‘Nigeria’s retail is at the point where Russia’s was in 1994’
The managing director of wholesale and retail player, T-Mart, BERTHRAN UGEH, speaks to OBODO EJIRO, BALA AUGIE and KOSISO UGWUEDE about the evolving retail market in Nigeria, how retailers and manufactures are coping with economic challenges and the model which his company is deepening in the Nigeria’s wholesale and retail space.
What changes have you noticed in the wholesale and retail industry in the past 2 years?
I think the drive is convenience. Nigerians are yearning for more convenience whether in wholesale or retail. You can see that specifically in the retail space where e-commerce is taking charge.
I think convenience is the biggest driving factor and we’ve seen a lot of modern trade come up; modern trade in terms of shops and mega malls that give a clean and convenient modern shopping format or e-commerce platforms.
But the wholesale aspect of the market has not been touched which is very interesting for us because it is the biggest space in the market.
One challenge that most businesses face in Nigeria is the issue of financing and capital. What’s the debt to equity mix of your business?
Right now some of it is debt and debt in Nigeria is very interesting because the percentages at which people get debts is ridiculous.
But unfortunately, if you do not want to go initially at the equity route, debt is your only option.
We had interest in foreign investors but if you’ve not run and seen your numbers, when you get equity from foreign investors you are shooting yourself in the foot.
So you need to be in a better space to negotiate what their percentage or value of their percentages would be.
We’ve gotten some interest from a few investment firms in New York, but what we want to do is run two stores first and see how that goes and then get into conversation with the investors when we want to expand further.
If you look at what we want to do – open about 20 stores in 5-7 years, obviously we cannot open all the stores without debt. But we need to sort out the debt-equity mix.
How has the market responded to T-mart so far?
It’s been really interesting. When we were in the conception phase of our model, we battled with a very serious question; will Nigerians ever pay to shop?
We said we could charge about 1,000 – 3,000 naira annually as membership just so people could get used to the idea of paying for memberships. But when we started our focus groups and asked businesses and individuals questions, we were shocked with the responses we got.
Businesses said they wouldn’t take us seriously if they were paying N3,000 for membership and they were going to get the real value of what we were proposing to give.
But we’ve tiered our membership based system for both B2B and B2C basis and we’ve seen significant interest from a lot of people asking when they can start, how much membership will cost. And for businesses, what we are trying to deliver is not just lower cost, but we are going to be feeding them with data they need to be able to operate better in terms of what are the depreciation ratios for certain products, what products work best in certain markets and so forth and so on.
From the manufacturer end, they were excited in the sense that we could potentially cut their distribution cost significantly.
Right now, we have manufacturers who currently handle anywhere from 500 – 1000 distributors which they shouldn’t have to because it is not part of their core business.
You’ve mentioned a number of things that are not quite clear about your model, can you elucidate; for instance, the membership model.
Basically, it means that you must be a member to shop in our stores and you have to pay for your membership on an annual based.
If you look at the retail space across the world, there are a few reasons why this is being done. If you want to be competitive in margin, you will look for additional streams of revenue.
If you look at what Amazon is doing with Amazon Prime, that’s the idea. It’s more like a subscription based model.
We also felt like this is the best model given the margins we are going to work with. We are working with very slim margin that will ensure our businesses and individuals who shop with us have the best prices and value.
We also have a model in which we work directly with manufacturers to ensure consistency in quality.
Membership just means you have to pay to be able to shop at our store.
You seem not to have a lot of competitors in the wholesale industry but the retail sector seems to be populated already. How are you competing?
Our model is slightly different in the sense that we never break a carton, so we do not sell single items. We sell in bulk.
Those who buy from us know that they are coming to buy maybe a case of maybe soap or a roll of tissue paper or whatever the case may be. So we compete differently.
Though there are retailers who do the mixed model; both packed and single items, however, for us, there is still a lot of room in the retail space. If you look at the retail index, Nigeria is still at the beginning stages.
Nigeria is still where Russia was in 1994 right now in terms of retail. So I think there’s a lot more scope and you can see that is true from the number of big stores we have in the country.
There are a lot more stores coming up. But for us, it’s a slightly different market. They will compete with us but they will never compete where we are. And based on the format we have, our store is very lean; basically a fancy warehouse to put it in bare terms.
