February 16, 2018

Mall or High Street? Krispy Kreme will try both as they enter Nigeria

Onajite Obrutse

Krispy Kreme is planning on opening two new stores in Lagos as interest in the Nigerian retail market resurges. The global chain, with a presence in 28 countries, is seemingly testing the most suitable model for their brand by occupying space in a mall and in a residential conversion as they make entry into the often-daunting Nigerian market.

The first store is expected to open in early March and is located in Ikeja City Mall, one of Lagos’ largest retail centres at 22,000sqm. Their second location will be in a residential conversion on a major street in Victoria Island. The latter is still under construction, but will be completed in a few months, however up to 18 more are planned in the next 5 years.

As the name infers, residential conversions refer to properties that were built for residential occupancy but were modified for commercial use. In Victoria Island, pricing can range between N20,000 and N30,000/sqm/annum (which translates to $5 – $7/sqm/month)  when these properties are completely leased by a single party.

Where these properties are leased and split up into smaller units suitable for pharmacies or cafes, pricing can go as high as N80,000/sqm/annum (translating to $18/sqm/month), especially when they are on high streets.

These options are much cheaper than formal malls but come with the additional hassle of managing power, security and other utilities. Space in the formal retail centres typically ranges between $20/sqm/month or lower for anchors and often up to $100/sqm/month for the much smaller stores. They average out at c. $55/sqm/month.

Aside affordability and local currency pricing, many retailers often opt for the high street/residential conversion model as it enables them achieve their roll out plans faster and get much closer to their customers. Retailers who had expansion strategies that were dependent on the roll out of formal malls across the country would have suffered last year, as many projects were put on hold due to the recession. Dominos for example, have largely stuck to their high street model, and if their 31 stores (and counting) is anything to go by, it is paying off.

In March 2017, Quality Foods Africa entered into an agreement with Krispy Kreme to open 20 shops in Nigeria over a 5-year period. The performance of the first two locations may inform the roll out strategy for the other 18 stores that are planned. It will be interesting to see how things play out.

This will be the third franchisee agreement the company will actualise since it returned to private ownership under JAB Holding Co, a private Luxembourg-based firm who took the company private via an acquisition worth US$1.35 billion in May 2016. The others are in Costa Rica and Iceland.

The brand made its first entry into Sub Saharan Africa, by opening its first store in Rosebank, Johannesburg in 2015 through a partnership with a JV franchise company, KK Doughnuts SA .

Krispy Kreme’s largest international presence remains in Asia where it has shops in 12 countries in the region.

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