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SME Guide

How to Start a Successful Supermarket or Convenience Store in Nigeria

Running a successful supermarket or convenience store in Nigeria can be a profitable venture if done right. The rapidly growing population, coupled with increased consumer spending, presents immense opportunities for retailers. However, you need proper planning and strategic execution to thrive in this highly competitive sector. This comprehensive guide covers all the key things you need to know to start your retail business in Nigeria.

Conducting market research

Before committing resources to start a supermarket or shop, it’s crucial to carry out thorough market research. This will help you make informed decisions and set up a store primed for success. Here are key things to analyse. Read our Beginner’s Guide to Conducting Market Research.

Customer Demographics Understand your target customers, i.e., their age, income levels, shopping habits, preferences, etc. This will guide decisions around store location, product assortment, pricing, etc. Focus both on existing and emerging customer segments.

Competition Analysis Study existing supermarkets and stores in surrounding areas. Look at factors like their product ranges, pricing, store size, marketing strategies, etc. This will help you identify gaps to fill and avoid copying their model outright. Track sales trends to estimate the market size.

Supplier Landscape Research food and grocery suppliers and distributors in Nigeria. Evaluate factors like their pricing, minimum order quantities, delivery reliability, etc. Having reliable suppliers is key to maintaining inventory levels. Prefer suppliers that offer exclusivity arrangements to differentiate.

Understand Regulations Research all the legal and tax regulations surrounding owning retail stores in Nigeria. Factors like business permitting, shop registration, and food handling compliance are critical. Being compliant helps avoid penalties and abrupt shutdowns.

Having insights from thorough market research sets the right foundation to craft an effective business strategy. The next step is developing a sound business plan.

Creating a bankable business plan

A detailed supermarket business plan is indispensable, especially when seeking external funding from banks or investors. Key things to cover:

Executive Summary Briefly summarise key details like ownership structure, target market, value proposition, store location, products and services, projected financials, etc. This overview section captures the essence of your overall plan.

Company Profile Provide background details like ownership structure, organisational values, the capabilities of key team members, etc. Elaborate on your competitive advantages concerning factors like expertise, proprietary processes, technology, etc.

Products and services Describe in detail the product categories and services offered based on insights from your market research. Project your product assortment and inventory levels for the next 1-3 years. Explain sourcing plans, i.e., key supplier relationships and distribution strategies.

Market Analysis Leverage research insights to describe target customer demographics and psychographics. Analyse the competitive landscape. Highlight how you will differentiate your store and gain market share. Share sales and growth projections.

Marketing and sales strategy Detail plans for areas like store branding, promotions, partnerships, loyalty programmes, social media, etc. to attract and retain customers. Have measurable goals and key performance metrics to track success.

Operations Plan: elaborate on day-to-day store operations like inventory management, storage, developing standard processes and staff training models, etc. Cover areas like equipment, tech systems, and tools required. Highlight plans for ensuring regulatory compliance.

Management Team
Profiles and accomplishments of key team members, especially in retail. Advise having an advisory board with veterans from the industry.

Financial Plan: detailed projections of expected sales, revenues, operating costs, capital expenditures, etc. Have profit/loss, balance sheet, and cash flow statements covering at least 3 years. Include assumptions behind estimates and break-even scenarios.

Having a solid plan builds credibility and greatly aids in securing financing from banks or external investors. The next crucial step is identifying the right location.

Selecting an Ideal Retail Location

Choosing a strategic location best suited for your target demographic is vital for any retail business. Here are key factors to evaluate:

Customer Access Easy accessibility for customers is paramount. Check for proximity to highways, side roads, bus stations, fuel stations, etc. Consider proximity to residential areas, schools, hospitals, and corporate campuses, which drive foot traffic.

Visibility and Storefront The store should be highly visible from the main road, with adequate signage and outdoor space for parking. The storefront should stand out to draw attention. Being near landmarks also helps.

Competition Unless you have sufficient capital for aggressive promotions, avoid locations with multiple established competitors nearby.

Infrastructure: Verify essential infrastructure like roads, electricity, water supply, etc. needed for smooth operations. Avoid areas with frequent shortages that can hamper business.

Security: Ensure the location has adequate safety precautions and security personnel to safeguard inventory from theft, which is a key loss in retail.

