Nigeria’s middle class offers big rewards for global retailers

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Shoprite CEO Whitey Basson. Picture: Financial Mail

WHEN Shoprite opened its seventh Nigerian shop in the southwestern city of Ibadan, Dayo Oketola fought his way through a crush gathered in front of the glass doors.

"When I got inside I discovered many people were there just because they wanted to say ‘I’ve entered a Shoprite!’ Some people looked like they had actually dressed up for the visit," says the public servant, who stocked up on about 4,000 naira (R252) of groceries.

Many, though, bought nothing at all when the shop opened its doors in July. The conundrum shows both how much potential this country of 160-million people has as a consumer market — and how far it is from being realised.

For many Nigerians, being middle class remains an aspiration. But as more people achieve that status every year, South African retailers are turning from saturated home markets to high-growth countries in the continent.

In its latest trading figures, Shoprite says it sees scope for up to 800 shops in Nigeria, and is also targeting Zambia, Uganda and Angola. "Nigeria can handle that many stores if you look at the size of the cities and the penetration of supermarkets … and it can happen quickly, but that’s not dependent on Shoprite but on (the availability of) sites," CEO Whitey Basson says.

If they come to fruition, the retailer’s plans will feed a hungry market. Prime retail land is scarce in the lagoon-side city of Lagos, where 21-million people are crammed onto thin wedges of land originally built for a population of less than 400,000.

Nigeria’s commercial capital has only two malls of international standard, compared with 74 for Johannesburg’s 4-million inhabitants, according to investment group Actis.

Outside the gleaming Palm Springs mall, hawkers arrange pyramids of fruit and vegetables. Inside, buyers in Shoprite jostle past each other, skirting puddles of water.

They had formed when the shop’s generators temporarily stalled, a common occurrence as state grids produce enough electricity to power only one vacuum cleaner per 25 Nigerians.

"You can get almost everything you want in one place rather than going from one (stall) to another in terrible traffic. Shoprite is more expensive than the market but for the convenience it’s worth it," says IT worker Precious Nnodim, as her twin toddlers run wild between aisles of chocolates.

Other retailers are eyeing a slice of the pie.

Walmart Stores snapped up a 51% stake in Massmart last year in a deal seen as a springboard to grow across Africa. Massmart, which owns the Game brand, plans to open 90 supermarkets across the continent over three years, with priority on Nigeria and Angola, the continent’s third-fastest-growing economy.

In the Palm Springs mall’s packed parking lot, a company bus offloads a group of expatriate oil workers, who flood into Game. For South Africans feeling homesick, the mall houses Nigeria’s only Woolworths.

"It’s pretty much like being back in South Africa, even if the prices are a bit more expensive. At least you can vouch for the quality," says a South African consultant, pushing a laden trolley. "I heard they are opening a Walmart. I just hope that they keep the prices low like they are in America."

Pricing may be multinational brands’ strongest weapon. For many shoppers, the distances involved in going to international brands — between them, Game, ParknShop and Shoprite have only 10 shops in Lagos — mean smaller family-run businesses have limited competition. On the Lekki peninsula, one of several high-end developments springing up for the booming middle class, keen to escape the crush of the mainland, the only "supermarkets" are houses converted by enterprising residents.

"People will pay any price because they know they can get unique local products," says Funmi Solanke, whose shop doubles up as a hairdresser and pharmacy on the second floor.

Smoked guinea fowl, a Nigerian delicacy, is the current best-seller, she says. "It’s all these little local touches that people come back here for, because I don’t think you can get that in somewhere like Shoprite." Analysts warn that infrastructure bottlenecks are also a challenge to global retailers’ expansion plans.

After signing its first deal in Nigeria, it took a further five years for Shoprite to open its maiden supermarket in Lagos in 2005. Woeful rural infrastructure and policy flip-flopping mean it is often easier to import fresh vegetables.

For now, only a handful of big names have dipped their toes into the market. Carrefour, the world’s second-largest retailer, plans to enter eight sub-Saharan countries, including Nigeria, through joint ventures. Massmart is pushing ahead with a standalone food store this year in a West African country.

Northern Nigeria, in parts of which an Islamist insurgency has raged for six years, has yet to host any global supermarket chains. Even the moneyed capital of Abuja, with smooth highways overlooked by wedding cake mansions, is served by only a handful of international brands.

Property developers estimate that it costs two or three times as much to build a store in Abuja as it is to build a comparable building in Johannesburg.

Meanwhile, Shoprite plans to increase produce from its Freshmark distribution brand, which helps local farmers sell produce to the chain.

The scheme helped the company wipe out an 80% fresh produce import bill in Zambia.

Increasing cheaper, locally produced goods is vital to enticing consumers who continue to frequent overcrowded markets. In the seething mass that is Obalende market in Lagos, 24–year-old Buki wipes her brow after concluding a particularly loud haggling session over fresh vegetables. "There are 12 people living in my madam’s (employer’s) house so she prefers buying vegetables in the market because here you can set your own prices. One pepper (in the supermarket) is four times cheaper here," she says. "As for me, even if prices (in formal supermarkets) are cheaper, I will be thinking about the cost of transport to reach those places."

• Mark is a Business Day contributing writer based in Nigeria.