Business model has always been a key determinant in the success and longevity of any company. It is the method used by some organisations to capture value in their target markets. For a segment like the retail sector, for instance, there are two business models currently adopted by retailers. These models could either lead to their growth or demise.
The two superstores worthy of note in Nigeria are Shoprite and SPAR. Both are run by foreign companies and have been around long enough for us to measure their sustainability.
Therefore, in this article, we will be comparing both superstores. How easy are the supermarkets making our lives? Are they staying true to their promise of having “lower prices you can trust”? Moreover, are they truly one-stop shops, where all our needs can be found under one roof? And most importantly, how sustainable are their business models?
History of superstores in Nigeria
Before the success story of Shoprite, the retail industry was home to mega supermarket brands like Leventis Stores and UTC Stores. But the intensive capital required led to the closure of these brands. Other contributing factors that led to their demise in the late 1980s were currency depreciation, inflation and high store maintenance costs.
The shutdown gave birth to mom and pop stores, which began to cater for household needs. However, Nigerians soon grew tired of walking from one store to another, so the need for one-stop-shops began to rise, especially among millennials.
Today, Shoprite and Spar have found ways to rejuvenate the retail industry without compromising on quality and price. These superstores have redrafted the retail business plan, which in turn led to the revenue growth of both players. Shoprite already boasts of about 25 stores across Nigeria since its first establishment in 2005, while Spar accounts for 10 supermarket outlets, after eight years in operation in Nigeria.
Brief profile of both companies
SPAR in Nigeria has been operated by Artee Industries Limited, popularly known as Artee Group, since 2009. Unlike across many countries where SPAR operates on the sub-franchise model to independent retailers, in Nigeria, it operates its own stores located across Lagos, Abuja, Port Harcourt and Calabar.
SPAR’s innovation led to the launch of the first retail co-branded credit card under the Park n Shop Diamond Bank Credit Card, followed by the Plastic Gift Card. It is the only retail chain in Nigeria to offer a Loyalty scheme to its customers under the SPAR Reward Card program.
While for Shoprite, since opening its first store in Lagos in December 2005, the retail company has launched additional stores across eight states in Nigeria. But this is not news. What’s news is that Shoprite hasn’t birthed any innovation to improve its sales. The company is still betting on its brand name to continue doing the magic.
Financial strength of both retail companies
In 2017, Spar Nigeria reported an excellent year, operating 12 stores across the country. It recorded an increase in sales of 57% in constant currency values to N47.3 billion.
While for South African retail giant, Shoprite Holdings’, results for the year ended August 2018 showed that gross profit increased from N841 billion in 2017 to N864.3 billion in 2018. Profit before tax, however, dipped from N189.3 billion in 2017 to N181 billion in 2018. Profit after tax also dropped from N134.5 billion in 2017 to N129.5 billion in 2018.
Business models of both superstores
Asides their competing prices and market sizes, the respective business models adopted by both retailers have contributed to their growths; though while one model could lead its company to more success, the other could easily lead to the demise of its business.
When Shoprite began in the Nigerian retail market, the company adopted the business model of the likes of Leventis and UTC stores — independently procuring and stocking goods. But along the line, the company upgraded to international standards, contracting merchandise to independent and local suppliers rather than self-financing them, while taking on the burden of rental space management alone.
Today, 80% of Shoprite grocery items are sourced locally through its Made-in-Nigeria initiative. But this is not the same with SPAR Nigeria.
SPAR still operates with the old model of financing its merchandise and rental space management all on its own. This could spell doom for Spar as it did for the 80s supermarkets.
Though, in 2016, SPAR partnered with the Manufacturers Association of Nigeria, Bank of Industry and the Retail Council of Nigeria to host an SME seminar that allowed start-ups to exhibit their products to prospective customers at SPAR’s outlet located in Ilupeju Industrial Estate, Lagos, the superstore has not fully incorporated the support of local suppliers into its business model.
Your street is producing threats to Shoprite & SPAR’s growth
If you don’t know, now you know. In your area, there’s a growing threat that is being ignored, maybe due to its size; but you know what the adage says: “a drop of water makes a mighty ocean.” That ocean is gradually sinking the growth of your favourite superstores.
Location matters in business and supermarkets in Nigeria are situated along highways and industrial areas, far from the lower and middle classes. This distance might soon begin to cut into the revenue of superstores, thanks to the establishment of neighbourhood supermarkets in every nook and cranny of communities.
While they might not have all goods under one roof, they are perfect substitutes, tailored for the fast-paced urban lifestyles of Nigerians. People are gradually becoming impatient with the long journeys to the superstores and longer queues that often greet them when checking out — with some malls now requiring visitors to pay to park.
Nigerians are taking note of their expenses now and finding means of cutting costs. This is the advantage of having neighbourhood supermarkets built within communities, unlike superstores which are situated far away from residential areas.
Best of both worlds: If only we could merge Shoprite and SPAR
The best method to cover the lapses of Shoprite and Spar is to merge them, but since such an option is not available, these retail companies will continue to remain the best of different worlds.
Being a one-stop shop for household products at lower prices has been the slogan for superstores, even before Shoprite and SPAR began operations in Nigeria. But these superstores are not totally true to these slogans.
While Shoprite proudly brags about its lower prices, shoppers can’t do same, after their shopping experiences at its outlets. Often, shoppers complain that prices of goods in Shoprite are no different from the mom and pop stores on their streets.
Though, Shoprite struggles to match its slogan, the retail company, however, doesn’t disappoint in the availability of household products; Shoprite can be likened to Netflix due to its unlimited content library.
But for SPAR, the reverse is the case. Unlike Shoprite, its prices are affordable, but it fails to tally with its “everything under one tree” claim.
If only Nigerians could shop at Shoprite and proceed to SPAR to make payments, then would their claims of having everything under one tree at lower prices be true.