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Rice Investment and Processing In Nigeria: A Review of Initiatives to Date

MARKETS
making agribusiness work for Nigerian farmers August 6, 2010

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 -2 -

The demand for rice in Nigeria in 2009 was estimated to be 6 million metric tons.

This is equivalent to 110 million 50 kg bags ..or approximately 35 kg of rice per year for each Nigerian.

Urban consumers prefer long grain, polished and destoned imported rice over local varieties. Since demand for this type of rice is growing faster than local production, Nigerian dependence on imports is increasing. Supporting growth of Nigerian commercial rice processing is of integral importance for food security , job creation & prosperity of economy

Rice Stakeholder Group Members

FGN N10 Billion from Rice Levy A/C

P-P-P 40% loan for 15 years @ 4% p/a

10 firms representing 17 integrated Rice Mills


Ebony Agro Limited Olam Nigeria Limited Labana Global Resources Tara Agro Limited S;ne Industries Limited Bayelsa Farms Limited Deanshanger Projects Veetee Limited Ada Rice Ishaku Rabiu Limited (IRS)
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 -5 -

Multi-Stakeholder Platform for Development

Building a multistakeholders partnership based on complementary roles and responsibilities is a critical step towards assuring agricultural development

Scalability & sustainability Access to financial resources, development expertise, logistical capacity, and technologies Synergies resulting from joint efforts Sharing risks and benefits Bringing strategic perspectives to project implementation.
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 -6 -

How USAID MARKETS Supports the Success of Rice Processors

CONTEXT INPUTS PRODUCT / OPERATIONS

Address systemic barriers to creating a good competitive environment (e.g., access to allocated funds) Ensure consistently available volume of paddy Ensure availability of the appropriate quality paddy Ensure efficient and cost-effective production Build a processing facility that has the capability to consistently produce the required volume Ensure your processing capabilities produce a product of the required quality Build a network of trusted distributors

Support / Advocacy Paddy Mapping

Farmer Training Rice Processing Best Practice Training

DISTRIBUTION

Ensure your distribution network targets the right customers (geographic reach, market size, preferences, etc.) Ensure you are distributing to the right mix of lucrative buyers

End Consumer Market Research

MARKETING
Source:

Ensure packaging matches customer needs Develop a brand and marketing approach that builds awareness and distinguishes your rice
-7 -

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Timeline of MARKETS Work in Rice


9 February Rice Investors Kick-o Mee;ng
Focus: Clarify areas of necessary collaboration to support industry growth

Rice Investors and Processors Federal Ministry of Agriculture Central Bank of Nigeria Bank of Industries Commercial Banks

1 10 April Site Visits at 5 mills 14 April Research Design Mee;ng Rice Farmer Best Prac;ce Training 3 - 5 August Research Review and One-on-One Mee;ngs
Source:

Focus: MARKETS staff gain a practical understanding of the current status of development of processing mills in various regions of Nigeria Focus: Agree upon the design of the end-consumer market to ensure it is practical and helpful to the rice stakeholders group Focus: Agree upon the scope and content of the rice processing training

Focus: Review findings from end-consumer research to identify implications for processors
-8 -

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Milestone Achievements to Date


Support / Advocacy

Galvanized rice processors to collaborate Prompt response from BOI/other banks to open L/Cs and banking facilities (Labanas N500M loan).

End Consumer Market Research

Engaged a Nigerian Firm (PSI) to conduct point of sale field interviews in 12 States of Nigeria. Built capacity of PSI by training 89 staff in market research and data collection. Shared results of the Rice point of sales research with rice stakeholder group Held one-on-one meetings with select processing firms to adapt research results to their business models.

