Nigeria’s supermarkets thriving after Shoprite exit
Nigeria’s retail sector continues to demonstrate resilience following the exit of its largest operator Shoprite in April 2021. For example, local company Foodco is among the 75 fastest-growing companies in Africa as ranked by FT and African Business this month. Its supermarket chain is thriving outside the country’s main cities and the firm is pursuing new opportunities where operating costs are lower and demand is largely unmet. Even Shoprite’s new franchisee Ketron Investments closed a branch at the centre of Lagos in January while announcing plans to grow further outward. The trend illustrates how local companies here are driving expansion while adapting to changes in the economic climate.
Significance – Spreading out
Lagos and Abuja were the prime targets when formal retail took off in Nigeria around 2000-2005. Shoprite entered the market aiming to build the country’s first nationwide chain premised on strong economic growth forecasts. Wholesale and retail trade was growing at about 10% a year and high oil prices allowed authorities to stabilise policymaking. However, the climate deteriorated rapidly after oil prices collapsed in 2015 and policy shocks took effect under a new government. Inflation and currency depreciation weakened customer affordability while hiking operating costs for retailers.
Consequently, Shoprite reviewed its model and eventually sold the local business to Ketron led by Tayo Amusan. The market today remains fragmented with smaller supermarkets carving regional niches and targeting the growing middle-class on the outskirts of the top cities. Foodco in the SouthWest and Sundry Markets in the SouthEast of the country are useful examples of the regionalised approach.
Foodco owned by the Sun-Bashorun family has all of its 15 stores in the southwest, particularly in Ibadan, the capital of Oyo state, and one of the leading cities in the country per consumer spending (see the map adjacent). NB the company also opened its 14th store overall in Abeokuta, Ogun state last October. This positioning allows it to benefit from the cities’ proximity to Lagos while it maintains relatively lower operating costs. For example, it costs four times less to obtain construction permits in Abeokuta than in Lagos.[1] Similarly, Sundry Markets has 21 stores – most of them are situated in Port Harcourt and other cities that are in or near the oil-rich Niger Delta[2].
As stated, other local chains retain their focus on the metropoles of Lagos and Abuja but target the growing middle-class on their outskirts. Places like Alagbado in Lagos and Lokogoma in Abuja were previously unattractive to retail companies because they were remote, largely undeveloped and mostly occupied by the least affluent residents. But galloping rental and property prices in the cities have stimulated real estate development on the outskirts. An increasing number of people working in the cities are moving outward to areas where it is cheaper to build, buy or rent a home. As people with higher income levels have moved there, so have supermarkets.
To illustrate further, Shoprite had no major competitor within a 10-kilometre radius when it opened a branch in Ota (near Lagos) in 2016. It now competes with Justrite, Jendol and Grocery Bazaar in the area. And Prince Ebeano, a major supermarket in the affluent Lekki district of Lagos, opened a store in Abuja’s Lokogoma in 2019.
Outlook – Policy and market
Economic volatility did not disappear after 2015. Wholesale and retail trade grew by 8.62% in 2021 having shrunk by -8.49% the previous year due to COVID-19. This year, macro-pressures like double-digit inflation and preparations for February and March 2023 general elections present risk (see Nigeria 2023: electoral reforms and the political environment). Notwithstanding these uncertainties, the performance of the local chains highlight the long-term opportunity and point to routes for market entry.
—
We are an African-owned and managed firm delivering local knowledge supporting transformative and sustainable strategic decision-making over the past decade. Do get in touch if you require assistance: advisory@songhaiadvisory.com
—