Investment in food drives retail rebound
The flurry of new investments into the food market since last year is giving Nigeria’s struggling retail sector a new lease of life after a four-year lull in growth, BusinessDay’s analysis shows.
In October, Africa Capital Alliance (ACA), a pan-African alternative investment firm focused on managing investments across sub-Saharan Africa, with $1.2 billion assets under management, acquired a 31 percent stake in Food Concepts.
Food Concepts is the leading Quick Service Restaurant (QSR) operator in West Africa. The business is focused on the mass market and operates three of the fastest-growing brands, Chicken Republic, PieXpress, and Chop Box across 25 Nigerian states, as well as in Ghana, and an online delivery business growing at over 140 percent year-on-year.
This was followed by Burger King, the world’s second-biggest burger chain, berthing in Nigeria in November 2021. It has since set up two outlets in Lagos and is expected to expand further.
In November, Flour Mills of Nigeria (FMN) and Honeywell Group signed a merger and acquisition deal valued at N80 billion.
Recently, BUA Foods listed its 18 billion shares by introduction on the Nigerian Exchange Limited (NGX).
Analysts say these deals can lift the sector “As a result, niche segments like fast foods aim to take advantage of economic recovery, steady adoption of a westernised lifestyle and the rising urbanisation rate to tap into the middle and high-income groups,” notes Christele Chokossa, a consultant at Euromonitor International.
Harping on the importance of the food market, Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School, says it has become a linchpin for innovation.
“We have seen people designing platforms, especially in the tech and the e-commerce areas that are now making it possible to scale food delivery and service concepts faster than before,” Uzo notes.
The resilience of Nigerian businesses has shone through the economic recessions, a challenging business environment, and the coronavirus pandemic.
“However, from a business perspective, the challenging operating environment has benefited those involved in local sourcing and production since it allowed them to mitigate additional expenses, like rising import costs while providing more competitive prices,” Chokossa states.
Within the retail space, food retailing holds key to quick growth. The World Trade Organisation (WTO) ranks Nigeria as the largest food market in Africa, with significant investment in the local industry and a high level of imports.
The food and beverage sector is estimated to contribute 22.5 percent of the manufacturing industry value, and 4.6 percent of the country’s GDP. The combined value of food and drinks is estimated at N16 trillion, according to data from Euromonitor International.
Nigeria’s young population represents a promise for the food market and the retail sector in general.
“An emerging urban middle-class is accelerating demands on the retail sector—online and in-store—prioritising realigning assortment and omni-channel strategies,” note analysts at Kearney, a global management consultancy firm.
It gets better – the World Bank predicts that 74 percent of youth population (18-23yrs) growth will be in Nigeria and nine other countries by 2035.
Antoine Zammarieh, the managing director of Allied Food and Confectionery Services Limited says Nigeria with 210 million people, 60 percent of whom are youth, is a good market.
“You cannot say that this is not a good market, especially for this kind of business,” he states.
But the Nigerian market has not always lived up to its promise. In 2013, Mckinsey & Company projected a $40 billion growth opportunity in food and consumer goods between 2008 and 2020.
This was not realised as the economy was challenged by two recessions, macroeconomic volatility, rapid naira depreciation, weak purchasing power, and household incomes.
The retail sector along with others suffered a decline. Sales fell consecutively for seven years. According to the 2021 Global Retail Development Index (GRDI), Nigeria’s total sales fell to $105 billion in 2019 from $109 billion in 2017, $125 billion in 2016, and $135 billion in 2015. But in 2021, it rose to $108 billion.
Analysts say building on this growth is fundamental to the sector’s recovery. Bismarck Rewane, CEO of Financial Derivatives Company Limited, says increased adoption of electronic payment systems, easing capital and exchange controls, business-friendly environment, improving infrastructure, and making the naira an easily convertible currency will transform the sector in five years.