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

-9 -

Milestone Achievements to Date


Rice Processing Best Practice Training

Supporting firms as they assemble their processing plant and develop both out growers schemes and commercial rice cultivation. Identified training needs of firms and recruited a competent Nigeria firms to develop training modules Scheduled a one week training for 20 staff drawn from the 10 processing firms in Makurdi, Benue State from Sept 13 17, 2010 with hands-on-practicals at OLAM Rice factory. Working closely with NISER, Ibadan to obtain report of JICA funded study on Rice Paddy mapping in Nigeria. The result would be validated by Olam (Benue/Kwara), Ebony Agro (Ebony) and Labana Global (Kebbi State).
- 10 -

Paddy Mapping

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 11 -

Taking Advantage of the Market Opportunity for Rice in Nigeria


Market Size & Competitive Landscape DEFINING THE PRODUCT OFFERING

Ensuring You Win in the Marketplace


Product

Packaging

Pricing

Competitive Position

To develop a thoughtful strategy for your business even in a market with such clear demand you must make decisions in each of these seven areas Product, Packaging and Pricing define WHAT you are offering to the market

Distribution

Marketing

Distribution, Branding and Marketing define HOW you are bring your offering to the market These areas are intertwined and interdependent

BRINGING IT TO MARKET

Branding

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 12 -

Key Decisions Driving Market Research


Driving Business Question
Competitive Positioning

How do I profitably sell more and more rice over time in the Nigerian market?

Defining the Product Offering

Bringing it to Market

Import

Local Product

High Quality Local Rice

What must physically change about your rice to successfully compete given customer expectations for quality and available resources, Number and size of packages to be offered beyond the standard 50 kg bag given customer buying patterns and willingness to pay a premium for packaging Price at which to sell rice, relative to other rice in the market and relative to what customers will pay
- 13 -

Distribution

Focus of distribution activities, to balance business growth and feasibility

How to provide a product that is positively differentiated relative to the competition

Future Focus Amount and type of investment in branding and marketing to solidify your competitive position and reach your target customers

Packaging

Branding

Pricing

Marketing

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Summary of Market Research Approach


Consumer Buyer Survey Conducted 1020 surveys in two cities in each of the six regions of Nigeria one state capital market and one secondary city Used market intercept approach, interviewing buyers at the point of purchase in the marketplace, after they purchased rice Consumer buyer interviews conducted in a variety of market locations including open markets, retail locations (corner shops and kiosks) and supermarkets Conducted 60 wholesaler interviews 10 in each of the state capital markets in the six regions of Nigeria Also used market intercept approach, interviewing buyers Conducted a very small number of interviews with sellers in Abuja wholesaler market In all locations where surveys were conducted, we also compiled a list of all brands of rice available for sale Intent was to understand the competitive landscape for commercial rice processors in Nigeria
- 14 -

Wholesale Buyer Survey

Brand Inventory

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Demographics of Interview Respondents


Gender Age
Average age = 32
Likewise, a higher percentage of Northern respondents were in the younger age groups than in the Southern regions

Monthly Household Income


50,000 Naira or less 50,001 to 150,000 Naira 150,000 Naira or more
0%

Individuals

64% Male 36% Female


A higher percentage of rice purchasers who responded to the survey in the North were male compared to the Southern regions

42% 35% 23%


10% 20% 30% 40% 50%

Percentage of Total Respondents

Households

Position in HH
24% were male head of household / husband 44% were female of household / wife

Size of HH
49% have 3 or fewer members 31% have 4-6 members 20% have 7 or more members

HH Weekly Food Expenditures


10,001 Naira plus 5,001 - 10,000 Naira 2,501 - 5000 Naira <2,500 Naira
1% 19% 1% 4%

33% 33%

2% 20%

24%

17%

11%

19% 30%

40% 62% 38%

47% 53% 30%


South West South South South East

71%

47%

In the Southern regions, the rice purchaser tends to be the Lady of the House In the North, purchasers are somewhat split between Head of Household, Lady of the House and a minor member of the Household
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 15 -

North East

North Central

North West

Weekly RICE expenditures are more consistent across regions, with roughly 50% of respondents spending less than N1,000 / wk

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 16 -

The Market is Dominated by Imported Brands


145 brands found in Brand Inventory
10% Local

90% Imported

Share of rice available by country of origin


Brazil USA Nigeria Other
7%

Top 10 most available brands in market locations surveyed


Royal Stallion (Thailand) Caprice (Thailand) Tomato (Thailand) Mama Gold (Nigeria) Mama Africa (Nigeria) Green Elephant (Thailand) Dangote Siamese (Thailand) Texas Gold (USA) Golden Rice (Thailand)

3% 4% 11%

74%

Thailand

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 17 -

Three Measures of Competitive Landscape


Availability
How frequently a brand was available at all market locations surveyed in the brand inventory

