Euromonitor International forecasts that in the period through to 2030, the Nigerian middle class will raise their spending the most on communications, which reflects Nigeria’s vibrant telecom scene with urban middle class consumers increasing their 3G and 4G uptake. Other categories with strong middle-class consumer spending over the 2015-2030 period will include leisure and recreation as well as health goods and medical services.
At present, most African consumers – especially south of the Sahara desert – remain extremely poor and spend most of their money on food and other necessities. This makes for a promising outlook for fast-moving consumer goods (FMCG) companies given the large market to cater for. Crucially, an increasing number of consumers are on the cusp of the US$1,000 annual income level, which will allow for the expansion of consumption beyond just the basics. Retailers will be looking to take advantage of the large market at the low end, while gradually starting to offer these consumers higher-value products as income levels rise.
A profile of the Nigerian consumer
Nigeria’s retail market is both capture-able and too large to ignore. Companies that act now to build a winning business model will be getting more than a foothold in one of Africa’s biggest growth opportunities. Here are six insights that companies will need to take into consideration when starting or expanding their consumer business in Nigeria:
- Nigerians are very optimistic about their future.
When asked if they think they will be better off financially two years from now, 74 percent say yes, which is one of the most positive responses to this question among African countries.
- Nigerians are price sensitive and love deals.
Intuitively, price is important to the majority of African consumers, but it’s particularly crucial for Nigerians, especially when it comes to food. When choosing a grocery store, 21 percent of Nigerians say they are willing to sacrifice store environment for low prices, compared to 16 percent of South Africans and 12 percent of Ethiopians. As a result, Nigerians are apt to spend a lot of time ensuring they get the lowest prices on groceries. Rice is the top product used as a benchmark for checking prices. Upper income Nigerians also look at red meat and beverages.
- But it’s not just about price.
Brand loyalty is high among Nigerians. Seventy percent say they are brand loyal versus 59 percent in Africa as a whole. For higher income consumers this is driven by the perceived quality of brands – 51 percent of these shoppers say that well-known brands are always of higher quality. For lower income consumers, brand loyalty tends to be driven by unwillingness to try new things. Despite such loyalty, Nigerians are open to buying store brands, although the perception of poor quality and limited choice often holds them back.
Fashion, comfort and quality also play a role in driving the choices Nigerians make in stores, especially when shopping for apparel. Sixty-nine percent of respondents ranked fashion as one of the top three reasons for choosing a clothing item. Those ranking comfort and high quality in the top three totaled 63 and 60 percent respectively. Also when shopping for apparel, Nigerians view local brands, which exist at all economic levels, as just as fashionable as international brands. Only 11 percent say they think that international brands are more fashionable than local brands, versus 29 percent in Africa as a whole.
When shopping for food, freshness is a key concern. Forty-six percent of respondents agreed with the statement, “My main concern when buying food is how fresh it is.” This is understandable in a country where a third of the land is arable and where the tropical climate allows for the growing of many different types of fruits, vegetables and other edible crops.
- Nigerians desire a convenient, well laid out, modern shopping experience.
Although price is important, some Nigerians prioritize modern shopping experiences. Said one shopper: “[In these modern stores] you don’t have to sweat under the sun just because you want to buy things. This place is well air-conditioned; items are well arranged with their prices, so you don’t need to waste time haggling like in the open market.” Higher income consumers are particularly interested in stores with a wide range of products and a comfortable environment, and are willing to pay for these features. Lower income consumers primarily choose stores based on price offers, but item selection and in-store experience are still important.
- Media habits are changing.
In Nigeria, TV dominates. Ninety-eight percent of the people McKinsey surveyed across the country said that they had watched TV in last 7 days; 84 percent said they use TV to get information about brands, and 65 percent said they trust TV as an information source. At the same time though, digital media sources are growing, as is the use of mobile technology. Half of all Nigerians have accessed the internet over the past four weeks, and 21 percent of Nigerian mobile phone users are using the internet on a daily basis, with 37 percent accessing it monthly. Social networking leads as the top reason for internet access on mobile phones, but Nigerians are also using their smart phones for a broad range of activities, including reading news, watching music videos, and doing email and instant messaging. The primary reason Nigerians cite for not using mobile internet is that it’s too slow. Forty-four percent have this complaint. Despite such increased internet use, a significant trust gap persists. Only 5 percent of those who turn to online sources for brand information say they trust them.
- Regional, age and consumer differences must be understood.
Across different regions we found significant attitudinal differences that influence Nigerian’s purchasing decisions. For example: Residents of Lagos are more than twice as likely to try new things as their peers in Kano (45 percent of Lagosians responded positively to this question vs. 18 percent of Kano residents).
Lagos residents are also more price conscious, with 55 percent favoring low prices over a large selection of products, as compared to 20 percent choosing low prices in Abuja and 17 percent in Kano.
In Abuja, only 14 percent of consumers prefer to wear traditional dress over Western clothing. This preference is higher in Lagos (30 percent) and Kano (31 percent).
Residents of Abuja are most likely to view clothes as a statement about who they are, with 64 percent agreeing with this statement, compared to just 39 percent in Lagos.
Wholesale and retail businesses looking at entering or expanding operations in Nigeria should build their business model around offering basic needs to a price sensitive and brand loyal lower and lower-middle income consumer base while offering added benefits to an expanding middle class.
An increasing number of consumers are on the cusp of the US$1,000 annual income level, which will allow for the expansion of consumption beyond just the basics. Retailers will be looking to take advantage of the large market at the low end, while gradually starting to offer these consumers higher-value products. In essence, the key strategy for most retailers focused on Africa will be to capture the large low-end market and benefit from higher margins as these consumers start trading up, e.g. from unbranded to branded grocery. By establishing brand loyalty at an early stage, consumer goods companies can benefit from the growth of the African consumer. This is not to say that there is not potential for the luxury goods sector as well, although it remains in its infancy at present in most countries including Nigeria.
While the opportunities in Africa’s Wholesale and Retail sector are enormous, substantial challenges still exist in underdeveloped infrastructure; a disorganized and fragmented retail landscape; a lack of reliable market research; unclear and ever-changing government regulations and difficulty to source retail products locally leading to dependence on importation for most products under a high import tariff regime. These challenges though substantial are not insurmountable. Infact experiences from leading businesses in Nigeria and Africa shows that businesses that wait for perfect conditions in Africa before investing end up reading about the remarkable success stories of those who seize opportunities and surmount challenges.
KPMG; The African Consumer and Retail Sector Report.