Shoprite’s exit and lessons about Nigerian consumers

Nigerian consumers come in different shades and shapes, promising retailers acres of diamond to mine from, Shoprite counted on this.

Nine years ago, Shoprite, Africa’s retail giant saw scope in Nigeria for nearly a thousand outlets because of the massive population and how this would translate into consumption.

Well, the target was 700 shops, Reuters reported in February 2012. The Supermarket chain opened its first shop in Lagos, December 2005.

In 2013, Shoprite’s former chief executive officer Whitey Basson said Nigeria could eventually carry about the same number of stores as the about 800 outlets Shoprite had in South Africa at the time.

Even so, Shoprite’s expansion in Nigeria has been hampered, with its latest count at 25 corporate stores as of August 2020. That compares to South Africa’s 1,957.

What went wrong?

Some immediate causes of the continent’s largest food retailer exit from Africa’s most populous consumer market were that it struggled with supply-chain disruptions and faced challenges in getting money out of the country.

Nigeria’s economy was also ravaged by a slump in oil prices that dried up dollar supplies and a naira that was devalued earlier this year and has suffered several devaluations since then.

Delays in clearing goods from Nigerian seaports, traffic congestion and poor road accessibility have made it difficult for the Cape Town-based supermarket operator to get stock onto shelves.

Shoprite’s business model

BusinessDay had an extensive and exclusive interview with Uchenna Uzo, the faculty director of Lagos Business School and senior lecturer of marketing with expertise in retail and consumer business on Shoprite’s business model and the Nigerian consumer profiles.

Uzo said Shoprite’s business model in Nigeria is the same across African markets. It is to go for low prices, offered to middle-class people, in the best shopping environment.

This model worked, for some time, in Nigeria because there was an initial euphoria around having a shopping environment that was better than what was readily available. At places such as the mom-and-pop shops and the different open market settings.

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However, what people found when they enter Shoprite’s outlets was that the pricing did not really signal a middle-class focus. The pricing for many products signalled the high end.

This is because the rental prices of stocking those products in those Shoprite outlets far outweighed what it will cost in open or informal markets.

So, there they were with a great ambience but with high prices. People then evolved from seeing Shoprite as shopping to an entertainment destination. They go there to look good, feel good and take photos.

There was a problem of fitting their South African business model into a Nigerian way of shopping and behaving. Nigerians want affordable prices but premium products. This is always tricky.

Premium products should go with premium pricing. It is important for a business to figure out how you can offer close to premium but at the lowest possible prices, in the right atmosphere.

“I think this might have been part of the reason why they started having problems,” Uzo said.

There was also an emergence of indigenous retail outlets that were improving their shopping environment, but offering lower prices than Shoprite.

“We have the Ebeanos and Deal Deys. With the improved ambience of indigenous retailers, this knocked out the great ambience component of Shoprite’s business model,” Uzo told BusinessDay in the exclusive interview.

The other thing is around choosing what to stock and what not to. What moves fast and what does not. What to take online and what to keep offline.

Additionally, e-commerce has had its effect on the retail sector as a result of the pandemic. Customers have more shopping choices and locations than they did before. This has increased the level of competition.

Shoprite also thrived on a strong logistics and distribution platform, which they had in other parts of Africa. The beauty of the logistics platform is that it was centralised. This made it easy to source products from suppliers at cheaper prices.

This did not work very well in Nigeria. Understanding how logistics and distribution work in Nigeria requires a different approach. There is a lot of relationship management involved in it. There is a lot of incentives management that is, building incentives to make things work.

Also, the growth ambition of Shoprite versus the reality of the consumer base and their distribution network were not aligned.

“If you go back to what the newspapers were saying when Shoprite came they planned to have about 700 outlets in Nigeria in five to 10 years. The growth ambition did not match the distribution infrastructure,” the retail and consumer business expert said.

This meant that it could not grow as quickly and as robustly, especially because they want to own the distribution apparatuses themselves and centralise them. This is not so easy to do in a retail environment.

Perhaps, one thing that may have been easier for Shoprite to do would have been to partner with some of these other centralised bigger networks in the country, such as Multipro Consumer Products Limited. “But I am not sure they chose to follow that approach,” Uzo said.

Lessons about Nigerian consumers and retailing

First of all, there is nothing like an average Nigerian consumer. Nigeria is not one market as many people think. It is a conglomeration of markets.

There are at least six different types of markets with different consumption profiles and behaviour.

However, there are some dominant characteristics across these consumer segments and profiles.

One such characteristic is that people want premium products at affordable prices. The second one is that consumers focus a lot on getting the right bargain for what they buy. So, Nigerian consumers enjoy bargain hunting and having a conversation around the right price for what is sold is common.

The other thing that is important is that consumers across these market segments are aspirational. For example, a study about alcoholic beverages in Nigeria and how consumers behave showed an interesting tendency, according to Uzo.

There is a certain phenomenon that was found to be important, which is called brand swapping.  Branding swapping is a situation where people buy more expensive drinks they cannot afford because they drink socially.

They want to signal or show their social status by consuming premium brands. But for the next month or two, privately, they will consume the cheapest possible brand.

So, this is puzzling. There is a lot of premium and low-level consumption side by side. “This tells you that people look for social acceptance in the way that they consume brands in Nigeria,” Uzo said. “You have to move away from averaging the Nigerian market into just one box. Understanding the market means knowing that there are regional differences in consumption and trade behaviours.”

The future retailing in Nigeria

A crop of consumers that are more informed about global trends, brands and events are emerging. So, they are going to be more sophisticated, savvy and confident about what they want.

They are going to take more control of the buying process than salespeople who used to come to them to convince them to buy.

Retailers would need to engage more with consumers before the buying stage. Even if their buying power is not so high, which will grow, their level of sophistication is higher today.