Awareness
Mentions of a brand by survey respondents when asked what types of rice they are aware of in Nigeria

Purchase
How frequently a brand was purchased by respondents to our survey

Distributor demand

Availability

Purchase

MARKET SHARE

Awareness

Customer demand

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 18 -

The Competitive Landscape is Crowded in All Regions of Nigeria


North West
Available: 21 Brands 26% local 74% import
Awareness: 16 brands Purchased: 70% 10 brands

North East
Available: 29 Brands 13% local 87% import
Awareness: 3 brands Purchased: 49% 10 brands

North Central
Available: 54 Brands 8% local 92% import
Awareness: 32 brands Purchased: 10 brands
49% 46% 36% 51%

South South
Available: 38 Brands 6% local 94% import
Awareness: 28 brands
49% 46% Purchased: 17 brands

South West
Available: 58 Brands 10% local 90% import
Awareness: 35 brands
Source:

South East
Available: 31 Brands 12% local 88% import

36% 49% 46% Purchased: 51% 23 brands


- 19 -

Awareness: 30 brands

46% 51% Purchased: 20 brands

49%

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Entering the Market


Imports Domestic

Compete Against Imports as an import

New Category : Commercially Processed Domestic Rice

Compete with Traditional Local Rice

Positively differentiating versus imports -- or being accepted as an import -- is the first priority for commercial rice processors For now, regional focus minimizes competition amongst stakeholders. However, second priority is creating a clear competitive advantage versus other domestic rice processors to ensure individual market share.

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 20 -

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 21 -

Customers Interact with a Product on Three Distinct Levels


Examples
ASSOCIATED IMAGES AND EMOTIONS

Why they Buy

+ Im proud to buy Nigerian products - Nigerian rice will never be as good as imported

USAGE BENEFITS

+ It is as good in the morning as it was the night before + It fills me up

What they Buy

TANGIBLE AND VISIBLE ATTRIBUTES

+ Imported + Stone-free - Cant be sure the rice is actually what the bag says

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 22 -

Both Wholesale and Consumer Buyers Select Primarily Parboiled, Unbroken, Branded and Unpackaged Rice
Type of Rice Purchased
White Parboiled Brown Ofada Other
0%
0.6% 0.5% 6.2% 5.4% 87.3%

Grade of Rice Purchased


Unbroken
91.8%

Broken

8.0%

Flour

0.2%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of Total Respondents

Percentage of Total Respondents

Branding
Known Brand Unknown Brand
59.9%

Packaging Type

Packaged
20.1%

25.7%

Unpackaged

74.3%

Unbranded

20.0%

0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

Percentage of Total Respondents


Note: Source: N for all questions = 1080. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 23 -

Percentage of Total Respondents

Buyers Purchase and Have a Clear Bias Toward Imported Rice


Percentage of Purchases Local versus Imported
Consumer Buyers

Preference for Local and Imported Rice


Consumer Buyers Preference for Local vs. Imported Rice
Prefer Imported

Imported 81% 19%

79%

13% 8% Domestic Prefer Imported No Preference

Wholesale Buyers

Wholesale Buyers Preference for Local vs. Imported Rice


Prefer Imported 58% 15%

86% 14%

Imported

Wholesalers buyers are somewhat more open to Local rice

No Preference

27% Domestic or Mixed


Note: Source: N for Share of Rice Purchased = 1080, n for Consumers = 1020, n for Wholesalers = 59. All data are percentage of Total Respondents USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 24 -

Prefer Local

However Quality, Rather than Origin, Drives Choice of Rice


Unprompted Response to Why did you select the rice you purchased today?
ASSOCIATED IMAGES AND EMOTIONS
Imported Recommended Familiarity Local New rice Brand Taste Swelling Easy to cook Stickiness Smell Nutrition Fills me up Economical 9 7 7 6 6 2 447 370 167 136 62 57 46 25

USAGE BENEFITS

What matters most to buyers is taste, swelling, lack of stones and cleanliness of the rice Imported and Branded are most likely shorthand for the quality of the rice

TANGIBLE AND VISIBLE ATTRIBUTES

Stone free 280 Quality 228 Cleanliness 197 Price 183 Color 180 Available 139 Long grain 110 Appearance 77 Higher number of Dry 54 selections 44 Attractiveness Unbroken grain Number of Mentions 14
(out of 3065 total responses)
- 25 -

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Buyers Indicate a Willingness to Pay for Quality


Tradeoff Between Quality and Price of Rice
Responses to the question If the rice that you purchased today had not been available, which of the following would you have done

Purchase rice of the same quality, even if the price were a bit higher (Price Shopper)

84.5%

15.5%

0%

20%

40%

60%

80%

100%

Purchase rice of the same price, even if it were of lesser quality (Quality Shopper)

Buyers of branded and packaged rice are particularly willing to pay for quality, as are higher income buyers (who are also more able to do so).

