Mon, 28 Sep 2020

Qongqo said South African companies overestimated their capabilities and attractiveness of their product offerings moving into the Nigerian market and forgot different countries have different cultures and tastes because the strategy that worked in South Africa might not work in Nigeria.

"Companies do not do enough due diligence. Taking your same offering and going out of the country selling it at the same price point is not going to work. The thinking that people should aspire to shop our product is damaging. Even though the Nigerian economy is big and growing fast, which is usually the selling point, the GDP per capita is so low," she added.

Vianello said the culture in Nigeria was different as "people still prefer to buy from street vendors. The most difficult problem they have is the lines of communication. They have a massive but skewed population compared to SA between lower-income and upper-income earners".

He added the strategy Shoprite used to enter the Nigerian market was to appeal to the higher-end customer, but this proved challenging when they had to expand.

"They had to roll out stores in 'mainstream Nigeria' which is not Lagos or Abuja but all the other cities of the lower-end resident who earns a low salary. The average Nigerian cannot afford luxury items sold at Shoprite."

Distribution in Nigeria was also a problem that might have contributed to Shoprite discontinuing its operations, said Vianello.

"Distribution is near impossible, with being far away and the problems in landing goods at the port, the bribery that takes place with payment of duties. I think that Engelbrecht has just decided that he does not need it. There are more opportunities in SA than Nigeria and that's why he is doing it."

Qongqo said this was the right move for Shoprite "because if you can't grow to the extent that you can get to critical mass and operate profitably in a sustainable manner then it makes for a poor investment".

South African retailers have struggled in the Nigeria market. This exit follows the recent retreat of Mr Price which exited the country after Truworths pulled out as well.

"The market is tough out there especially the Nigerian market which needs Nigerians who understand it, you have to have the courage to admit when you've lost and I think this is it. It would continue to hurt pensioners if they chose to stay there indefinitely just out of pride," said Qongqo.

Group sales rose by 6.4% to about R156.9 billion in the 52 weeks to June 28, the group said in a trading update. As a result of the lockdown, customer visits declined by 7.4%, while the average basket spend increased by 18.4%.

However, international supermarkets (excluding Nigeria) contributed 11.6% to group sales, and reported a 1.4% decline in sales from 2018. South African operations contributed 78% of overall sales and saw 8.7% rise for the year.

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