Checklist for distributors in Nigeria

Top eight things to consider when exporting consumer goods to Nigeria.

The word boring does not come to mind when you think of Nigeria. Nigeria is one of the fastest growing markets. Beyond the perceived risk and all of the hype, the fact remains that it represents Africa’s largest market, with a population of over 170 million.

Companies in operating in a wide range of industries have been successful in Nigeria. MTN, La Farge, Coca-Cola, PZ Cussons and Diageo come to mind.

Whether you are searching for market entry or looking to expand your business in the country, there are a number issues to consider when formulating your of Route-to-Market strategy:

Fragmented outlet base 

One of they key barriers for most consumer goods companies remains distribution. In Nigeria, the outlet base is fragmented and modern trade is still in the early stages of development. Reaching large numbers of traditional outlets is a difficult and costly business.

From “table tops” to “go slow”

It is also important to understand informal trade channels; “table tops” and “go-slow” channels are two examples.  “Table tops” are tables, set-up as temporary sales points to sell a limited number of stock keeping units. Mobile phone operator MTN successfully targeted table tops as a channel to expand their distribution footprint. The “go-slow” channel or hawking channel sells various types of merchandise that are easy to carry. It has been successfully targeted by mobile phone operators and snack companies, for example, biscuits manufacturers.

Shopping malls

There are two Class A malls in Lagos, providing a high quality shopping experience. These malls are high traffic areas and meeting points. Malls are often visited by “window shoppers” and often used by companies for brand building opportunities. Beyond the mall, shopping complexes offer a more organized shopping experience than traditional trade channels. Shopping complexes are found in fast growing areas, e.g. Lekki, and are organized along a strip, similar to strip malls found in the United States.

Modern trade 

While investment in shopping malls has begun, few supermarkets have entered Nigeria, constrained by capital and land use rules. Notable players include Shoprite (South African), Spar (Netherlands, with Nigerian partner) and Game (South African, US' Walmart acquired a majority stake in the parent company Massmart). Supermarkets are increasingly purchasing directly from product principals and importers. Beyond the international supermarket chains, local chains are growing fast and they vary in the degree of their modernity and category mix.

Open air markets 

In many cases products flow from agents who sell directly to wholesalers or directly in open markets. In Nigeria, open air markets remain primary purchase channel for a number of product categories. An estimated 70% of all wholesalers and retailers are located in the traditional markets. Wholesalers sell to retailers in large quantities and at discounted prices. Small groceries often require an intermediary, such as wholesaler, to break bulk. For example, on a market visit to Kaduna, Nigeria, we identified the ability to break bulk as one of the key value drivers for smaller distributors or wholesalers. Nearly all importers have outlets or representative wholesalers in open markets.

Feeder markets 

Some markets also act as feeder markets. The coverage of the feeder town depends on product category, price and availability. It is estimated that 60% of consumer goods products flow through markets in Lagos, Kano, Maiduguri and Onitsha. In Accra, Ghana, I met retailers selling satellite dishes purchased from markets in Lagos, which they profited on even after factoring in the bus fare to collect the dishes. However, the retail landscape is changing quickly and open markets are in decline for certain product categories.

Distribution models 

The majority of international brand owners operating in Nigeria utilize third-party distribution networks (e.g. FMCL, Great Brands). A number of companies have developed direct distribution models or are actively managing their 3rd party distribution partners, e.g. Coca-Cola. Some companies, such as Coca-Cola, have also developed micro-distribution models (mini depots, push carts) to better service traditional trade channels (view picture of Coca-Cola distribution).

Finding the right partners 

Finding the right partner can be a challenging undertaking. Few distributors handle the “last mile” of logistics and most distributor footprints are limited to wholesale and key account outlets. A number of companies have opted for multiple distribution networks focused on geographic areas and types of customers, as there are few distributors with a national footprint.

Nigeria is a fast changing environment, modern trade and retailing are expanding and middle class consumers shopping patterns are changing. What works today will likely not work tomorrow. Take time to understand culture issues and don’t assume anything.

This article is re-published with permission from Frontier's content partner, The Supply Chain Lab. 

