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From Exit To Expansion: Strategies For Asset-Light Businesses In Nigeria

Deepankar Rustagi, Founder & CEO, of OmniRetail - Africa's #1 "Fastest Growing Company in 2024" by Financial Times | Stanford GSB alumnus

Nigeria, often called the "Giant of Africa," owns abundant natural resources, a youthful population and a flourishing market. Despite its challenges, including infrastructural deficiencies and economic hurdles, Nigeria presents a compelling case for business investments, particularly in scalable assets businesses.

As noted by Bloomberg, some global fast-moving consumer goods (FMCG) manufacturers have pulled the plug on different products in Nigeria "to 'sustain profitability.' And pharma giants Bayer AG and GSK Plc have outsourced distribution of their products to independent companies in Kenya and Nigeria."

In developing markets, FMCG manufacturing companies encounter a myriad of local challenges that can hinder growth and profitability. These hurdles often demand innovative solutions.

Obstacles For FMCG Manufacturers

Let's explore some common obstacles faced by FMCG manufacturers in developing markets:

1. High storage/warehousing costs: FMCG distribution's logistical challenges and costs coupled with the short shelf life of products require manufacturers to have several storage points to expand reach—this comes with a high fixed cost.

2. Limited reach to customers: Around 97% of products move largely through the traditional trade channels, which means there is little data intelligence behind how these goods get distributed and their availability maintained.

3. Restrictions on direct sales: With no prepayments on orders, limited use of technology and high transportation costs, building a direct-to-retailer reach can be challenging.

4. Visibility loss post-delivery: Since distributors set their margins to further resell and do so largely through their network, FMCG manufacturers often struggle to track inventory levels, monitor sales performance and gather crucial data on numeric distribution beyond the point of sale.

5. Capital accessibility for retailers and wholesalers: Most traditional loan eligibility criteria and interest rates are not structured favorably for FMCG wholesalers and retailers, keeping in mind their margins and inventory turnover rate.

6. Economic volatility: Just in the last few months, the currency depreciated significantly, and exchange rates to allocate funds for purchasing raw materials drove high magnitudes of price changes, leaving brands exposed to competition and shifts in category dynamics.

Strategic Approaches For Success

By recognizing and effectively tackling these challenges, businesses can not only sustain their operations but also thrive in an ever-evolving market landscape, delivering value to both consumers and stakeholders.

Here are my suggestions on how to set companies up for future success:

1. Explore methods of hedging fixed costs or making them partially variable. This is particularly important with assets in the warehousing and logistics arms of the business and, if possible, with raw materials.

2. Focus on collaboration to drive visibility through digitalization. Note that some manufacturers in this space look at digitalization and collaboration as a ghost who could expose their business.

3. Be your own competition. Establishing different brands at different price points would target different audiences during normal circumstances, but during times of economic instability, providing consumers with more affordable options can keep consumers with the manufacturer.

Projection Of Population And Retail Growth

The retail sector in Nigeria faces challenges like inflation and exchange rate volatility. Despite this, I've found there's optimism due to the expansion of retail real estate and the growth of e-commerce, accelerated by the Covid-19 pandemic. Household consumption is projected to reach N96 trillion ($228.7 million) by 2025.

Nigeria's population has been growing by around 2.4% every year, which increases the demand for consumer goods. Additionally, the country has a large youth population, which helps drive the growth of e-commerce in Nigeria. According to Statista: "In 2022, Nigeria's population was estimated at around 219 million individuals. Demographic projections show that the Nigerian population might experience a constant increase in the next decades. By 2050, it is forecast that the population will grow to over 377 million people compared to 2022."

This is the time to create an infrastructure to serve the growing Nigerian community. There are companies in the technology, logistics and fintech industries working to solve these challenges and streamline the entire value chain.

Rewiring Traditional Trade For Seamless Distribution And Market Expansion

Creating a robust retail infrastructure to serve Nigeria’s growing retail community requires a comprehensive approach that addresses both the immediate and long-term needs of the market. I suggest business leaders and entrepreneurs consider the following key strategies:

1. Understand the local market. The first step is to gain insights into the local economic, cultural and regulatory landscape. Understanding consumer behavior, regional preferences, and purchasing power is crucial for tailoring products and services that meet local demands.

2. Take advantage of technology. Consider leveraging technology for overcoming logistical challenges and enhancing operational efficiency.

3. Build strong local partnerships. Forming strategic partnerships with local businesses, suppliers and distributors is key to building a resilient supply chain. Local partners can offer critical insights into market dynamics and help navigate regulatory hurdles. Collaboration with local companies can also provide innovative financing solutions to support small retailers and enhance their purchasing power.

Lessons Learned In Nigeria's Retail Sector

From my 16 years of experience as an African entrepreneur, several key lessons stand out for businesses looking to establish a presence in Nigeria’s retail sector:

1. Be adaptable. Flexibility and the ability to adapt to changing market conditions are crucial. The Nigerian market can be volatile, with economic and regulatory shifts that require quick strategic adjustments.

2. View it as a long-term commitment. Building a sustainable business in Nigeria requires a long-term perspective. Short-term gains should not overshadow the importance of establishing a strong foundation for future growth.

3. Let data drive your decisions. Utilizing data to inform business decisions is vital. Draw on real-time data on sales, inventory and consumer trends to drive efficiency and profitability.

In the current landscape of Nigeria's retail sector, I think companies should reconsider exiting and instead seize the opportunities for expansion and growth. Despite the challenges, Nigeria's market offers immense potential, especially for scalable asset-light businesses. By staying invested and adapting strategies to local conditions, companies can position themselves for long-term success and contribute to the sustainable development of Nigeria's economy.


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