Is the Fast Food Industry in Nigeria Really Profitable?

According to the Association of Fast Food and Confectioners of Nigeria (AFFCON), the fast food industry in Nigeria is a lucrative sector estimated to be worth over a trillion Naira, with the fast food segment gulping over N25 billion as of 2016.

Despite challenges such as funding and constantly changing social and economic dynamics, the industry continues to grow. However, the challenges are equally significant, and it has sent some fast food brands out of business.

The reasons for the industry’s growth rate are not far-fetched. An increasing number of young urban dwellers, who are time-stressed and increasingly resort to eating out for the better part of the day, makes the fast food industry in Nigeria, particularly the quick service restaurants, a rapidly growing one.

Data from the National Bureau of Statistics show that in 2019, Nigerians spent N4.598 trillion on food consumed outside their homes, which translates to about 20% of total spending. 

Although factors such as franchise affiliation may affect profit margins, fast-casual restaurants typically have an average profit margin of 6-9%, says Restaurant365. Despite this, many brands have failed to maintain profitability, with some even facing extinction.

Failed Businesses in Quick Service Restaurant Sector

For players in the QSR sector, it is a bitter-sweet experience.

The new entrants such as Domino’s, Debonairs Pizza, KFC, Johnny Rockets, Krispy Kreme doughnuts and others are making inroads. They seem to be expanding service offerings and branches across the country. But the old names, like Mr. Bigg’s, Tastee Fried Chicken, Tantalizers, Sweet Sensation, and Mama Cass appear to be struggling to retain their market share. 

Some, like Mr. Bigg’s appear to have out-rightly lost the previous shine and market dominance they previously enjoyed. 

A quick look at two brands, one on each side of the divide above.

For a company like Domino’s Pizza which launched in Nigeria in 2012 with just two branches, it now has 90 branches, comprising 43 Domino’s Pizza stores, eight Pinkberry Gourmet Frozen Yoghurt and 39 ColdStone Creamery stores.

On the other hand, Mr. Bigg’s, the pioneer of the QSR model, which was established in 1986, is all but a shadow of itself. Despite a re-branding exercise in 2019, the brand is all but gone.

Challenges Facing the Industry

Looking through the fast food industry in Nigeria, one thing stands out. And that is the challenge of sustainability for the pioneer brands. What are the challenges these brands face that make sustainability a huge problem?

According to Adedayo Odulaja, a journalist, he opines that mismanagement and a lack of understanding of its market, as well as the franchise model it adopted, were the brand’s death knell:

“For me, it is essentially down to the franchise model they embarked upon, which ensures that people can open outlets in the name of Mr. Biggs even when they don’t have adequate facilities or expertise to run such.

In the end, it contributed to reducing their brand equity as people kept turning away from them with the understanding that it was the Mr. Biggs brand that had become terrible due to mismanagement without knowing it is the franchise idea.”

For Timothy Godonu, a dev Ops engineer, the lack of innovation and the inability to stick to and uphold in-house standards across all franchisees is a major challenge of these brands.

“There are various things that actually caused the demise of Mr. Bigg’s. First, they didn’t take innovation seriously. When the likes of Sweet Sensation, Tastee Fried Chicken, Chicken Republic, and the rest of them started showing up, they didn’t innovate.

They misused the first-mover advantage that they had. This is probably due to the fact that they felt they couldn’t be displaced since they were being powered by one of the legacy businesses, UAC.

Another thing that killed them was the fact that they didn’t follow up on the franchise they were issuing out. They didn’t monitor the maintenance of standards and quality of service. “

Continuing, he says brands like Dominos have ensured strict adherence to quality:

“Brands like Dominos have ensured that their standards aren’t compromised; they’re also picky about their locations and, as a result, site their shops in the best locations,” he concludes.

Even though the market is profitable, with new entrants breaking new ground, from the foregoing, the issue of sustainability stands out as a major challenge for the existing ones.

According to Victor B. Ukorebi, approximately 80% of the fast food restaurants launched in Nigeria in 2014 failed to persist for longer than 5 years because of a lack of survival strategies.

Funding also comes up as a major reason. Since the industry is a capital intensive one, these brands, as they grow, face a stiff challenge in terms of working capital. Staff have to be hired; branches have to be maintained. All these take a toll on the company, and where care is not taken, many run into crisis in a bid to stay afloat as they stretch themselves thin.

The challenge of maintaining quality and standards across the board and the need for constant innovation and adaptability to market trends arise from the foregoing. Several brands run into this problem, which marks the beginning of a downward spiral.

ALSO READ: How Deji Akinyanju, Founder of Famed Chicken Republic, Got His Start

Conclusion

While it is evident that the fast food industry in Nigeria is indeed profitable, a healthy source of funding, an eye for innovation, and maintaining top-notch quality are the challenges players must adhere in order to stay relevant.