Beset by challenging macro-economic forces due to global commodity-turmoil, Nigeria’s market conditions are set to recover but the reality is that in the interim they have compelled Nigerian consumers to make fundamental changes in what, where and how they shop.
These are the findings in a new report from Nielsen, titled Navigating the new normal in Nigeria, which points out that the country’s sustained potential and the strength of its recovery, now hinges on business resilience and adaption to meeting consumers’ needs in a time of change.
Nielsen managing director for East and West Africa, Abhik Gupta, says: “Despite the flux experienced over the last year, Nigeria’s economy is set to rebound and grow at 1.2% according to the International Monetary Fund and consumer sentiment remains positive into the future. In addition, despite overall spend declining through to Q2, 2016, it has now recovered over the last three quarters due to stabilising market conditions and inflation. Against this backdrop, manufacturers and retailers wanting to survive the current consumer shift and return to previous consumption levels, need to understand what is critical to the wallet and what has changed in the shopping and buying dynamics to match their offerings to altered consumer realities.”
One of the biggest moves in the Nigerian retail sector, is that due to more variable disposable income, consumers have altered their shopping behaviour across categories and channels. There is therefore a trend towards more frequent shopping, with purchases focused on immediate consumption needs, concentrated in packaged staples and non-packaged (loose) food products.
Gupta comments: “Spend has been diverted away from discretionary categories like confectionery (snacks and sweets) and personal care (health and beauty) products to essential food and commodities, to make ends meet.”
With tougher market conditions and despite a large repertoire of general and specialist channels, smaller, informal format stores have captured more spend away from their bigger supermarket/grocer counterparts. Open markets, kiosks and table tops have gained share of consumer spend (42%, up from 38% two years ago) as they offer greater flexibility in quantities, packaging and pricing, and are conveniently located near homes or on commuter routes.
Nigerians are also less likely to travel to another store when a brand is unavailable or out of stock. Store loyalty trumps brand loyalty, as only 31% of consumers will visit another store but 68% report buying a substitute brand.
Against this backdrop, the risk for retailers is that as they are no longer able to maintain costs tied up in higher inventory levels and wider product assortment ranges, this has led to fewer categories being stocked and higher out of stock levels. With irregular supply and demand, consumers may be compelled to look elsewhere if they are unable to find a substitute product and the retailer will risk losing a valuable sale.
In this challenging environment, Nigerian consumers have also been less willing to try new products, resulting in more risk-averse product choices rooted in familiarity and recommendation. Gupta comments: “New brand entrants will need to focus on the current consumer needs for reliable, affordable and available brands – but also provide differentiation, value and distinct quality propositions to succeed in the longer term.”
A digital opportunity knocks
The rapidly shifting retail dynamics in Nigeria have also led to a burgeoning omni-channel opportunity in e-retailing, fuelled by aspirant consumers. Even though online shopping penetration still lags bricks-and-mortar shopping habits, growing internet penetration is allowing e-commerce retailers to leapfrog conventional bricks-and-mortar development. Digital trends point to e-commerce rapidly gaining traction in durable and consumable categories, with Nigerians already spending as much as 61% on out-of-country e-retailers.
In light of this, retailers will need to reassess product portfolios to suit on- and off-line consumers’ needs and strengthen brand loyalty. Gupta advises: “A digital strategy should be incorporated from the outset to win in both the long and the short term, providing consumers with seamless retail experiences and access to products not otherwise widely available.
“Retailers have a lot of room to grow when it comes to unifying channels with consistent, yet unique experiences on well-executed mobile apps, in-store engagement, in-the-moment coupons and virtual shopping lists that will empower consumers and give them more control over their shopping experience and potentially increasing retail sales,” he adds.
What’s in store?
Looking ahead, Nigerian sentiment is likely to improve in 2017, providing much needed relief to manufacturers and retailers as consumers add items back into their repertoire. More discerning consumers will continue to rebalance their basket, looking for efficiencies in what, where and how they shop. Consumers will also aspire to better quality products, but require more flexibility in price and quantity to meet their altered circumstances.
Gupta says: “To avoid missing these vital sales, manufacturers need to match products (format and price) to places (stores), with optimal levels of distribution and supply; while retailers will need to manage optimal stock availability and product ranges to retain shoppers.”