Consumer potential: Three Nigerian city clusters to compete with Lagos

Nigeria’s retail and wholesale trade industry has the potential to grow by 7.1% per year, and by 2030 could be the largest contributor to the country’s GDP, according to recent report by McKinsey Global Institute. Sales of packaged food and beverages are expected to grow by 6.8% a year, contributing around 85% of the growth in consumer goods.[hidepost=9]Lagos_consumer235x140[/hidepost]

Nigeria's major cities can be looked at as broader clusters. Image: MGI

Nigeria’s major cities can be looked at as broader clusters. Image: MGI

The report, Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy, estimates that demand for consumer goods could more than triple by 2030. The largest economy in Africa is seeing a rising consumer class, creating a notable opportunity for manufacturers and retailers of fast-moving consumer goods such as food, beverages and personal and health products. Currently consumption is estimated at US$388bn a year but is expected to rise to $1.4tr in 2030, with 35m households earning over $7,500 a year.

“Based on data from other economies on how consumption changes with rising incomes, we see demand in Nigeria poised to accelerate in such categories as fruit juices,” illustrates the report.

“Capturing emerging consumer demand, however, will require smart choices about where, when, and how to enter Nigerian markets. It will also require specific capabilities that international companies especially may need to develop.”

One strategy for consumer facing companies in Nigeria is to adopt a city and regional approach, as opposed to a nationwide approach where distinct differences in culture, demographics and wealth exist. While Lagos, with an estimate of 15m residents, may be the go-to city for companies targeting consumers, McKinsey suggests three regional clusters of cities that together produce sizable populations to rival Lagos.

“Companies playing in all three of these clusters could target 20% more households earning above $7,500 than in Lagos,” notes the research.

A six city cluster around the Niger Delta in the southeast

Port Harcourt, Warri, Benin City, Aba, Enugu and Onitsha make up the six city southeast cluster. Its proximity to oil wells has led the region to be a hub of activity for oil companies and foreign investment.

According to the report, total GDP in this cluster alone is $63bn, which is a close rival to Lagos’s GDP of $68bn, despite having far fewer households. Both Port Harcourt and Aba have considerably higher consumption per capita than Lagos. Port Harcourt, followed by Benin City, Onitsha and Aba have the largest populations within the cluster.

Companies looking to target the luxury segment might want to especially consider Port Harcourt, the capital of Rivers State, which has the highest consumption per capita in the country ($6,843 in 2013). The city has one of the largest consuming middle classes in Nigeria with household incomes between $20,000 and $70,000 a year. It has access to two of the country’s busier ports and is home to the Port Harcourt Airport.

Ibadan, Ogbomosho and Ilorin, just north of Lagos

These three cities are within close proximity to Lagos. Ibadan (the capital of Oyo State) is the second largest city after Lagos, and has a fast-growing consumer market. While Lagos has over four times the number of households as Ibadan, consumption per capita of Ibadan in 2013 was $4,562, rivalling Lagos’s $4,710. Ibadan also has a large emerging consumer class with annual household incomes of between $7,500 and $20,000, and one of the larger consuming middle classes in the country with incomes between $20,000 and $70,000 a year.

According to a recent African Development Bank (AfDB) report, Tracking Africa’s Progress in Figures, Ibadan is one of the top 10 fastest growing cities in Africa.

Northern corridor cluster of Kano, Zaria and Kaduna

This cluster holds potential for consumer businesses looking for sizable populations in northern Nigeria. Kano is the fourth largest city in Nigeria, and Kaduna the seventh biggest.

This year, South African retailer Shoprite launched its first outlet in Kano, while Massmart opened a Game store just before June. Despite the potential security risk posed by Islamic militants in the region, Massmart’s Africa director Mark Turner said at the Reuters Africa Summit in April: “I always want to be bold enough to say, you can’t be in Nigeria without being in Kano.”