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.