We do not have all the added costs a retailer would normally have. So a retailer may survive on a 20-25% margin; we don’t. We can survive on a whole lot less, just because our cost is lower and our general operation cost is very lean.
We see an opportunity for other stores coming in. There are more peers coming into the retail space so that may affect us from the Opemmart perspective and not from a T-mart perspective. For Opemmart, what we are trying to do is to build neighbourhood stores.
We want to be at your last mile which is your house. So we are building stores that are in estates because we feel that’s the way most Nigerian housing will be done in the future.
So if there are stores in your estate it’s easier for you to stop by and get your quick needs, but if you want something bigger, then you can always use T-mart as an option.
You mentioned distribution as part of the core businesses of T-mart Wholesale. How have you been able to hurdle infrastructure challenges?
Distribution is always a challenge, yes. Infrastructure could be better. When we look at distribution for us vehicles, maintenance is key.
In our environment with the infrastructures that are there depreciation for vehicles is 2 years because of the bad roads we have.
We try to do the best we can to maintain the vehicles and cost where we can as well. But we hope the government would invest and make the infrastructure better.
Lagos, one of your operational cities is notorious for traffic gridlocks. To what extent do you think improvement in infrastructure will impact on your margins?
Significantly; that cannot be understated. I think there are two things; first looking at distribution to the customer perspective, T-mart for example.
We have mapped out our delivery schedule based on traffic. So there are times when we can go out and there are times when we can’t.
Unfortunately what that does is that when we have an order to be delivered at a time when we have not scheduled for deliveries, they are delayed. Delay means the customer is not happy.
So if the infrastructures were fixed, you could see delivery made in 30 minutes or an hour. To be fair, if you look at the size of Lagos and the distances, without traffic and proper infrastructure, you could go a lot of places in 30-40 minutes and back. Because of traffic and poor infrastructure, it takes hours. So it would impact significantly because what that would mean for us is that if we had better infrastructure we would have more sales channel trip and lower costs in terms of diesel consumption. So it would reduce our costs significantly and improve our margin.
Nigeria is going through an economic crisis and manufacturers have been hard hit, how has that impacted your business seeing that you work with them a lot more directly?
Prices are currently changing every week. What we are seeing is that in the past, majority of manufacturers were able to hold back on transferring the cost to consumers but right now because of the pressures they face, they are all just pushing it out.
Changing prices means a rise in inflation which is currently at 16.4%. So it’s impacted on manufacturers. They are all looking for ways to cut costs, they are cutting down on staffing, they are looking for a lot of ways to keep their margins up so it’s a difficult space.
But the truth is, anyone in Nigeria has to think long term. Businesses are always circles; there are the good and bad points and I think we are just in one of the bad points.
But we’ll come out of it with the market significant enough for the manufacturers to still invest and some of them are still investing regardless of how bad the economy is now because they are looking 3-5 years from now.
We conducted several researches to find out the mean income of Nigerians. The figure stands at N45,000 – N50,000 monthly. Given the way Nigerians buy, do you have a quantum of registered individuals? And what is the mix of local to imported products in your warehouse?
You are right, the income level for the average Nigerian is not that high which is why we felt like our business model at the start-up phase is more 80% B2B and 20% B2C.
We believe that there are those who are within the ‘’qualified middle class’’ that can actually afford to pay for membership. And when you think about our return on your investments on membership, it’s upwards of 300% if you actually take time to do the math. You save a whole lot more when you buy in bulk versus when you buy individual items.
So those who can afford it will be there. So we see overtime as Nigeria’s middle class grows, we will see a shift in our percentages of B2B and B2C customers. For now, it’s mostly businesses who will see this as topmost value, we see more people who have larger disposable income getting into the middle class that can afford to buy in bulk.
So maybe in the future we can see a 60% B2C and 40% B2B. But for now we believe that for the 20%, there is a small niche of Nigerians that can actually afford to pay for memberships.
In terms of what we stock, it is 100% local. What a lot of people don’t know is that Nigerian manufacturers produce a lot and in fact we can’t even carry in our store significant volumes just to keep up with all the Nigerian local manufacturers.
What’s your opinion about ‘’Buy Nigeria,’’ the slogan being pushed by government?
I think it’s the only way. But I’m not quite sure I’m convinced with the way the government went about it.
So I think buying Nigeria is very important. Why do we have to import things like rice? We have lands. It makes no sense.
