More fast food chains seek entry to Nigeria market

AKFC product

When investment banker Ebele Enunwa moved to Nigeria’s oil industry hub of Port Harcourt more than a decade ago, he was distraught by a lack of places he wanted to eat.
To tackle the problem, he raised $1 million from banks and friends to open a chain of fast-food outlets called Kilimanjaro -- named after Africa’s highest peak -- in 2004.
Now, competitors including Yum! Brands Inc, Domino’s Pizza Inc and Johnny Rockets International are following suit and opening outlets, while McDonald’s Corp.says it’s eyeing opportunities in Africa’s most populous country. The chains are staking claim to an industry that has grown more than 10 percent annually 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 Nigerian business hub of Lagos, “the fast-food industry is seriously underserved,” Enunwa said in an interview. “There is so much more to bite out of.” Global expansion has been key for Yum. The KFC owner generates about a quarter of its revenue from its international business unit and posted system sales growth from the division 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 currently the biggest international competitor to Kilimanjaro, having opened 25 restaurants since first entering in 2009. Domino’s and Cold Stone Creamery followed in 2012 and now plan to add about five outlets a year across the country and Lagos.

Domino's Pizza

‘Dominant Brand’
Nigeria “presents opportunities in the form of substantially less penetration than developed markets and the ability to establish a dominant brand and market share,” said Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co.
The fast-food chains are building on the industry that Enunwa helped pioneer with Kilimanjaro, which he used to evoke images of the “top of Africa.” Since quitting lender IBTC to sell beans and dodo, a local fried plantains dish, he’s turned Kilimanjaro into a chain of 13 outlets and plans another four this year. The Cornell University hospitality school graduate says he aims to capture a “significant” share of the market, despite the foreign competition, and may sell shares to the public one day.
First, he’s got to sell more food. These days, a meal at Kilimanjaro is still a luxury for most Nigerians. While oil wealth in Africa’s top producer tripled Nigerian gross domestic product per capita over the past decade, most Nigerians live on less than $1.25 a day, or about 206 naira, World Bank estimates show. A typical customer spends about four times that much each time they visit Kilimanjaro, Enunwa said.
Pounded Yam
“Overall, low poverty still restricts the number of international chains that can enter, since modern fast-food prices are quite expensive and beyond the reach of most,” said Euromonitor analyst Victor-Serge Ajibola.
That means only a lucky few are tucking into Kilimanjaro’s pounded yam, edikaikong -- a local soup -- and catfish combo meal, which goes for 1,170 naira, about seven dollars, and can be ordered online for in-store pickup or delivery. At KFC, a three-piece chicken meal with fries or rice and a drink costs 1,800 naira, or nearly $11.
“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.
Import Ban
Part of the reason for the relatively high prices in Nigeria is that the country bans chicken imports -- to help support its nascent poultry industry -- and packaging. That means all of KFC’s wings have to be sourced locally in a country that lacks an industrialized farm system of scale 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 humming at the chains’ air-conditioned eateries in a nation fraught with chronic blackouts.
For many it’s a reliable alternative to an office. After a meal of chicken and chips at a KFC in a Lagos business district, 29-year-old trainee pastor James Berry joins a number of other diners when he plugs his laptop into a wall socket and charges his BlackBerry.
“We like the continuous power supply,” Berry said, wearing a light-pink shirt and gray suit pants as synthesized Nigerian pop music plays in the background.
‘Every Corner’
Layzell said it costs twice as much to open a Nigerian KFC than a South African one, but that exponential growth on the continent is going to come from outside of South Africa, which is already KFC’s fifth-biggest market. Yum’s shares have declined 4.5 percent this year.
The challenges of Nigeria aren’t deterring Domino’s and Cold Stone, which have 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,” Meyer said, though currently they are focused on Lagos. He called the current expansion plan “pretty conservative” for a country with a population of about 170 million, more than half the U.S.
For now, Enunwa thinks his competitors’ focus on Lagos means he sees more opportunity for Kilimanjaro expanding to regions away from the heaving metropolis of Lagos.

Culled from Bloomberg