Commercial Zoning Laws: Confirm that land acquisition and construction adhere to commercial zoning laws for retail establishments in that locality to avoid future challenges.

Growth Potential
Consider the scope for future expansion when scouting locations—adjacent empty plots, upcoming residential or commercial projects, etc. This helps plan for long-term growth.

While identifying a suitable location, negotiate lease or purchase rates that provide maximum value. With thorough planning, retailer owners can secure prime locations best positioned for profitability.

Estimating startup costs

Starting and running any retail business entails a sizeable capital outlay, especially in the initial years before achieving profit milestones. Key heads to budget for include:

Property Purchase or Rent Acquiring commercial real estate, securing permits, renovations, etc., especially in cities, entails major upfront payments. Even long-term rents need sizeable advance deposits.

Store Design and Interiors Shop layout design, shelving, checkouts, shopping baskets and carts, in-store branding, etc. can cost a significant sum. Owners must align store aesthetics with positioning.

Equipment Specialised refrigeration systems, power backup, CCTV security, etc. all represent major fixed asset investments to enable smooth store operations.

Inventory Sufficient initial working capital needs allocation for sourcing and stocking inventory before store launch. Inventory levels must align with sales projections.

Technology
POS hardware and software, accounting systems, inventory management technology, etc. aid in tight retail operations control and cash flow planning.

Manpower
Staffing all functions with qualified personnel (store manager, cashiers, stockists, etc.) entails monthly operating expenses.

Marketing
Promotions, ads, and other below-the-line engagement initiatives to attract customers account for a notable share of sales budgets.

Working Capital
Every retail venture requires surplus working capital for contingencies like consumer demand fluctuations, overstocking of seasonal goods, etc.

Adequately sizing budgets across all the above heads based on market dynamics helps retailers deploy funds judiciously. Having flexibility by tapping external capital sources helps overcome constraints.

Arranging Financing

For any target store footprint and location, having reliable sources of financing ensures a timely launch and smooth operations. Here are viable options:

Savings and personal equity
Dipping into personal savings and stocks is the top financing means for most first-time retail entrepreneurs. Adds credibility when raising external funds.

Bank Loans Banks do offer small business loans, including SME retail loans, backed by property or fixed deposits. Prepare a strong application and business case.

Angel and VC investors Those with an innovative retail concept can attract funding from individual and institutional investors wanting a good ROI. Offer to share in profits.

Crowdfunding
Raising small seed capital to get started via crowdfunding platforms in Nigeria is gaining traction. It helps get validation before seeking larger amounts.

Partners and co-owners Onboarding business partners and co-owners to pool capital reduces the individual share of risks and burdens. Adds more accountability.

Grants and government programmes Federal and state initiatives to boost entrepreneurship and MSMEs in Nigeria offer some concessional financing support.

As much as possible, limit acquiring debt or giving up equity during the initial lean phase of retail operations. Focus more once the growth momentum sets in. Meanwhile, register for the required formal business permits.

Registering the business

Before a retail store launches, promoters must fulfil all statutory requirements, including:

Business Name Registration
Register your unique supermarket or store name with the CAC to kickstart formal business incorporation.

Tax Identification Number
Apply for your TIN, which aids tax reporting and compliance with FIRS guidelines. This also enables opening a corporate bank account.

Operating Licences and Permits Secure all state and municipal government-mandated permits related to running retail grocery businesses. Different towns have specific requirements.

NAFDAC Licences
If selling perishables, meats, baked goods, etc., acquire National Agency for Food Drug and Administration Control (NAFDAC) licences stipulating food handling guidelines compliance.

Insurance
Having ample stock, property, fire, and burglary coverage gives a financial cushion against unforeseen incidents causing inventory or premise damage.

Staff recruitment and training Develop a clear duty charter and the qualifications needed for hiring store managers, sales associates, stocking clerks, etc. Invest in requisite job skills training covering customer service, safety, cash handling, etc., even for entry-level roles.

Completing all legal formalities and documentation as per norms reduces business disruption risks and builds standing among customers and partners.

Choosing Product Mix and Suppliers

The choice of categories, product assortment depth, and supplier partnerships impact the success and differentiation of any retail venture. Here are key considerations:

Category Scope
Along with staples like food grains, packaged foods, etc., consider extending into non-foods, apparel, electronics, etc. Combination stores attract more customer segments.

