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Wednesday, February 22, 2017

Super Market Vs Fast Food Restaurant: Which is a more lucrative business to do in Nigeria?



This blog post asks this question because of the strategic nature investors and entrepreneurs seek out business and investment opportunities in Nigeria. There are many business opportunities one could look at in Nigeria but as I stated some months ago I’ll be doing a side by side review of business ventures in Nigeria as a way of guiding would be investors looking for new ventures to invest in and entrepreneurs on raising finance to fund their ventures. 

Let’s start with a hypothetical question - If you have N50 million today which of these two ventures would you invest in?
  • A supermarket business or
  • A fast food restaurant
If you haven’t read my article from 2013 about how to startup a mini supermarket in Nigeria the link is here for you to read.

Is there room for more investments in Supermarkets in Nigeria?
The supermarket falls under the retail sector of the Nigerian economy which has been growing at an average of over 13% per annum since 2009 and has led to many global retail giants coming to invest in Nigeria. Most people still shop informally at open air markets, which is not suitable for many busy city dwellers. There are also too many underserved market needs such as convenience, proximity, broad product range and attractive ambiance which many Supermarket customers look forward to but which many supermarkets are not still offering. This explains why huge investments have been made in this sector for instance Next Supermarket in Abuja, Grand Square, 4U, 212 Supermarket, World Mart, SPAR, Park n Shop and Sahad Stores have positioned themselves to grab a share of the market. In Lagos, Ebeano, Park n Shop, Domino Stores, Shoprite among others are making their presence felt.

Shoprite in particular has invested over $1 billion in less than 10 years opening many locations in Nigeria (at least 12) with plans to open more they even have some within stone throw from each other – Lekki has two in Lagos, there is one at Ikeja just to name a few whereas at Abuja there are three Shoprite locations built in less than 4 years and a fourth one is under construction at Lugbe Axis. Park ‘N’ Pay another big retail giant from South Africa is planning to enter the Nigerian market in 2018. Some other brands going online to grab a share such as Jumia, Konga and PayPorte have also invested heavily in reaching retail customers online. Overall less than 8% of the formal retail market has been captured by these big brands even with the huge investments they’ve made according to the Economist Magazine.

What can make a Supermarket in Nigeria profitable or otherwise?
In Nigeria a supermarket when located in a suitable area is a sustainable and profitable business to do. Of course bearing in mind that the operating costs have to be kept at a minimum for it to work but seriously if you setup a supermarket in a good location within any of the busy cities you can be sure of remaining in business for years even when other kinds of businesses are packing up left and right around you.

First the main costs of the business comes from inventory, rent, salaries and power supply all of which can be adequately met if your sales is within the breakeven threshold, the next question naturally to ask is what can I do to ensure that I meet my sales target. This is a closely guarded secret for supermarkets because there are techniques which you can apply to make people stay longer and buy more things when they walk in plus the way in which you arrange things in the supermarket can all contribute to how much sales you can make (more details about the marketing strategy available in a supermarket business plan on request)

Secondly there are challenges which can threaten the life of the supermarket for instance internal fraud by unscrupulous staff, high spoilage from perishable goods, repeated theft of various products even high value products by some customers, armed robbery attacks, rising energy costs and fire outbreak.

What about Setting up a fast food restaurant in Nigeria?
Fast food restaurants are very popular in Nigeria, in 2012 this industry generated over N250 billion gross sales from 800 restaurant locations nationwide which is an average of N313 million per year for each restaurant or N800,000 per day in sales per outlet. Mind you fast food restaurants have one of the highest profit margins of over 30% but they also have one of the highest operating costs among various industries - more than 40% of their operating income goes to powering and servicing their generators, they pay huge amounts for rent and pay higher salaries than most other hospitality businesses in Nigeria, despite all these they are still profitable businesses to do but they require qualified and technically sound people to manage them.

Fast food restaurant or Supermarket Business – where is the money?
While an above average fast food restaurant location does over N1 million a day in sales with estimated N300,000 daily operating income a supermarket outlet like Shoprite could be doing over N60 million per day in sales with operating income of over N1.8 million daily. This is because Fast food businesses rely more on value sales unlike Supermarkets that thrive more on volume sales. A fast food restaurant may actually prefer to specialize in selling a particular line of food if they can be sure of high profit margin and adequate patronage than for them to sell many food items with diverse profit margins. So it isn’t uncommon to find one restaurant known more for serving Pizza, another for great chicken based meals, another for continental food, some are great at confectioneries while some are better than others in Shawarma etc. Supermarkets must sell a lot of products in a short time and so must offer wide product selection to customers in addition to using other marketing techniques to prolong customer visits and encourage impulsive buying. 
I wish I could go on and on but I must stop here, if you have a strong desire to invest your money and you’re wondering which sector offers better prospects look out in future for more of these kinds of post but these two aren’t bad to look at. Thanks for reading.

Do you need a professionally written, bankable business plan? Give me a call: 0803 206 4106 or email me at: paulonwueme@gmail.com to have one prepared for you

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