These companies struggled and they are largely retailers which left southern Africa for a voyage in Nigeria. They have since returned or about returning home. Some belong to “organized retail” which represents modern retail stores, such as supermarkets, department stores, and convenience stores, that are structured and have economies of scale.
In Harvard Business Review, in a piece titled “The Challenges Facing E-Commerce Start-ups in Africa”, I sounded an alarm on the competitive positioning of “open market”, and why that would make running profitable B2C ecommerce businesses in sub-Saharan Africa extremely challenging. I maintain my position, nine years since that piece was published, as the open market still holds the ace to win for a long time. But it is not just ecommerce. Yes, with those markets everywhere in Nigeria, organized retail will continue to struggle. Some reasons below: Here are other reasons why these companies fail:
Product-Market Fit: To a large extent, formal retail in Nigeria remains highly underdeveloped due to infrastructures. While it makes sense to go to a farmer’s market in Cape Town and buy a cow, process it and dump it in your deep freezer for months, large-scale shopping when there is no electricity makes no sense in Nigeria.
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Economy: South Africa has more resources per citizen. Its budget is about $100 billion more than Nigeria’s national budget even though Nigeria is 3x its population. In other words, on average, South Africans are richer; the middle class in Nigeria is very small and the purchasing power for organized retail may be limited.
The product-market fit is not there to run this type of business in Nigeria. Unlike South Africa, Nigeria’s most significant opportunity for B2C operations lies with consumers who earn around $4 – $8 per day, but that spectrum is not a very sweet domain for organized retail. You need at least $15 per day to make it fascinating for the likes of Shoprite and Pnp. So, there is a clear product-market fit dislocation and that has made organized retail challenging in Nigeria (see plot below)
Competition: From daily to weekly open markets, to shop on the street, to traffic sellers, Nigeria is a market. In short, the Igbos were even direct when they said that “uwa bu ahia’ [the world is a marketplace]. To win as an organized retailer, you have to beat those alternatives. But beating them when they do not pay VAT and tax becomes challenging. If margins remain low, issues crop up.
Good People, running a B2C ecommerce and organized retail in Nigeria must not discount the inherent position of those open markets which are everywhere. Those markets are winning right now even as the middle class shrinks.
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To qualify to shop in ‘organized retail’ outlets entails that your monthly take home pay starts from N570k. Do we still have 25 million Nigerians in this bracket? The 25 million is not really a big number anyway. For Nigeria to lay claim to being a big emerging market, you need at least 70 million Nigerians in that bracket. Once you put numbers to something, all the speculations and delusions will disappear. 1/5 cannot be great ratio carry other people’s burdens, that of 1/3 will be more manageable.
Nothing is really happening, just noise and vapours.
Those who grade people earning N50k monthly as ’employed’ are part of the problem. All models and projections will keep failing, until we understand how endemic the poverty in the land is.