The impact of retail business in Nigeria cannot be overemphasised, considering it has remained a major driver of the economy as is the case anywhere in the world. According to A.T. Kearney’s first African Retail Development Index rankings, globally, retail trade accounts for 27 percent of the world’s Gross Domestic Product (GDP), recording about $19 trillion of retail sales annually.
The retail sector also employs 17 percent of the global workforce, which is about 800 million people in the United States of America alone, as one in every 10 people works in the retail sector.
Now, Nigeria is a retailer’s delight, with a population of over 170 million people (the seventh largest in the world); consumer spending well in excess of $100 billion a year, and a fast growing middle-class.
With Nigeria being the most promising market on the African continent, over 80 million Nigerians live in metropolitan areas, creating huge opportunities for formal retail to thrive. In the last two years alone, the nation’s retail market attracted over $1.3 billion (about N205.4bn) in investments into the formal retail space, describing the pace of developments within the retail sector as breath-taking.
While the retail sector is a major driver of economic growth, job creation and wealth generation globally, Nigeria possesses great opportunities for existing and new investors to take advantage of.
“If retail is the sector to grow, then Nigeria is the market to be. There is simply no better retail market right now than the Nigerian market,” Olusegun Aganga, minister of trade and investment, once said.
Most retailers in the United States of America make their first international foray in contiguous markets such as Canada or Mexico for obvious reasons. For those interested in massive growth potential that have a long-term perspective, a more exotic market beckons.
The retail opportunities in sub-Saharan Africa are impossible to ignore. There are many variations, and things change rapidly, but there are some things that are inexorable.
The African population is growing — closing in on 900 million people, with an urbanisation growth rate that is higher than any other region in the world.
GDP per capita, though quite low, is increasing. More consumers today are embracing international brands, products, and lifestyles, travelling more and getting the global brand bug. Formal retail remains a small portion of shopping, representing no more than 10 percent of commerce across the region – excluding South Africa – and less than 1 percent in fast-growing East Africa.
According to A.T. Kearney’s first African Retail Development Index rankings, there is clearly room for massive growth in African countries, big and small. For all the talk of growth, much of the retail news in sub-Saharan Africa has been about the struggle to gain a foothold there.
For many international brands, expanding beyond South Africa, the region’s most developed market, has been easier said than done. More than three-quarters of Shoprite’s African business comes from South Africa, as does 88 percent Wal-Mart’s and 67 percent of KFC’s. South African retailer Woolworths recently pulled out of Nigeria, which has twice as many people as any other country in Africa, after just a year and a half in the market.
Africa is full of opportunities, but capturing them requires patience, hard work, and more than a little ingenuity. While researching the African Retail Development Index, which ranks the most immediately attractive markets in sub-Saharan Africa for retail development, the team at A.T. Kearney quickly found that there is no single strategy for a continent of such remarkable diversity.
There are three go-to-market approaches that can help capture the opportunity in each different country, the report stated.
Start with the basics
The African continent has blossoming markets with limited saturation by global brands. Included in the segment are Rwanda, Tanzania, Ghana, Mozambique, and Ethiopia. Consumer spending remains low while these markets demonstrate positive trends, the best opportunities right now are focused on offering basic products, preferably international brands, at low prices. However, first movers that can overcome the supply chain problems may find a long-term advantage.
Some countries in Africa, in particular Gabon and Nigeria, are evolving rapidly with many retailers already established or planning entry. A common resemblance in these countries exist – price and brand matters. But bulk purchases are increasing, store size, look and assortments (including fresh produce) are growing more important.
The most established markets in Africa (in the ARDI rankings – Botswana, Namibia, and South Africa) have Africa’s most advanced retail sectors as well as an existing presence of international retailers. As in many modern markets, many buyers are willing to pay extra for fresh foods and convenience.