Reeling in Nigeria’s outsized informal retail market into the modern market

The formal retail market is growing slowly but gradually in Nigeria with mega stores such as SPAR, Shoprite, CityDia, Ebeano, Price Supermarket, Goodies Supermarket, Mega Plaza and so on, opening new outlets almost on a daily basis. In the space of two weeks in the month of March 2016 for instance, SPAR opened two stores in Abuja and Lagos with advanced plans to establish new ones in other Nigerian cities. CityDia plans to open two stores every month and to have a store in every neighbourhood in the near future some of which will offer twenty-four services. Shoprite is slated to open a new outlet at Maryland part of Lagos. Notwithstanding, the size of the informal market which accounts for over 90 percent of the entire retail market continues to trump the surge of the formal sector.

Experts however are buoyed by the rise in formal retail outlets and patronage projects that the sector will soon catch up with the informal retail sector. According to Tobias Wasmuht, CEO, SPAR International, “Statistics show that over 40 million Nigerians are in the middle class with an income of $7,500. Every market has a transition from informal to formal. South Africa, for instance has 60% formal and 40% informal. And that has only changed in the last two decades. It is moving with the economy.”

Valentine Aganbi, CEO, First Master Retailers the owners of Citydia sees the modern retail market expanding soon “but it will be a gradual process that will require partnerships with the small retailers, farmers and so on.”

The Nigerian informal retail sector comprises of widely spread open markets where commodities are sold, including food, clothes, electronics, building materials and furniture and so on; neighbourhood stores ranging from large to small operators, as well as kiosks, roadside food sellers and street hawkers. The growth of the informal retail markets can be traced budding entrepreneurial fervour. Nigerians are known to be very entrepreneurial.

Although there are no data to capture the exact market share of the sector, experts suggest, it is worth billions of naira much of which is untaxed and not accounted for in the country’s GDP. As much as 87 percent of the Nigeria consumer market is serviced by the informal sector.

The formal retail market on the other hand, comprises of modern and organised retail outlets made ubiquitous by increasing urbanisation – Nigeria’s rate is one of the fastest in the world with almost half of the population living in urban areas in 2011 and an ongoing urbanization rate of 4 percent a year, expanding labour forces and growing middle classes, growing presence of women working outside the home. Also the trend of migration from rural areas toward cities, where job opportunities are more plentiful accounts for much of the growth.

Mobile retail market is another kind of retail marketing that is also capturing the attention of many in Nigeria. The country has the largest mobile market in Africa and the 10th largest in the world as at 2014.

The dominance of informal retail, many has pointed out, has its roots in the unbalanced income distribution of the Nigerian population. With Nigeria’s income inequalities considered to be one of the least in the world, majority of consumers are limited by their purchasing power. According to Aganbi, “One of the reasons people go to the markets rather than walk into a supermarket is because of the perception that things in the open market are cheap. Most of the guys think that there is an extra charge for air-condition or the nice shelves or the person greeting them nicely in a supermarket. But that is hardly the case. On many occasions, things are far cheaper in the super-stores than in the market.”

Majority of the players in the formal retail investment community agree that making the transition from informal to formal will not be achieved by forcing out the informal retailers through competition. It should be a collaborative effort. There will always be the small retailers inasmuch as many Nigerians are cut up in the web of inequitable income distribution, unemployment and while majority continue to live in poverty. The wealthy few and the growing middle class however will increasingly be attracted to the formal retail outlets.

It should be pointed out that the formal retail sector has its many benefits that are seemingly positioning it as the preferred destination for most consumers. The benefits include convenience, haggle-free purchase system, quality, relaxed and hygienic atmosphere, and relatively lower prices for certain items.

Reeling in the informal into the formal in an era when the government is actively invested in diversifying the Nigerian economy which has been dependent on oil for far too long, requires greater collaboration between the two. The retail sector can benefit immensely by a merger which ensures a mutual existence and service.

The challenge which most retailers in the formal sector point out is the tendency of the small retailers to want to do it all. Most prefer to be the producers, the suppliers and the marketers. The concern often is that the retailers in the modern stores may not accept their products, and when they do may not give the best bargain since they will have to resale.

While these concerns are genuine, the present reality is many of the formal retailers are seeking opportunities to do business with people in the informal retail. Stores like SPAR, Citydia and Shoprite have developed models for collaborating with the small retailers and suppliers in the value chain. These models ensure that standards of the informal retailers are upgraded and sustained.

FRANK ELEANYA