Making and marring retail

Lingering Aftershocks Shape And Scar Nigeria’s Retail Sector Simultaneously

| January 12, 2021

Helped in no small part by a new generation of Nigerian consumers, wholesale and retail sales is, as reported by McKinsey, the third-largest contributor to Nigeria’s Gross Domestic Product (GDP), even though informal retailers make up more than 90 percent of the sector.

For much of the previous year and even in the current one, a pandemic has ravaged the planet and altered ways of life that were hitherto considered normal. And like many other things, the retail industry in Nigeria has had to adjust to several elements, including COVID, in more ways than one.

According to TradeDepot, the B2B eCommerce platform for consumer goods in Africa, the impact of the pandemic, rising inflation amid shrinking income, border closures, and other issues drove significant changes in behaviour for retailers, distributors, and manufacturers, and even consumers in 2020. And that trend is expected to carry on into the new year.

It would be recalled that Nigeria’s land borders stayed shut for up to 18 months starting from August 2019, in what was described as a government-led effort to control smuggling and importation of contraband, as well as promote the sale of Made-In-Nigeria commodities within the country.

One of the side effects of the border closure, as well as the lockdown and cessation of movement that was implemented in the early days of the Covid outbreak in the country, was the periodic scarcity of various food products and a consequent spike in prices which drove inflation to 14.89 percent, and there are arguments that official figure hardly reflects the true situation.

As per new insights released today by TradeDepot from its market data, these trends shaped and scarred Nigerian retail in 2020, and the forecast for 2021 is not immune to the dynamics of the previous year.

“The retail sector is one of the strongest pillars of the Nigerian economy but the absence of data and verifiable insight often makes it difficult to assess the opportunities and challenges that abound in the space,” says Onyekachi Izukanne, CEO and Co-Founder of TradeDepot.

“The sector is also hampered by infrastructure and logistics issues that undermine the efforts of the industrious business owners. With some more support from government, public institutions, and private sector players, there is the potential to transform the Nigerian retail market and achieve a quick win for boosting the nation’s GDP.”

Since 2016, TradeDepot has built a network of more than 50,000 micro retailers, working with global distributors and manufacturers like Nestlé and Unilever to make household supplies such as milk, soap, detergent, and other essentials more accessible and affordable.

As the sector settles into the new year, TradeDepot predicts that some of the main trends that shaped 2020 – particularly smaller packaging for consumer goods (check out Nigeria’s “sachet economy“) and increased spending on food and essential goods due to dwindling disposable income and people spending more time at home – will continue to influence behaviour across the market.

The top insights from TradeDepot’s data include:

Key trends from 2020

Across the retail sector, the pandemic led to an increase in store owners exploring alternative channels of reaching, acquiring, and servicing customers – especially online and social media.

Consumer buying patterns shifted slightly towards more food items, with growth in purchase of food and essentials as opposed to other categories. TradeDepot’s data revealed a 10 percent increase in the overall contribution of food items to the distribution volumes, compared with 2019.

In the drinks category, the lockdown impacted the ability of manufacturers and distributors to sell into bars, restaurants, and clubs, which usually account for up to 60 percent of their revenue. As a result, many shifted their attention to Mom and Pop, convenience stores, etc. to cushion the impact.

In the detergent category, price increases driven by inflation led many manufacturers to either introduce or expand production capacity for smaller packs (25g, 90g, 190g, etc) to drive more volume in the consumer segment of the market, which accounts for 65 percent of the market. The pandemic also saw the introduction of more hygiene-related products to help curtail the spread of the virus.

What do these trends mean for the Nigerian retail sector in 2021?

We foresee manufacturers adapting to rising inflation and dwindling disposable income by extending the trend of smaller packs to other product categories.

Manufacturers will explore more alternative route-to-market channels with capabilities to build retail networks and offer logistics-as-a-service to mitigate the risks that come with serving new customer bases.

We expect an increase in the number of challenger value brands and new market entrants offering lower-priced products in key categories as consumers get increasingly price-conscious and more eager to experiment with new, lower-priced products.

We also anticipate a rise in products and services designed to help consolidate and improve the industry. There could be more competition higher up in the value chain with more platforms designed to provide auxiliary services like goods packaging and processing etc.

With the pandemic still ongoing, we envisage that people will continue to take a cautious approach to mingling in crowds and will spend more time at home than in previous years, As a result, spending on food and essential goods is likely to increase.

Challenges and opportunities for 2021

There are challenges with data aggregation because it is a relatively new discipline in this space but so there’s an opportunity for companies with the right capabilities to capture this and utilise it to cater to the audience. Structured access to short-term inventory financing at minimal interest rates will also help stimulate growth.

There are also challenges with infrastructure and logistics, which makes it difficult for store owners to meet the demands of the customers and grow their businesses.

Access to working capital is still the biggest challenge most retailers face in trying to grow their business. There has been some progress with financial services for consumers in recent years and there is potential for many of the learnings to be adapted for retailers.

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