It does not matter that Sherifah Yunus has been in the food business for over a decade. As the founder of SmdNigeria, a food company based in Lagos, she has to continue to change strategies to remain in business.
The rising cost of operations have affected patronage, especially for those in the food business and even the customers are not ready to bear these costs.
It is the same story for many of them.
“This has grossly reduced the purchasing power of most of our customers and after giving the estimate for delivery, most [customers] would rather just patronize bakers within their states except some of our really loyal customers that are glued to our products and would pay,” said Hamzat Hamdalat, the creative director for dalahNchops.
The removal of the subsidy on fuel announced by President Bola Tinubu during his inauguration speech in May is one factor many of these business owners blamed for this crisis. This added another noticeable increase in operational costs for these already struggling business owners, further impacting the way they do business.
Last month, a BusinessDay report showed that about 10 percent of the 40 million Micro, Small, and Medium Enterprises (MSMEs) in the country have shut down since the subsidy removal but even for those still in business, like Sherifah and Hamzat, they struggle to explain these changes to customers.
“Almost all the materials we use have doubled in price, including electricity cost. This has led to an increase in product cost just to keep the engine running. Then we had to re-strategize our marketing to attract new customers that can afford the new costs while keeping our existing customers too. It has been a rollercoaster,”Hamzat further stated.
SMEs in Nigeria
Small businesses are the fulcrum of the Nigerian economy, accounting for 96% of businesses in the country. For ease in doing business, they rely heavily on transportation services but in light of the economic reality, challenges associated with delivery fees are issues of concern for these already struggling business owners.
A customer, Bukunmi Awosusi told More Branches that the cost of delivery made him abandon an order with Dominos Pizza last month. Since then, he has stopped using delivery options. A high number of other shoppers also disclosed that delivery has forced them to abandon their orders when they saw the amount.
When this happens, it diminishes business owners like Sherifah and Hamzat from staying afloat. This is compounded by the increasing operating costs because each time, they have to make compromises to keep their cash-trapped customers.
“Operation costs are way too high. Volume of production has reduced. We had to increase the price the first time the subsidy was removed but when the pump price increased again we could not increase. This means our production cost increased while profit reduced again,” Sherifah told More Branches.
Some of these businesses have even had to cut partnership deals with courier companies in light of the downturn. In DalahNChops, Hamzat now handles deliveries herself. Sherifah says “we have been trying to find a way to sort it but it’s been very tough,” adding that it has made it difficult for her business to thrive.
In 2022, MSMEs contributed 48% to Nigeria’s gross domestic product (GDP). According to the World Bank, MSMEs contribute to the economic growth of developing countries like Nigeria but things might get worse with the new challenge posed by the recent subsidy removal on fuel.
What can be done?
In his response, the founder of Logisticx and Alhphabet, a logistics firm, Olanrewaju Olansile said the company also shares in this crisis and to remain in business they have introduced discounts rates for their partners “and it is helping many businesses.”
For Oredola Ibrahim, the Co-founder for Sanwo.io, a company enabling risk-free online transactions in Africa, he explained that business owners need to look out for a more cost-effective means of transportation for deliveries.
“One of the [means] is using bicycles for intra-cities. Bicycles don’t use fuel and I think if business owners introduce bicycles to their fleet this will reduce the cost [of deliveries] maximally. They can segregate it in such a way that you can divide your region of operations such that you have bicycles in all those areas and the distance a bicycle will need to cover will not be too much.”
He also suggested that small business owners work together as a consortium, emphasizing that this option allows these businesses to manage deliveries better.
“Working as a consortium means you burn the cost of fuel for deliveries [within your region] together. This is like an inter-business partnership because at this point it’s collaboration [like this] that would save the market,” he noted.
Business owners like Sherifah further stated that this crisis has taken a mental toll on them, having to come up with new marketing strategies each time there is a change in the market.
“I don’t have a choice to remain in business. So we need to think of what to do to reduce delivery costs. It is tough for our customers and tougher for us,” she concluded.