Seven things to consider when exporting products to Ethiopia

With a population of over 90m and a fast-growing economy, Ethiopia is a ripe market for distributors.

By Tielman Nieuwoudt, Principal at The Supply Chain Lab

Ethiopia is the second most populous country in Africa (after Nigeria) and one of the fastest growing economies, with an average GDP growth rate of 10% (IMF) over the last eight years.

When entering Ethiopia, there are a number of issues to consider when designing your Route-to-Market: 

Infrastructure and territories

Ethiopia has made great progress in infrastructure development with the country spending US$-1.3-billion or 10% of its GDP annually on infrastructure development, according to the South African Institute of International Affairs. However, as impressive as these numbers are, distributing products in upcountry areas remains a challenging undertaking.

Port

Ethiopia lost its port in 1992, when Eritrea became independent. They now rely on the port of Djibouti where costs are high. It costs more to transport a container from Djibouti to Addis Ababa than China to Djibouti (The Economist). The Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset) holds future potential.

Territories

In comparison to other African countries, Ethiopia has a low urbanisation rate (11% vs. 30%). Addis Ababa, the capital city, contributes the bulk of the volume in Ethiopia. Ethiopia’s second city, Dire Dawa, has a population of 274,000 (ESA) compared to Addis Ababa’s estimated three million. It is estimated that 38% of the population still resides five hours or more away from a city with a population of 50,000 (IFPR).

Trade channels

Modern trade is in the very early stages of development and there are currently no international supermarkets operating in Ethiopia. In a very fragmented trade market, souks/kiosks remains the largest trade channel in Ethiopia.

Market

The Mercato market in Addis Ababa is one of the largest markets in Africa and the largest in Ethiopia. The market is dominated by wholesalers. Some companies generate more than 70% of their sales from Mercato. Wholesalers make low margins (2-5%) and most tend to be passive, waiting for customers to collect. While the role of Mercato wholesalers cannot be overlooked, they are not always a good option for building relationship with retailers and building brands. Most MNCs (Multinational companies) we talked to highlighted the importance of direct distribution, as it remains difficult to build a brand through a wholesale system.

Route-to-Market Models

MNCs are entering Ethiopia though distributors as they lack the required knowledge, scale and product portfolio to build their own distribution. However, beverage companies with local bottling operations also make use of direct distribution (key accounts) and micro distribution (such as the Coca-Cola Micro distribution system). It is important to note that foreign companies cannot distribute imported finished products, whether sourced directly or from local importers.

Organisation

Most MNCs are still operating out of their Nairobi offices. However, companies are increasingly opening new offices in Addis Ababa. Ethiopia is significantly different from the other East African markets and care should be taken to understand the culture aspects. Including when displaying role models for advertising purposes.  Foreign investors are increasingly recognising the consumer goods potential in the country, as recent acquisitions from Diageo, Heineken and Tiger brands have demonstrated.

7 business trends to watch in Ethiopia

Trend #1: Investment in infrastructure 

Ethiopia’s economy grew significantly in the past decade, driven mainly by major activity in the infrastructure and construction sectors. Annual per capita growth could increase by 3.8% if the country can get its infrastructure up to the quality of facilities found in Mauritius or South Africa. The Ethiopian government has an ambitious infrastructure development plan that will see to the delivery of adequate power, road, air, rail and telecommunications facilities. The plan will quintuple power generation capacity (to 10,000 MW) by 2015, according to the Growth and Transformation Plan; triple the capacity of the road network to 136,000 km, build new 2,000 kms of railway and facilitate mobile phone operators’ quest to increase the number of subscribers. Additionally, the national carrier, Ethiopian Airlines, plans to expand facilities to become the largest airline in Africa. These programs and others such as the ones that were designed to enable the country fulfil the Millennium Development Goals (MDGs) present huge opportunities for private companies. The key to identifying the opportunities lies in understanding the inputs the government requires to implement various development projects.

