• Wednesday, December 06, 2023
businessday logo


Retail distribution in Nigeria: Challenges and opportunities

Landlords edgy as local retailers sidestep malls for stand-alone houses

There exists a booming market in the Nigerian business ecosystem and retail distribution is one of its major drivers, such that its socio-economic value is indisputable to consumers and business markets alike.

At its core, retail distribution seeks to deliver products and services to consumers in the most effective and cost-efficient way possible.

What may have begun in a bid to reach local customers has since evolved to contribute a significant portion to the bottom line of businesses across industries. Deloitte’s (2020) Global Power of Retailing Report, places the aggregate retail revenue of the largest 250 retailers at $4.75 trillion in FY2018, an indication that the contributions of retail distribution to business growth are immense.

In Nigeria, the retail distribution sector is egged on by the demands of a huge consumer base, the result of a population explosion.

The rapid growth of the Nigerian population may spell doom and hint at a faster depletion of resources but it also means an increase in the demand for products and services and more outlets to cater to the growing population.

With the emergence of Covid-19, there continues to be a steady evolution of the global business landscape. In Nigeria, retail distribution is experiencing a shift from brick-and-mortar locations to more digital and e-commerce stores.

However, the Nigerian business sector still struggles with challenges peculiar to the region and other challenges affecting global retail distribution.

For one, untapped markets exist across Nigeria, especially in rural areas yet to be accessed or impassable by road.

A World Bank report estimates that about 92.5 million rural people living in Nigeria do not have good access to the road network in the country. The issue of impassable roads, rickety or no bridges, and poor or non-existent safety protocol make retail distribution increasingly difficult.

This in turn leads to higher costs of transportation facilities and invariably higher production costs. In developing areas, and commercialised settlements, encroachment on the few motorable roads is another concern.

The deployment of kiosks and parasols on roads and waterways obstructs vehicular movement and causes erosion, leading to more complications for distribution.

Corporate establishments under their CSR initiatives, can partner with government agencies and contribute to host communities and choose distribution outlets in rural areas.

As if the country’s poor transportation system is not enough trouble, some oil-producing areas make the production of common food items a concern because of the lack of potable water. On the flip side, this provides a huge opportunity for more retail outlets in affected areas.

As the race for distribution outlets begins, organisations often pay little attention to proper and structured distribution centres, thus making the KYC (Know Your Customers) process difficult.

When KYC processes are unclear, access to loans and funding from financial institutions becomes quite challenging making retail distribution laborious.

Proper attention must be paid to the processes of every retail outlet across an organisation’s distribution channels.

Governmental regulations and tax collection is another hurdle affecting retail distribution. Stifling regulations, multiple tax collections, and the non-availability of a national database are only some of the issues confronting retail distribution.

Hence some retail outlets operational today may disappear and reappear overnight. This lack of consistency not only affects business growth but also results in the loss of top-of-mind awareness among consumers and market share.

There seems to be a grim picture of the challenges affecting retail distribution in Nigeria but the opportunities are notable as well.

For example, Nigerians living in semi-urban and rural areas desire the same kind of products and services enjoyed by their counterparts in urban areas.

This provides huge opportunities to sell products in smaller but affordable sizes, a trend most apparent in consumables being made into smaller sizes and packaged into sachets for easier distribution.

It is interesting to note that the retail distribution process is increasingly mobile, thus the market continues to shift towards increasing app functionality, investing in better AI programs and curating more personalised experiences for consumers.

Read also: Alerzo restates commitment to building well-connected retail ecosystem across Nigeria

As mobile technology advances, more of these opportunities are unlocked. Innovation in mobile retailing has helped to reduce the number of failing retail outlets and the amount of time taken for products and services to reach consumers.

Jumia, one of the first organisations to leverage this, recently marked its 10-year anniversary. Of course, the former Unicorn isn’t without its struggle but it has managed to thrive.

A cursory look at the home delivery service embarked on by various organisations has resulted in physical attacks and sometimes death of the delivery agent.

Startups are decentralising the retail process and providing innovative products and services in small and affordable bits for consumers.

As retail outlets expand into digital platforms and more potential customers are identified, there are also opportunities for payment platforms to plug the gap in cash movement.

Start-ups and organisations able to provide payment solutions are becoming even more functional and relied on for business transactions.

Seerbit, Paystack etc are examples of payment gateways in Nigeria. Imagine having to always visit the Electricity Distribution Company’s office to queue to pay your monthly bills. This was still the situation a few years ago but now, tokens have been commoditised.

Where you do not have a smartphone, agents spread across the nooks and crannies of Nigeria and operating POS terminals at their retail points will sell tokens leveraging various apps.

Most importantly, large corporations are playing vital roles in ensuring these businesses get the support they need.

Worthy of mention is Honeywell Group’s Itanna, an accelerator and investment enterprise focused on supporting young entrepreneurs and businesses.

One of the highlights of this program is the mentorship session with leading business owners and executives where they can ask questions and glean insight into solving real-life issues, one of which is distribution.

Honeywell Group also partners with the Lagos State government to equip young people interested in innovation through technology. Unlike most corporations, Honeywell seems to get it- retail distribution needs innovation too.

Retail distribution is a vital part of business growth and should be treated as such. A thought-out strategy examining challenges organisations face is the first step.

Next, look out for opportunities. Where there are challenges, innovative solutions are all the more important.

Adebiyi, a sales growth and channel developer, writes from Lagos