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Superstores in Nigeria: Can SPAR and Shoprite’s business models keep them afloat?

The two superstores worthy of note in Nigeria are Shoprite and SPAR.

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Shoprite, SPAR International, Supermarkets chains, Growth outlook

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 SPARBoth 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. 

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Today, Shoprite and Spar have found wayto 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 boastof 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. 

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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

Asidetheir 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. 

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Today, 80% of Shoprite grocery items are sourced locally through its Made-in-Nigeria initiative. But this is not the same with SPAR Nigeria.  

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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, Lagosthe 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 ignoredmaybe 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 areasfar 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 crannof communities. 

While they might not have all goods under one roof, they are perfect substitutes, tailored for the fast-paceurban lifestyleof 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 superstoreseven 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. 

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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.

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: [email protected]

2 Comments

2 Comments

  1. Eric

    March 21, 2019 at 7:33 am

    While I appreciate the fact your were able to establish the distinctive business models of the 2 in terms of their procurement systems, you were silent in their customer strategy. As a retail insider, i know spar has a different target market and different retail focus – narrow assortment, but highly profitable, which informs its buying depth and elimination of middle men. Its average basket value remains solid and almost 3 times that is ShopRite.

  2. Akinwusi Folusho

    March 21, 2019 at 8:34 am

    Insightful, Solving the issue of long queues for payment will really help and bringing there services closer to the lower classes as well..

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Fidelity Bank Plc must cover the chink in its curtains to keep rising 

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years.

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Fidelity Bank Plc

The Nigerian banking sector has consistently been one of the most profitable sectors in the Nigeria Stock Exchange market. However, in 2020, Deposit Money Banks (DMBs) have faced a flurry of impediments, which may have affected their solidity.

With reduced income from fee and commission implemented at the start of the year by the Central Bank of Nigeria, the paucity of foreign currency for international transactions, the resulting economic contraction from dire effects of the coronavirus pandemic, and the consequent operational constraints of keeping employees safe, 2020 is obviously fraught with numerous disorders for banking institutions.

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For most, it hasn’t exactly been a year for growth at all, more like a walk in the woods, where improvements to bottom-line is almost unexpected. This period, many banks seem content with simply surviving and fundamentally matching their previous feats.

Fidelity Bank Plc follows the narrative of top tier-2 banks, which have had better or easier years. The bank generated a 2020 9M PAT of N20.4billion, rising 7.08% from the corresponding figures last year, but drilling solely into its results in Q3’2020 and its exact comparative period in 2019, the bank suffered reduced interest revenue, reduced fees and commission, reduced profit before tax, and reduced after-tax profit.

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Fidelity Bank Plc concluded Q3 with a profit position of N9.1billion, 13.7% decline compared to its position in 2019 y/y. PBT reduced by 12.9% from N10.8billion in 2019 to N9.4billion this year. Gross earning in Q3 was only N49billion as against N57billion in 2019 – plummeting 14%.

The Group Chief Executive Officer of the bank, Mr. Nnamdi Okonkwo, commenting on the result said: “Our 9 months results reflect our resilient business model, particularly in a very challenging operating environment. We worked closely with our customers to gradually recover from the economic impact of the pandemic and the attendant effect of the lockdown. The drop in gross earnings was due to the decline in interest and similar income, caused by lower yields and drop in fee income.”

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READ: Sterling Bank Plc records 3.28% decline in 2020 9M gross earnings

True cause of the reduction in earnings

DMBs generate gross earnings under three primary subheads: Interests earned, Fees and commission, and Other operating income. Fidelity Bank Plc generated a combined total of N150.8billion for the period ended September 2020 from these three categories, compared to the N158.5billion in the corresponding period last year.

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Deeper analysis reveals that this rising tier-2 bank has seen more deficit in revenue from fee and commission compared to the other aforementioned gross-earnings’ generating-sources within this period. Interest earned dropped by a difference of N4.3billion, while revenue from fee and commission saw a decline of N4.8billion from N14.5billion in 2019 to N19.3billion YoY.

Fee and commission as a component of gross earnings

Card maintenance fees, account maintenance fees, commission on remittances, collect fees, telex fees, electronic transfer fees, amongst others, represent the plethora of channels that makes up income from fee and commission.

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The real insight this particular component of gross earnings provides is that a spike in revenue generated indicates increasing/increased customer account activity. The more a customer maximizes the usage of an account’s product and facilities, the more the revenue earned from this segment. Thus, earnings from fees and commissions are so overriding due to their apparent controllability.

For example, a bank could make the decision to purely pursue and aggressively drive the usage of its ATM debit card and promptly see the revenue from commission rise. Furthermore, an increased rate of card production and collection necessitates usage and consequently means more money is earned as card maintenance fees.

READ: Unity Bank Plc posts gross earnings of N11.04 billion in Q3 2020

The fact that gross earnings reduced mostly from fees and commissions should be a telling concern for the Management of Fidelity Bank Plc. Post covid-19 would birth the dawn of a new era for business processes. The management must guarantee the usability of its electronic banking channels, promotion of its cards, and with urgency, implement improved service delivery mechanisms to ensure that it is the first port of call to customers for general payments and remittances.

These measures are of grave significance in the bid to bridge its widened fee and commission income gap.

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Other indices

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Airtel’s annual report revealed that the company has a repayment of $890 million due in May, as well as, an installment of $505 million due in March 2023.

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Top payday loans, Airtel is paying up its debts

Airtel’s presence in 14 countries from East Africa to Central and West Africa would have been impossible without relevant financial investments. But, while the funds have been key to its growth in the past few years, many of its financial obligations are starting to mature quickly.

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Unilever Nigeria Plc: Change in management has had mixed impact

9 months into the change of management, Unilever Nigeria Plc’s performance in Nigeria has been largely underwhelming.

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Unilever Overseas increases stake in Unilever Nigeria Plc

Change in the management of a company is never a walk in the park. Transitions usually take time to yield the desired results. Organizations can look to past successful managerial transitions for inspiration, but not for instruction because there is no defined playbook. The decision to replace Mr Yaw Nsarkoh, who served as the Managing Director of Unilever Nigeria Plc until the end of 2019 was plausible, but adjustments were never going to be an easy task.

Mr Nsarkoh had served as Managing Director of the company for 5 years and steered the course of its proceedings with remarkable skill up until the financial performance disaster which culminated in his resignation on November 28th, 2019.


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