Trend #2: An agricultural revolution

Agriculture accounts for 40% of Ethiopia’s GDP and 60% of exports. Despite the lingering perception of the country as famine-struck, there is immense unexploited agricultural potential. The varied agro-climatic and altitude differences allow farming of a wide variety of crops including coffee, tea, oilseeds, pulses, cereals, which are the traditional crops grown, and newer crops such as fruits, vegetables, sugarcane, and palm. Ethiopia is a big exporter of floricultural products, fourth largest sesame exporter in the world, and top ten in the production of oilseeds like linseed and a wide variety of pulses. The livestock sector has the largest base resources in Africa but is grossly unexploited. The high value horticulture sector is likely to overtake floriculture in the coming years as an export earner. Future growth in the agribusiness sector will be driven by improved production by small-scale farmers and further foreign investment in commercial farming and agriprocessing. Some foreign companies are already invested in agri-procesing, for example, beverage production. It is likely that the sector will attract more investment especially in agriprocessing.

Trend #3: Growing market for consumer products

Ethiopia’s population of 93.8m, a rapidly expanding economy (% figures), high urbanisation rates and a young population – 73% of population is under 30 years of age – supports the case for investing in the Fast Moving Consumer Products (FMCG) sector. Foreign investors have recognised this potential, with Diageo buying a minority stake in state-owned brewery, Meta Abo, in 2011 for $225m, while Heineken bought two smaller breweries for $85m and $78m respectively. Diageo is looking to complete the acquisition soon, as it seeks to increase its market share. UK company, Duet Group followed the beer giants in Ethiopia by acquiring a 41% stake in Dashen Brewery for $90 million. Interest in the beer industry has continued with greenfield investment projects such as Raya Brewery and Habesha Brewery taking off. The beer market is expected to grow more than 10% each year to 2015 amid the country’s rising economic growth, which is expected to reach 8% by 2015, according to the IMF.

South Africa’s Tiger Brands acquired majority stake in East African Holdings’ FMCG operations, which is the largest manufacturer of household goods in the country. With industrial parks under construction and government-focus on the development of the light manufacturing sector, the sector is set to take off.

There will be interesting opportunities for smaller companies who aim to supply products and services to big investors. In the barley-malt-beer value chain, for instance, one can see opportunities, from contract farming, distribution and marketing, to advisory services, packaging, and input supplies. In the broader FMCG industry, interesting opportunities exist for expansion of market outlets such as supermarkets, distributions systems, and wholesale/retail operations. The next drive in the growth of FMCG sector may see expansion into regional markets of Somalia and South Sudan.

Trend #4: Unparalleled regional trade expansion

Ethiopia’s trade with neighbouring countries is likely to present a major business and economic opportunity in the near future. This will be made possible by bilateral and multilateral trade agreements under the auspices of COMESA and IGAD. However, a more important factor are the planned transport corridors in the region. There are established road linkages with Ethiopia Djibouti, Sudan, Kenya and to parts of Somalia. New projects are on the way to link the country to the emerging market of South Sudan, which operators in Ethiopia can also reach via river transport on the Baro. Perhaps the most interesting project is the Nairobi-Addis Ababa highway. When complete, it will represent one of the largest business opportunities in Africa, linking Ethiopia’s over 90m population with 130m consumers in the East African Community. There are talks of building a rail transport network, which will link with West Africa, perhaps from Senegal to Djibouti.

Trade figures are growing despite the current inadequate infrastructure - in 2010, Somalia and Sudan were Ethiopia’s fourth and seventh largest export markets, registering more than $200m in value. Imports from the Sudan and Somalia have also reached significant values at 4.5% and 6.6% of total Ethiopian imports respectively. Ethiopia has started supplying power to Djibouti and the Sudan and with additional multi-million dollar agreements to supply Kenya and South Sudan. Kenya in the meantime is developing the port of Lamu, with the aim of supplying South Sudan and Ethiopia. This region is likely to benefit further from a planned railway project connecting Ethiopia and Kenya along with South Sudan.

People are moving freely between Kenya and Ethiopia, while trade between Djibouti, Sudan and Ethiopia is tariff free. Any FMCG business with a good foothold in Ethiopia is thus also in a good position to supply these countries. The emerging interconnection of the East African and Horn of Africa trading blocks will represent some of the best opportunities for investment and value addition.

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