If we are producing locally, our currency is strengthened so I’m 100% supporter of ‘Buy Nigeria’. But, we ought to have been realistic; I don’t believe we can just go from a 0 to 100. So it should be a graduated process; a graduated process would have helped because what we did was we took a country that was almost 100% importation and tried to drive it to 0% and that’s why we are crashing.
If we had gradually reduced importation over time and made sure manufacturers were aware that these things were going to go away, they would make those investments. Some of the problems we have with manufacturers to source for or produce raw materials locally is they do not have enough time from when the importation stopped to when they can set up facilities/factories to process raw materials here in Nigeria and then get to production phase. So I’m a big fan of ‘Buy Nigeria’.
Who constitutes the bulk of your clients in terms of B2C?
In terms of B2C it’s the middle class who majorly constitute our client list; people who typically have an income of 250k a year. These are people we think can afford that initial payment to be able to buy. But you’d be surprised – we underestimate how much Nigerians can afford. But what we’ve created memberships that are cheaper.
So we’ve created a monthly membership just in case you want to try it and you don’t want to pay the full thing. That monthly membership is also designed in such a way that it discourages people from using it.
It cost N5,000 every month and if you calculate that for 12months that’s N60,000 as against N10,000 annual membership fee. But what we’ve done is say if you feel this is a model that could work for you, test it out.
And for the first three weeks when we launched there were no mandates on being a member. It was just for you to come and experience the store and buy as you want. After that we put into place the membership requirements.
Tell us about your B2B clients
Our B2B clients for us are from convenience stores to small supermarkets to hotels to small businesses and companies like yours. So it is convenience stores primarily, hotels, restaurants and co-operates.
What are your expansion plans?
Next store we have planned will be opened in Abuja by February next year and it’s already in the works. The third store will be back to Lagos.
That’s the idea. Some of the challenges with building are some of these land right issues with getting the lands and getting your documentation processed. What I’m very happy about with the Lagos state government is that they fast-track the process. You’ll be surprised at how much development that could come from doing that. Now instead of waiting for a year or two for a CoO for a property, you could get in 30-45 days and that’s very significant.
I don’t know if the government realizes this but I think that’s one aspect of potential funds that’s being locked up that most businesses can’t use. For example, we have an asset in Abuja that we’ve been processing a CoO for almost a year and a half now.
And we can’t use that asset with any bank. So, if I could use that asset with any bank, maybe I could grow a lot faster. I think there are a lot of these held up assets and dead capital that could be fused back into the economy if we just removed the inefficiencies.
Will you own all the Opemmart stores or will there be franchises or a combination of both?
Combination of both in the meantime, initially we are going to own the first five and then we look into a combination of both because we have to build a brand identity first.
Not to limit growth when we establish our brand identity and structure within the first five stores, then we can open up some to franchises.
Will T-mart be just an offline walk-in store or will it function like an online site?
That’s a good question. We have an e-channel; I won’t say we have e-commerce. E-channel is different in the sense that people can come online and order for what they want but the inventory is tied to a store.
It is always tied to a store. But we needed to give that convenience where you can from your home decide and shop but we have also incorporated delivery so you can have your products delivered to you.
We also have a text-based solution so you can send an SMS to order and we are working with a team that are developing short codes such that in one sentence you can order 15 items and they will be sent to you. So we have incorporated a lot of technology in what we do.
A bit about your background and how you got to this point
I went to school in the States, Towson University. Work wise, I worked as an assistant director at Columbia University for two years and worked for a market research firm as a senior project manager for a few years as well before coming back to Nigeria in 2010.
When I came back 2010, I joined the family business which has traditionally been distribution and logistics for one of the major manufacturers in Nigeria and the business has been going on for a while now; about 25 years to 30 plus years.
So I joined in as the COO; more responsible in terms of growing sales and developing strategy going forward. Two years ago, I moved up from the position of COO to the MD of the company.
When we looked at what we’ve been doing for the past five years in terms of the market of where we’re going and we were looking into the distribution landscape, we found that there was decrease in margin as if you played as a mono-supply distributor and we didn’t have additional revenue streams.
We decided that, you have to find a different model that works better. So when we looked into what we call our core competencies. We found that we could play on the modernisation of a wholesale space, more like a warehouse club and we could also play from the more retail/convenient store perspective and that’s why we have Opemmart. So in 2013, we decided to pursue the new model that will support our growth for the future.