Private Labels
Branded products build authority. Consider developing some private labels over time after gaining stability with sales of known national brands customers relate to.

Assortment Depth
Within each category, refine target stock-keeping units tailored to community preferences and local tastes. Avoid generics and focus on stocking enough branded variants catering to diverse needs.

Supply Partners
Partner with manufacturers and traders able to meet high-volume needs with reliable delivery schedules for consistent inventory. Have contracts stipulating quality standards and continuity.

Direct Sourcing Explore possibilities to directly source certain products, like fresh produce, dairy, etc., where feasible. It helps improve margins and control over quality.

Exclusive Variants
Enter into arrangements with brands that provide specially packed sizes or co-branded products exclusively for your stores. This tactic prevents direct price comparisons.

Private Labels Over time, introduce smartly positioned private label items matching or exceeding brand attributes at 5–15% lower price points. Ups margins.

Making prudent choices to curate a tailored merchandise mix that fulfils specific customer expectations boosts store pulls and thereby revenue and profitability.

Managing Inventories

Maintaining optimal inventory volumes, efficiently replenishing stocks, and minimising losses due to damage, expiration, etc. are crucial for supermarkets to ensure profitability. Here are effective tactics:

Accurate demand forecasting
Leverage historical store-level sales data, trends, seasonality, events, discounts, etc. for scientific demand planning and inventory budgeting.

Lead time reduction
Through supplier negotiations and logistics improvements, stretch targets to reduce average lead times by 7–15%. Better still, partner with local vendors.

Shelf Space Planning
Align shelf layouts and assign display space sizes per SKU based on historical item velocities and anticipated demand. Prevent stockouts.

First in, first out. Rigorously follow FIFO stock rotation to avoid write-offs from product expiry. Integrate batch/expiration tracking into the inventory system.

Safety Stock
Based on the sales variance analysis of each product, define minimum buffer quantities to always be available to meet spikes in demand.

Technology Usage Leverage retail tech like IoT, RFID, blockchain, etc. for inventory tracking, placing automated replenishment orders, and enabling precise demand-supply matching.

Vendor Managed Inventory: Explore having trusted suppliers directly manage and replenish inventory of certain categories at your locations based on pre-agreed service levels.

Through relentless efforts towards improving forecast capability, supply chain efficiencies, and inventory control systems, substantial working capital gets freed up, boosting overall business profitability.

Selecting technology systems

Adopting the latest retail technology systems and tools optimises in-store operations, enhances customer engagement initiatives, and provides sales and profitability analysis inputs.

POS Solutions
Install modern point-of-sale software with touchscreen terminals offering bill print customisation options and GST/VAT handling. Should integrate payment gateways.

Planograms
Leverage planogram software to ensure optimal product adjacencies and shelf space allocation based on customer intuition and sales trends.

CRM Software
To manage loyalty programmes, have a CRM solution with features like membership management, personalised engagement, tiered rewards tracking, etc.

Surveillance Systems
CCTV cameras feeding into digital recorders with at least 90 days of storage help monitor checkout areas, entry/exit, some aisles, etc. Deters theft.

Inventory Management
Use feature-rich software to aid in purchase planning, identifying fast or slow sellers, tracking batch expiry, simplifying price updates, etc. for control.

Customer Analytics Gain actionable insights from analytics on customer demographics, purchase habits, responses to promotions, etc. to craft customer-centric marketing.

Accounting Software
Manage complex billing, vendor payments, taxation, etc. efficiently by implementing capable accounting software systems with inventory interlinking.

Deploying the right complementary technology infrastructure provides comprehensive system support, enabling smooth store operations, tighter control, and deeper customer engagement to drive sales.

Hiring store staff

Hiring qualified professionals and equipping them with adequate job skills training is imperative for the successful launch and running of any retail store.

Store Manager
Hire those with prior brick-and-mortar management exposure and the requisite technical knowledge and leadership traits to provide oversight across store operations and back-end functions.

Department Leads Assign leads to oversee and take ownership of specific sections like perishables, non-foods, etc. based on individual competence. Helps manage large format stores.

Customer Associates
Hire those with flair for customer service and expertise regarding products to offer purchasing assistance and appropriate cross-selling prompts at checkout.

