Shoprite came to Nigeria in Dec 2005 when Naira was about N127 to a dollar; the South African Rand was about 7 rand to a dollar then. Last year when it began the exit process from Nigeria, one dollar exchanged for N380 or 15 rand. So, over the period noted, Naira lost 200% of its value to the dollar, keeping dollar value constant. The rand has lost 114% of its own value. But the lost value on Rand is not a big problem since Shoprite reports its financials in Rand, being a South African firm.
Nonetheless, the biggest problem was not the currency deterioration in Nigeria but the fact that the middle class was shrinking, affecting the capacity of Shoprite to capture value with the presence of supermarkets, open markets and even street-sellers as competitors.
When that exit was announced, I wrote, “Shoprite may not be doing terribly bad in Naira but struggles in Rand when it reports in South Africa. It is exiting Nigeria even though it makes tons of naira. So, if a local investor acquires Shoprite Nigeria with no burden to report in USD or Rand, the currency issues could be eliminated. It is like Dangote generating more naira and still losing $17 billion in net-worth in 7 years.”
But in the midst of this paralysis, another South African retailer is here: Pick ‘n Pay. My question is this: what is the playbook for success in Nigeria considering that Shoprite, Mr Price and Woolworths could not overcome the paltry effective 30 million addressable market in Nigeria? Yes, I model that Nigeria has only 30 million who earn “decent” income and those 30 million support the remaining 180 million citizens.
So, as we see the exodus and death of companies, I remind everyone that Nigeria has about 30 million people who earn income and can pay for anything. Any model built outside that 30 million will disappoint. I have explained how I arrived at this 30 million number here. With the pandemic affecting that 30 million number, which carries the other 170 million citizens, you will then understand the challenge we have in the near future.
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Comment #1: Prof Ndubuisi Ekekwe Modern Trade has never enjoyed mass patronage as markets have in Nigeria. Ask any FMCG manufacturer in Nigeria how much product pushes through Modern Trade and the will tell you it has never accounted for more than a few percent of revenue. Several retail outlets similar to Shoprite such s GAME, Park & Shop/SPAR, all South African.
Firstly there are far too many fresh local options cheaper and healthier/fresher like you can go to Ijora Market and Mile 12 in Lagos.
Secondly I speculate that these South African outlets must have some form of involvement of SA suppliers at investor level because a lot of their SA finished goods like Beef Boerewors or Richelieu Brandy neither grab the local consciousness of the Nigerian consumer, nor do they align with diaspora influence of known ‘abroad’ brands. There is a lot of tinned and packaged consumables also imported from SA. Forced repatriation of revenue to SA and on many goods with often weak market traction is a vulnerability. Successful large global operators maximise assimilation with local commercial ecosystems minimizing import necessity and recycling liquidity locally. They become comfortable with distributed rather than centralized profit retention.
Comment #2: Maybe we start by analysing list of investors in Shoprite and Pick n Pay, to see if they are related…
If we have 30 million people with decent purchasing power, who has been able to capture 10 million of them? Because that’s more than population of many countries in Europe and elsewhere, so it’s still a large number to service.
Again, where a retail brand sources its goods matters a lot, especially in our business climate. Can Pick n Pay position as retail of choice for locally produced items? Sometimes how we architect these things brings their downfall.
We import apple and grapes in Nigeria, are there local substitutes with similar nutritional value, which can be pushed to the public, instead of using dollars to import fruits? We don’t really have depths in the way we design economy and frame businesses here, we keep going with whatever the world brings to us.
We eat bread a lot here, wheat is largely imported, yet we haven’t been able to scale local substitutes for wheat, because we don’t see it as national emergency anyway.
I do think that the trio of our intellectuals, businesspeople and policymakers are all lazy, we talk a lot here, but no speed of thought and peerless pragmatism that can quickly bring solutions to our ‘moving target’ styled kind of problems.
Let’s see how many that will be paying after picking…
Why Brands Struggle and Depart Nigeria
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