Nigeria’s fast food industry takes off

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BR KFC Bloomberg KFC and Domino's are opening new stores in Nigeria to take advantage of the large population, but poverty is a challenge. Photo: Bloomberg

Chris Kay Lagos

Moving to Nigeria’s oil industry hub more than 10 years ago, investment banker Ebele Enunwa was upset by a lack of places he wanted to eat.

To tackle the problem, he raised $1 million (R10.7m) from banks and friends to open a chain of fast-food outlets called Kilimanjaro. Now, rivals including Yum Brands, Domino’s Pizza and Johnny Rockets International are following suit and opening outlets.

The chains are entering an industry that has grown more than 10 percent a year this decade despite operating in a nation where chicken imports are banned, power supply is unreliable and a meal costs more than most people make in a day.

Outside of the business hub of Lagos, “the fast-food industry is seriously underserved”, Enunwa said.

Global growth has been key for Yum. The KFC owner gets about a quarter of its revenue from its international business unit and posted sales growth from the unit that was twice as fast as the whole last quarter.

KFC, which sells Nigerians fish burgers and vegetable fried rice in addition to the chicken that made it famous, is now the biggest international rival, having opened 25 restaurants since entering Nigeria in 2009. Domino’s and Cold Stone Creamery followed in 2012 and now plan to add about five outlets a year across the country.

Big potential

Nigeria had “opportunities in the form of substantially less penetration than developed markets and the ability to establish a dominant brand and market share,” Sanford C Bernstein analyst Sara Senatore said.

The fast-food chains are building on the industry that Enunwa helped pioneer with Kilimanjaro, which he has turned into a chain of 13 outlets and plans another four this year. The Cornell University hospitality school graduate said (he) aimed at a “significant” share of the market, despite the foreign competition, and might sell shares to the public one day.

First, he has to sell more food. These days, a meal at Kilimanjaro is still a luxury for most Nigerians. While oil wealth tripled Nigerian gross domestic product over the past decade, most Nigerians live on less than $1.25 a day, or about 206 naira (R13.26), World Bank estimates show. A typical customer spent about four times that much each time they visited Kilimanjaro, Enunwa said.

“Poverty still restricts the number of international chains that can enter, since modern fast-food prices are quite expensive,” Euromonitor analyst Victor-Serge Ajibola said.

That means only a lucky few can tuck into Kilimanjaro’s pounded yam, edikaikong – a local soup – and catfish combo meal, which goes for 1 170 naira. At KFC, a three-piece chicken meal with fries or rice and a drink costs 1 800 naira.

“We are definitely not affordable to the majority of the population, but we hope in time to be able to reduce our cost base so we can pass on a reduced price,” said Bruce Layzell, Yum’s general manager for new African markets.

Cost barriers

Part of the reason for the high prices in Nigeria is that the country bans chicken imports to support its nascent poultry industry. That means all of KFC’s wings have to be sourced locally in a country that lacks a large industrialised farm system and the infrastructure to reliably get meat to restaurants before rotting.

Another cost is one of the greatest attractions to customers: generators to keep the lights on and the free WiFi in a nation fraught with blackouts.

Layzell said it costs twice as much to open a Nigerian KFC than a South African one.

The challenges of Nigeria were not deterring Domino’s and Cold Stone, which had a combined 15 shops, mostly dotted around Lagos, said Jean-Claude Meyer, who runs the local franchises in Nigeria.

“In 20 years’ time, we expect to be in every corner of the country,” he said.

Enunwa thinks his competitors’ focus on Lagos gives more opportunity for Kilimanjaro expanding to other regions.

“People say they’re a threat,” Enunwa said. “I say let them come. I think everybody will find space.”

– Bloomberg


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