Cashiers Prefer those with prior billing experience and a numerical aptitude for managing transactions efficiently through batches, discounts, returns, etc.

Security Guards
Onboard personnel from reputed third-party security agencies to man entrance and exit points. Deters shoplifting, which causes major losses.

Housekeeping Staff
Dedicated floor cleaning staff ensures maintaining high standards of visual merchandising and hygiene reassurance needed in retail food establishments.

Invest adequately in periodic training needs assessment and rolling out relevant skill improvement programmes to further augment staff capabilities. Incentivize achievements.

Marketing and Promotions

In a competitive retail landscape, supermarkets must actively employ select marketing techniques for brand building while relying on targeted promotions to attract and retain customers.

Brand Positioning
Define and consistently project a clear brand image around parameters like value for money, product quality, store experience, etc. aligned with target consumers.

Signage and Storefront
Invest in visually appealing large exterior signage matched with well-designed landscaping and lighting to make a striking first impression conveying brand ethos.

Advertising
Plug into multiple advertising channels (local print, radio, digital, etc.) based on the consumption patterns of catchment communities to maximise media plan ROI.

Direct Mailers
Send postcards, brochures, etc. with upcoming deals and offers to homes in nearby high-value neighbourhoods to drive store visits.

Loyalty Programmes
Offer tiered benefits like additional savings, exclusive deals, bonus rewards, etc. for members to gain wallet share and boost retention.

Promotions and deals
Run for a limited period. buy 1 get 2 free offers, bundled pricing, additional saver cards, etc. matched to buying behaviour covering popular or newly launched products for extra pull.

Omnichannel Presence
Have an aesthetically designed website with an online product catalogue and seamless in-store pick-up facilities, along with active social media engagement for better reach and recall.

CSR Initiatives
Undertake community connect drives (cleanliness, tree planting, recycling, etc.) to position the store as a socially responsible neighbourhood with brand-boosting affinity.

Sustained brand building supported by tactically timed promotions targeted at customer preferences gives an edge in detracting buyers from competing stores or online channels.

Earning customer loyalty

Supermarkets can focus on select strategies to improve the customer experience, exceed expectations, and earn long-term loyalty.

Friendly Service Train staff to be polite, attentive, and go the extra mile in servicing customers speedily during billing, handling disputes, etc.

Product Sampling
Offer select new products for free trials, like juice, biscuits, spreads, etc., for prospects to assess quality and consider buying them eventually.

Value-Added Services
Provide amenities like parcel checking, gift wrapping, loyalty card issuance, etc. free of charge to delight patrons.

Convenience Focus
Assure a wider product range, accept varied payment modes, extend working hours, etc. to enhance ease and generate goodwill through heightened convenience.

Personalisation
Address regular patrons by name. Track individual preferences to give custom prompts like switching brands, trying new flavours, etc. during visits.

Cleanliness and hygiene
Ensure the highest cleanliness around the store premises, including shelves, carts, etc. Maintain stringent hygiene levels in places like the produce section.

Feedback Management
Actively seek periodic customer input through email surveys. Track and quickly resolve complaints escalated through feedback registers or helpline numbers.

Special Customer Events
Arrange activations like food sampling stalls, celebrity visits, new product launches, etc. for regular buyers. Consider loyalty members exclusive preview events.

Energy Efficiency
Maximise the usage of natural light during the daytime through skylights and windows, and install sensors and timers for lights and ACs to conserve electricity and lower the carbon footprint.

Renewable Energy
Utilise solar heating for running kitchens and water heaters. Also, evaluate the feasibility of installing rooftop solar panels to meet a portion of daily energy needs through a clean photovoltaic route.

Waste Management
Implement responsible solid waste disposal and food waste composting, adhering to pollution control guidelines. Enable plastic packaging returns for recycling partners.

Local Sourcing
Enhance direct sourcing of multiple produce categories, like fruits, vegetables, dairy, etc., from neighbourhood farmers and vendors to aid community-based livelihoods and boost the local economy.

Food Safety
Stringently follow vendor hygiene norms, cold storage protocols, shelf life adherence, etc. around dairy, meat, and ready-to-eat categories to prevent health hazards and safety incidents.

Expansion Plans

Scaling up the number of stores in strategic locations is imperative for sustained growth and reaping economies of scale for supermarkets.

