Squeezed consumers switch to small stores on rising prices

Large superstores and shopping arcades are seeing smaller foot traffic as rising prices force many consumers to patronise nearby small supermarkets where they shop on a budget.

Hypermarket stores like Shoprite and Next Cash & Carry, with over 2,500 square metres, saw a steep decline in sales in 2020 and have yet to recover to their pre-COVID levels.

Supermarkets, classified as retail outlets selling groceries with a selling space of between 400 and 2,500 square metres, are recording higher sales, analysis shows.

Some supermarket stores in Nigeria are SPAR, Marketsquare, Prince Ebeano and Goodies.

BusinessDay analysis of the 2021 retail sales data by Euromonitor International, a London-based strategic market research firm, shows that hypermarket sales declined by 11.7 percent to $168.5 million in 2020 from $191.2 million in 2019. But it improved by 10 percent to $185.4 million in 2021.

Although there was an improvement, the 2021 sales are not up to pre-COVID-19 levels.

But for the supermarkets, despite the pandemic, its sales rose by 9.3 percent to $495.6 million in 2020 from $453.3 million in the previous year. It further increased by 10.9 percent to $549.4 million in 2021.

A further analysis of the data shows that the contribution of hypermarkets to the modern grocery industry reduced to 25 percent in 2020 from 30 percent in 2019 and maintained the same percentage in 2021.

The share of the supermarkets increased to 75 percent in 2019 from 70 percent in 2020. It also maintained the same percentage the following year.

“Given their large store size, hypermarkets have been positioning themselves as a one-stop store where consumers can do all their shopping. However, relatively few Nigerian consumers can afford to buy in bulk,” analysts at Euromonitor International said.

They also said that the sales channel is facing growing competition from supermarkets and convenience stores, which are increasingly expanding into residential areas, thus getting closer to consumers.

Identifying more reasons, Uchenna Uzo, faculty director at the Lagos Business School, said supermarkets are more visible, accessible and their products are more available and affordable compared to hypermarkets.

“Those who are selling local products have a higher chance of testing new products in a supermarket than a hypermarket, which has defined standards and terms of conditions, before you bring your products and services,” Uzo added.

Since 2018, hypermarkets in Nigeria have been unable to expand further due to the country’s tough business environment, high inflationary pressures and weak purchasing power and low incomes from consumers.

Nigeria’s inflation rate surged to a five-year high by 18.6 percent in June 2022 from 17.7 percent in the previous month, according to the National Bureau of Statistics.

Food inflation also rose to an eight-month high to 20.6 percent from 19.5 percent in May.

“Consumers are more price sensitive now. Before they could afford to buy expensive products in the hypermarkets but now they would rather opt for neighbourhood products,” said Ayorinde Akinloye, a consumer analyst at United Capital Plc.

Supermarkets, an important part of the retail industry, act as significant local economic drivers by generating tax revenues, creating jobs, improving housing values, and acting as anchors for further commercial revitalisation.

Neighbourhood retailers represent more than 90 percent of retail transactions in Nigeria and they are an essential part of every community across the country, said Chidi Akubuiro, managing director at TradeDepot.

“Despite the challenges they face with accessing inventory and working capital to scale their operations, their direct connection to the same realities that their customers face on a daily basis enables them to deliver services and support the distribution of products with a high level of efficiency that can be difficult to replicate with other distribution models,” Akubuiro said.

According to Euromonitor, SPAR remains a top leader in the supermarket chain with $28.9 million in 2021, followed by Marketsquare (Sundry Markets) with $11.1 million, Grandsquare ($2.4 million), Prince Ebeano ($2.3 million) and Goodies Supermarket ($2.1 million).

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“During the pandemic, SPAR launched an online platform targeting locked-down consumers while Sundry market has been focusing on locally manufactured products, thereby mitigating the effects of the strong increase in import costs,” it said.

Euromonitor predicts that supermarkets are likely to pose the most significant threat to hypermarkets in the forthcoming years. “With more flexibility in their operating systems, their numbers are likely to grow faster in Nigeria over the forecast period.”

Investment experts say supermarkets present a good and viable investment opportunity since 80 percent of what they sell is consumables.

“The Nigeria population is growing. And now that fuel prices are increasing and income is shrinking, price and time are of the essence for them,” Temitope Omosuyi, investment strategy analyst at Afrinvest Limited, said.

But despite supermarkets’ success in Nigeria, their sales in 2021 were below what was sold by their counterparts in South Africa ($19.3 billion), Algeria ($3.1 billion), Kenya ($1.5 billion), Ethiopia ($1.2 billion) and Egypt ($1.2 billion).

Cheng fuller, a retail expert, said the problem with Nigeria is a generic problem which is the ease of doing business. “For you to set up grocery retail, you need building, constant power, affordable products and an effective supply chain.”

“Before the recession, prices of commodities in the retail chains were even better than the traditional ones. But now, with the astronomical cost of doing business, the price of groceries is almost 25 percent higher than in the open market,” Fuller added.

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