nigeria open air markets (View pictures of Idumuto market) remain primary purchase channel for a number of product categories. An estimated 70 percent of all wholesalers and retailers are located in the traditional markets. Wholesalers sell to retailers in large quantities and at discounted prices. Small groceries often require an intermediary, such as wholesaler, to break bulk. For example, on a market visit to Kaduna, Nigeria, we identified the ability to break bulk as one of the key value drivers for smaller distributors or wholesalers. Nearly all importers have outlets or representative wholesalers in open markets.

Feeder markets – Some markets also act as feeder markets. The coverage of the feeder town depends on product category, price and availability. It is estimated that 60% of consumer goods products flow through markets in Lagos, Kano, Maiduguri and Onitsha. In Accra, Ghana, I met retailers selling satellite dishes purchased from markets in Lagos, which they profited on even after factoring in the bus fare to collect the dishes. However, the retail landscape is changing quickly and open markets are in decline for certain product categories.

Distribution models – The majority of international brand owners operating in Nigeria utilize third-party distribution networks (e.g. FMCL, Great Brands). A number of companies have developed direct distribution models or are actively managing their 3rd party distribution partners, e.g. Coca-Cola)-. Some companies, such as Coca-Cola, have also developed micro-distribution models (mini depots, push carts) to better service traditional trade channels (view picture of Coca-Cola distribution).

Finding the right partners – Finding the right partner can be a challenging undertaking. Few distributors handle the “last mile” of logistics and most distributor footprints are limited to wholesale and key account outlets. A number of companies have opted for multiple distribution networks focused on geographic areas and types of customers, as there are few distributors with a national footprint.

Nigeria is a fast changing environment, modern trade and retailing are expanding and middle class consumers shopping patterns are changing. What works today will likely not work tomorrow. Take time to understand culture issues and don’t assume anything.

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