Nigeria’s retail space has seen the departure of many foreign brands that have been successful elsewhere in Africa and the world. In this interview, UCHENNA UZO, director of faculty at the Lagos Business School, senior lecturer marketing, an expert in retail and consumer behaviour explains the success and failure factors in dealing with Nigerian consumers. He spoke to STEPHEN ONYEKWELU. Excerpts:
Shoprite has joined the long list of foreign retailers leaving Nigeria because of unfavourable economic conditions. In your view, what is happening?
There is no doubt that the economy has really taken a downturn with the exchange rate problems. Consumer demand has fallen. People are more price-sensitive than before.
There is also the general security problem that affects the way that the economy moves. These are genuine economic problems that every business is facing. I am sure that Shoprite was also looking at those fundamentals, in deciding whether to stay or leave. This is the tone, now.
When you look at the consumer sentiment index for Nigeria, it is low. It is currently at -33 percent. This means that the level of confidence that people have in the economy that should make them willing to spend as opposed to saving for eventualities is very low.
Shoprite is leaving but Burger King is making a confident entry into the Nigerian market. How would you explain this?
It is true that when you look at the economy it is down but the potential is still huge.
First of all, if you look at the fact that Nigeria has at least 93 million people who are below the age of 20. This is a young upcoming demographic, who will have spending power.
These are people in secondary schools going to university. They are aspirational and social media savvy. They are also attached to global brands. A list of the top ten brands in Africa shows only one originates from Africa. The other nine from the latest study are the likes of Apple, Nike, Coca Cola and so on.
Consumers are not attached to them just because they are global brands but because they infuse local content into their brand messages. So, even though the economic fundamentals are currently unfavourable, people still want to have a good time. People still want to have a nice place to go to. People still want to show off.
It also depends on which market segment the new company is targeting. Remember that Shoprite focused on the middle class essentially in their positioning. The middle class is very elastic. You have the upper, middle, and lower-middle classes. There is a lot of room for expansion and growth.
These are some of the things that Burger King would be looking at. The fact that they are a global brand, tie into the aspirations of young people, knowledge about the eating habits, lifestyle and tastes of Nigerians. Leveraging existing relationships helps for distribution networks.
There is a notion that Nigeria may be a big market but Nigerians are mostly poor. So, Shoprite would prefer South Africa’s smaller but richer market. What is your take?
It depends on what segment of the Nigerian market we are looking at.
Purchasing power levels are not the same across regions of Nigeria. The average purchasing power of consumers or customers in Abuja, is higher than those in Lagos, even though Lagos has more population.
If you aggregate the number of people with high purchasing power in Lagos, they outweigh the number of people in Abuja. So, I think it is not just about numbers but the region and scope.
Shoprite’s investors in South Africa might be excited because that is a market they know very well. But I am not sure everybody knows how very deep the pockets consumers are in Nigeria.
For example, there was a study a while ago which showed that 70 percent of bank account owners have less than N5, 000 in their bank accounts. However, around the same time, another study was done which showed that N2 billion is spent daily on sports betting in the same Nigeria.
If people are willing to spend N2bn daily on sports betting versus having N5, 000 in their accounts, it shows that there is money in other places that are probably not formal business channels that people are using.
I am not sure we have a clear picture of what purchasing power really looks like. But I will say in understanding the purchasing power in South Africa and Nigeria based on numbers would not be a fair comparison because it depends on what segment of the economy you are referring to.
What was Shoprite’s business model in Nigeria and why did it unravel leading to an exit?
Shoprite’s business model and this is what they do across African markets is really to go for low prices, offered to middle-class people, in the best shopping environment.
This worked for some time in the sense that there was the initial euphoria around having a shopping environment that was better than what was readily available. Places such as the mom and dad shops and the different open market settings.
However, what people found when they enter these places 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 outweigh 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 to see 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.
There was also an emergence of indigenous retail outlets that were improving their shopping environment, but offering lower prices than Shoprite. We have Ebeanos and Deal Deys. With the improved ambience of indigenous retailers, this knockout the great ambience aspect of Shoprite’s business model.
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. Let us also remember that e-commerce has had its effect on that 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.
I would also say that Shoprite 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 was 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. 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.
Dufil owns its own logistics and distribution networks and it appears to be working for them. Why not for Shoprite?
Dufil has an exclusive distribution arrangement with Multipro Consumer Products Limited. This is one of the companies in the broader group that is solely responsible for not just distributing but for what is called redistribution and market activation.
They not only take the products, but they also support in distributing the products and supply salespeople that go with those distributors to help resolve their problems.
There is something called sales-through-trade that they use to track this. Shoprite did not have that level of commitment to the market to build that kind of distribution apparatus. It takes a long time to build. It is very expensive and requires relationship building.
