• Saturday, February 24, 2024
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Nigeria’s supermarkets record first decline in five years

Nigeria’s modern retail records first decline in five years

For the first time in five years, Nigeria’s modern retail trade market declined by 5.4 percent to $25.2 billion in 2020 from $26.7 billion in 2019, as shown by new data from Euromonitor International, a provider of strategic market research.

The modern retail trade involves a more planned and organised approach to distribution and logistics management, e.g. hypermarkets, supermarket chains and mini-markets. It has however been challenged over time by the country’s shrinking middle class.

The combined impact of the global COVID-19 pandemic and associated lockdown measures, which led to macroeconomic volatility, the naira’s rapid depreciation, weak purchasing power and household incomes caused the drop in the market size of the sector, which has been expanding since 2015.

“Nigeria was negatively affected by lockdown regulations imposed on crucial economic areas like Lagos. The country was however further challenged by its oil dependency since it pressured the Naira fluctuation (which affects imports), as well as the rising inflation rates (which reduces buying power),” Christele Chokossa, senior analyst at Euromonitor International, says.

Similarly, Uchenna Uzo, a consumer behaviour expert, notes that the longer time for retailers to strengthen their pick-up delivery channels, and the EndSARS protests that led to the vandalism of certain stores also affected the sector in 2020.

Typically, a strong purchasing power and high consumer spending from the middle class of any economy creates growth in modern retail channels. And retail sales are an important economic indicator because consumer spending drives much of the economy.

Read also: African Alliance expands retail market, opens new branch in Abeokuta

With the pandemic, the sector was further weakened as it suffered job losses and wage cuts due to low patronage from consumers. However, despite the disruptions of several businesses, the pandemic also helped to fast track the existing growth of E-commerce, as retailers had to establish or strengthen their online sale channels to reach more consumers.

After a challenging 2020, experts are optimistic that growth in the sector will recover for 2021. “The performance in 2021 is likely to be driven by various factors, including steady economic recovery, eased restrictions, and improvements in business models,” Chokossa states.

Ayorinde Akinloye, a consumer analyst at United Capital Plc believes that the recovery may not get to where the sector was before the pandemic as it has had a lasting and damaging impact on employment opportunities and businesses across the country

Despite the sector’s expansion from 2015 to 2019, its penetration across Africa is still very low. For example, in Nigeria, modern retailing only accounts for about four percent of total grocery retail value sales, while in South Africa, it accounts for over 60percent. On the other hand, traditional retail accounts for 58 percent in Nigeria but 19 percent in South Africa, data from Euromonitor International shows.

According to Euromonitor International, in order to improve its penetration rate, the growth in modern retailing across Nigeria will depend on factors like: rising urbanisation rate, infrastructure development of malls and expansion in the middle class.

“Beyond this, extraneous variables like government policies on import and foreign investments, as well as socio-economic stability in terms of civil unrests, inflation and currency fluctuations are also likely to play an important role in the processes,” Chokossa added.