Multiple markups, stock-outs raise costs for Nigeria’s informal retailers

Nigeria’s informal retailers are grappling with fragmented supply chains, unpredictable wholesale prices and frequent stock-outs as digital distribution startup City Distro targets more than 10,000 retail locations, seeking to reduce the inefficiencies that raise the cost of moving consumer goods from manufacturers to neighbourhood shops.

The company, which connects consumer goods manufacturers with informal retailers through a single ordering and fulfilment platform, has distributed more than five million units of goods worth over $3 million in the past two years, according to Olamide Olabisi, founder and chief executive officer of City Distro.

In an interview with BusinessDay, Olabisi said the traditional distribution system forces retailers to source products from multiple distributors, wholesalers and open markets, often requiring them to travel, make repeated calls and spend time away from their shops.

These activities create additional costs for small businesses already constrained by limited working capital, making it difficult to maintain adequate stock levels, plan their margins and meet customer demand.

More than 90 percent of Fast-Moving Consumer Goods (FMCG) sales in Nigeria occur through traditional and informal retail channels, according to Olabisi, highlighting the importance of improving distribution efficiency in a market dominated by independent shops.

The scale of the market also presents an opportunity for manufacturers seeking to reach retailers beyond their immediate distribution networks, particularly emerging consumer brands that may struggle to establish their own extensive distribution infrastructure.

“Instead of quoting a number we can’t stand behind, it’s more useful to explain where the losses come from and what we’re seeing in our own network,” Olabisi told BusinessDay, explaining why the company has not put a single monetary figure on retailers’ losses under the traditional model.

He identified time lost sourcing products, inconsistent prices across suppliers and lost sales when fast-moving products are unavailable as the principal sources of inefficiency.

For retailers with limited cash, the problem is compounded by the need to replenish inventory in small, frequent quantities rather than purchasing larger volumes at once.

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Consolidating Nigeria’s fragmented distribution chain

Under the traditional model, consumer goods can pass through several intermediaries between the manufacturer and the retailer. A manufacturer may sell to a distributor, who supplies a wholesaler or sub-distributor before the goods reach the shop.

Each additional transaction can introduce handling costs, delays and another margin, while manufacturers often have limited visibility into how products perform at the retail end of the chain.

City Distro is attempting to consolidate these relationships by allowing retailers to order multiple products through one platform, while the company aggregates products from emerging and challenger brands and manages fulfilment and delivery.

The model is designed to reduce duplicated handling and markups without eliminating the underlying costs of distribution, which still requires inventory management, logistics and delivery.

Olabisi said the benefit to retailers depends on the products they purchase and the suppliers they previously used, making it difficult to assign a single percentage to the savings.

Rather than promise a specific reduction in retail prices, he said the company is focusing on more predictable purchasing prices and improved product availability, which can help retailers plan their margins and reduce lost sales.

Consumer prices may also be affected by factors beyond the distributor’s control, including manufacturers’ pricing decisions, fuel costs and foreign exchange movements.

The potential impact therefore depends on whether the reduction of duplicated distribution markups translates into better purchasing terms for retailers and whether those gains are passed on to consumers.

For manufacturers, the platform offers access to a wider network of independent retailers and transaction data that can help them understand product demand and replenishment patterns.

From 1,000 retailers to 10,000 locations

City Distro currently serves more than 1,000 active retailers and works with 10 manufacturers, offering more than 20 fast-moving products across beverages, household goods and food staples.

The business began in Lagos and has expanded to Ibadan, Abeokuta, Osogbo, Port Harcourt and Abuja.

Olabisi said the company is expanding city by city because distribution becomes more viable when enough retailers, orders and deliveries are concentrated within a particular geography.

The immediate target is to grow the network to more than 10,000 retail locations, supported by investment in logistics capacity, fulfilment infrastructure and technology.

The company is raising a seed round to finance this expansion, although it did not disclose the amount being sought or the terms of the proposed funding.

Its longer-term ambition is to reach 100,000 retailers before pursuing a wider African distribution network. Reaching one million retailers, Olabisi said, would require expansion beyond Nigeria.

However, the number of retailers served is only one measure of whether the model can scale. Distribution businesses must also manage delivery costs, inventory availability and order volumes while maintaining service reliability across different locations.

For City Distro, the challenge is to demonstrate that the efficiencies achieved in its existing markets can be replicated in new cities without undermining the economics of fulfilment.

Retail transaction data opens a financing opportunity

Beyond distribution, City Distro is integrating financing into its ordering process to address another constraint facing informal retailers: access to working capital.

Many independent shop owners have limited formal financial records, even when they have operated their businesses for years. The absence of documented sales histories and conventional credit records can make it difficult for lenders to assess their ability to repay loans.

Olabisi said each order placed through City Distro generates information about a retailer’s purchasing behaviour, including how frequently the shop restocks, how consistently it orders and how quickly products move through its inventory.

The company is using this data as the foundation for a financing model intended to help retailers purchase more inventory without paying the full amount upfront.

Retailers can currently access Buy-Now-Pay-Later (BNPL) to stock products, while the company is working towards an inventory-backed credit model that would link financing decisions more closely to actual trading activity.

The approach could help retailers maintain fuller shelves and reduce missed sales caused by insufficient stock. It could also create a more structured record of commercial activity for businesses that have historically operated outside formal accounting systems.

However, Olabisi did not disclose the total amount of financing extended to retailers, the number of beneficiaries or the repayment performance of the BNPL offering.

He said the financing component remains at an early stage, with the longer-term objective of building a more reliable basis for credit decisions as retailers’ transaction histories grow.

The extent to which this approach can improve access to affordable working capital will depend on the availability of financing, the terms offered to retailers and the ability to assess and manage repayment risks.

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Logistics remains the biggest scaling challenge

While digital ordering can simplify how retailers purchase goods, Olabisi said the more difficult task is ensuring that products are available, orders are picked correctly and deliveries arrive reliably.

The company must also ensure that inventory can be replenished when products sell, requiring an operational network capable of supporting repeat orders across multiple locations.

Trust is another hurdle. Retailers accustomed to buying from established suppliers must have a clear reason to change their purchasing habits, while manufacturers need confidence that the platform can move products efficiently and provide useful information about market demand.

Nigeria’s FMCG market, which Olabisi estimates at approximately $25 billion, presents a substantial opportunity, but the company’s expansion will depend on its ability to build the infrastructure required to serve retailers consistently.

City Distro is therefore prioritising retailer density, logistics and working capital rather than pursuing nationwide expansion before its distribution model is sufficiently established in individual markets.

The company’s more than 1,000 active retailers and cumulative distribution of over $3 million provide an early indication of commercial activity. Its next milestone will be to show that the model can serve a substantially larger network while improving the economics of distribution for retailers and manufacturers.

For Nigeria’s informal retail sector, the broader question is whether digital distribution can do more than move orders online: it must make restocking more reliable, purchasing more predictable and working capital more accessible without introducing costs that undermine the benefits.

Until measurable savings, financing outcomes and delivery economics are established at a larger scale, City Distro’s expansion will remain a test of whether technology-led distribution can solve the operational problems that have long shaped Nigeria’s informal consumer goods market.