Perhaps, one thing that may have been easier for them to do would have been to partner with some of these other centralised bigger networks in the country. But I am not sure they chose to follow that approach.
What are the success factors for big retailers in Nigeria and how would you describe an average Nigerian consumer?
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, there is bargain hunting and having a conversation around the right price for what is sold is common.
The other thing I think is important that consumers across these market segments are aspirational. Let me explain it with an example. There is a study about alcoholic beverages in Nigeria and how consumers behave.
There is a certain phenomenon that we have 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.
On the success factors organisations like Shoprite seeking to enter the Nigerian retail space, you have to understand your market very well. 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. This means the distributors, the people who are going to make sales possible. They do not behave the same.
Distributors and consumers in the North have their own needs and tastes. This is different from the way those in the east and south behave. This also means the ability to pay, buy and stock products. So, understanding the market, the trade, consumer needs, tastes and preferences is a critical success factor.
Secondly, choosing the right partners to make those products available at the right price, right time and the right location is important. If you do not have the right people they could end up messing up the business.
The third thing is getting your merchandising right. Merchandising is getting the right mix of what products and services to sell at the right time and where they should be located in the store, whether virtually or physically. Just the way a store positioned can say a lot about how traffic will be.
The fourth thing is to know where to play. How much digital presence should there be versus physical presence? It is important to be able to connect with those who prefer to buy through informal retail channels.
The last one I would say is to understand the regulatory, socioeconomic, and political terrain very well. Stakeholders need to be engaged continuously. Organisations need to show that they care for customers, their social needs and about whatever economic challenges the customers may be going through.
If brands do not show empathy, when social upheavals arise, people will come for those organisations. They will see them as been barely commercial. We saw this during the ENDSARS protests. These are some of the success factors.
What are the failure factors in the retail space?
Not many people understand what retail and retailing are. It is a science. It is not art. Doing retailing properly in Nigeria requires training.
Using intuition to know what to stock will not work. There needs to be real-time analytics. The beautiful thing is that there are technologies for retail.
Another thing that makes retail outlets fail is poor care for their employees. The average retail employee works for about 16 to 17 hours per day in Nigeria. They hardly go on vacation.
They hardly have lives of their own. It is a well-known fact that if you want customers to care about your brand you must care about those who sell that brand, these are the employees.
If your merchandisers on the sales floor are tired and grumpy and unengaged, this will affect the quality of service delivery.
Another thing that can lead to failure is not making the right financial investments in retail. People have to be able to know when to grow organically, when to divest and when to invest. This requires a deep understanding of risk.
The other one is the choice of the wrong location. Different locations have different levels of retail density that needs to be understood. It is not just about building a shop somewhere because other shops are there. It is about knowing your competitive advantage.
There is also the tendency to see a retail location as just a place to sell other people’s brands as opposed to seeing the location as a brand in itself.
With this, the retail store decides to sell only what fits its brand message. This brand mindset is not very common in this part of the world among retailers. I think this is something that leads to failure at the end of the day.
Would there be brands that have mastered the success and avoided the failure factors in Nigeria?
I would not want to be seen as patronising however there are brands that have mastered these factors.
For instance, Ebeano, Deal Dey and a couple of others have taken some of these success factors and have a continuous improvement mindset. Nobody is perfect. You find traces of these success factors in some organisations.
What does the literature say about Nigeria’s retail space?
What we are seeing is that there are basically four forms of retail that are dominant in this part of the world.
First, there is informal retail, which is more than 90 percent of retailing that is happening in Nigeria. Then there is the modernised retail, where the likes of Shoprite play. Then there is e-commerce. There is finally the hybrid that mixes formal and informal elements.
From the period of the pandemic has been a rise in the use of e-commerce, that is electronic retailing but the rise has not been significant. E-commerce accounts for only 1 percent of retailing in Nigeria. People still prefer to buy from neighbourhood stores.
They are choosing where to go depending on the affordability and availability of the right products. The on-the-go (hawking) channel is strong a very strong one.
If we look at the retail space theoretically, it is still an emerging phenomenon in this part of the world. This is in terms of moving from informal to digitalisation.
For consumer behaviour, people are choosing what to buy informally and what to buy through e-commerce. There are still trust issues with buying electronically.
What is the future of retail and consumer business in Nigeria?
We see consumers that are more informed about global trends, brands and events. 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.
The other thing is that we have a young demographic. We are likely more and more to have fickle consumers. People that switch brand and tastes easily because it is trending and what their parents want. This puts pressure on those targeting consumers to constantly refresh their brands with something new and appealing.
Artificial intelligence-enabled buying (augmented buying) will increase although it may take a while to happen in this part of the world. This allows you to use a 3D printer or hologram to touch and feel what you cannot have physical yet what to have a feel of it before you buy. More tech-savvy consumers are emerging globally and this would put pressure on retailers in Nigeria to improve.