Cluster Approach Expand within the same neighbourhood or adjoining localities for operational ease through shared infrastructure like warehousing, distribution, etc. to optimise logistics.

Hub and Spoke Utilise stores in Tier 1 cities as hubs for expanding within that city or into adjoining towns through smaller-format spoke stores at key residential catchments.

Tier 2/3 Cities
Identify evolving cities driven by new educational institutes or industries where modern retail penetration is still low. Local insights help assess income growth feasibility.

Owned vs. Franchise Balance: company-owned large format stores focused on building brand equity along with smaller franchise variants for deeper distribution reach in hitherto untapped geographies.

Shop-In-Shop
As a low-risk testing approach, consider setting up supermarket shop-in-shop sections inside existing department stores to evaluate potential before full store commitments.

Airport Retail Explore opportunities to launch convenience store formats at key airports to target high-displacement-income captive audiences like frequent business travellers open to trial.

Succession Planning

Putting long-term leadership succession plans in place is imperative before embarking on rapid, ambitious store network growth.

Purpose and Vision
Clearly articulate and document the organisation’s purpose, vision, and priority focus areas for the next decade to sustain core ideology across leadership changes.

Leadership Competencies
Define the essential behaviours and competencies expected in the CEO and top management roles based on strategic priorities and the culture being fostered.

Advisory Board
Have an independent board of veterans and specialists like management consultants, technologists, academicians, etc. to advise existing and incoming leadership teams during transformations.

Structured Onboarding Institutionalise a rigorous onboarding process to enable newly elevated internal employees or external hires to transition seamlessly into leadership roles.

Review and feedback Conduct periodic reviews, seek input from key stakeholders within and outside the organisation and guide the progress of prospective next-generation leaders through timely constructive feedback.

Getting succession planning right boosts sustainability, allowing businesses to thrive for decades by smoothly passing batons to able, future-ready leaders.

Crisis Management

Despite best efforts, unforeseen events like pandemics, natural calamities, social unrest, etc. can unfavourably impact supermarket operations and continuity. Key measures to regain stability include:

Business Continuity Build contingencies around key infrastructure like cold storage, inventory, distribution, etc. operated redundantly from separate locations through partnerships, ensuring uninterrupted functioning.

Communications
Have a crisis management taskforce for centralised decision-making with planned external messaging providing guidance to employees, vendors, authorities, etc. for coherence and avoiding panic.

Digital Focus
Swiftly scale up existing e-commerce enablement or launch online ordering with deliveries including essential products during forced offline store closures to retain sales.

Care Initiatives
Undertake community supportive services like home deliveries for seniors, distributing sanitation kits or protective gear, tie-ups with shelters, etc. during health emergencies or calamities to provide relief.

Exiting the business

After decades of operations, supermarket promoters may consider unwinding business through strategies like:

Franchising Convert majority-owned large stores into well-run franchisee outlets for risk mitigation while retaining a few flagship establishments to continue brand building.

MBO Arrangements Craft management buyout structures allow key personnel like the CEO, functional heads, etc. to take over operations with external funding support. Help retain culture.

Private Equity Route
Explore private equity investors with an appetite for the retail sector to sell majority stakes so current owners can liquidate holdings while maintaining minority interests.

Orderly Shutdown
In the worst-case scenario, look to dispose of key assets, settle liabilities, and gradually terminate store leases, closing entire operations in an ethical manner.

Carefully evaluating timing and structuring ownership transitions appropriately ensures retail founders can bank sizable returns and protect organisational legacy while securing the interests of wider stakeholders.

In Conclusion
Starting and succeeding across a supermarket chain encompasses strategizing and flawless execution skills across complex domains of real estate, supply chain, technology, marketing, finance, and, more significantly, managing human resources. However, retail also provides immense job creation and community upliftment dividends when done right. This comprehensive playbook offered detailed guidelines across the retail lifecycle, from ideation and startup right through growth journeys to eventual business transitions. Meticulously following the outlined market expansion and profit-enhancing tactics paves the path for sustainable success even within Nigeria’s intensely competitive supermarket industry. The strategic principles and operational best practices form a solid foundation. However, beyond having the willpower, the differentiating variable is the passion and purpose founders bring to uplifting lives through their enterprise. That enduring commitment becomes the guiding compass, converting ambitious dreams into transformative realities as retail leaders in community development.

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