Brand Buyers

Packaged Buyers

Higher Income Buyers

Known Brand

90%

10%
Packaged 91%

150, 000+ N

87%

12%

9%
50,001 150,000 N

Unknown Brand

80%

20%

87%

13%

Unpackaged Unbranded 74%

82%

18%
< 50,000 N 81%

26%

19%

Note: Source:

Tradeoff n=1080, Brand Buyer n=1080, Packaged Buyer n=1080, Higher Income n=850. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 26 -

Defining the Product Offering Key Findings and Implications


Key Findings Implications

Nigerian consumers are astute in their ability to assess the quality of rice and in particular of unpackaged rice. Buyers focus, first, on tangible attributes such as color, stones, cleanliness and grain length. Tangible factors are indicators of the likely taste and volume of the rice. Taken together, these factors are definitional of rice quality. Buyers even those with lower incomes -- indicate that they are willing to pay for quality. Quality may be strongly associated, in the eyes of the consumer, with imported, branded and packaged rice.

Rice processors must upgrade to ensure they are meeting consumers standards for quality and consistency of their rice.
Open pot parboiling is no longer viable, as it does not support the required levels of consistency. The level of processing and loss from paddy must fluctuate, not quality of the rice provided. Customers dont care what it takes you to get the quality; if it is not there, they will buy a different rice.

Creating a mid-grade rice will not support success over the long-term. Instead, processors should create different grades of rice , which will meet the quality and price standards of a wider range of customers
Note: this also supports the importance of moving into more targeted marketing as competition intensifies

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 27 -

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 28 -

Market Evolution from Bulk to Packaged Sales

Bulk Product sold in one large (bulk) package Opened and broken down for sale of smaller amounts Manufacturers begin to provide additional package sizes Select priority package sizes to offer based on customer demand Larger packages still opened to sell smaller amounts Counters brand dilution from rebagging
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Packaged Product sold in packages of a variety of sizes Sold as is, i.e., unopened Sizes determined with an understanding of customer purchase preferences Provision of additional packaged builds and reinforces brand

- 29 -

The Standard Packages Offered Now in Nigeria are 25 and 50 kg


Package Sizes for all Local and Imported Rice (Brand Inventory)
Brand Local Imported X X X X 2 kg 5 kg 10 kg 12.5 kg 25 kg X X 50 kg X X

Package Sizes Offered by 12 Most Available Brands (Brand Inventory) Brand


Caprice Dangote Golden Green Elephant Mama Africa Mama Gold Rice Master Royal Stallion Siamese Super Rice Texas Gold Tomato

Origin
Thailand -Thailand Thailand Nigeria Nigeria Thailand Thailand Thailand Thailand USA Thailand

2 kg
X

5 kg

10 kg

12.5 kg
X

25 kg
X X X X X X X

50 kg
X X X X X X X X X X X X

X X

X X X X X

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 30 -

The Majority of Nigerian Buyers Purchase Unpackaged Rice


Share of Purchases Packaged vs. Bulk
Sales of Packaged Rice by Region
78% 100% 22%

Bulk 80% Packaged 60%

59% 74% 86% 83% 76%

68%

40%

Bulk Packaged

20%

41% 26% 14% 17%


South West

24%

32%

0% North West North Central North East South South South East

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 31 -

They Use a Variety of Measures in Markets Across Nigeria


Rice Measures Used Kg Equivalent North West 12.34 kg 4.39 kg 2.06 kg 1.94 kg 1.66 kg 1.65 kg 0.99 kg 0.46 kg 0.25 kg 0.165 kg X X X X X X X X X X X X X X Regions in Which the Measure is Used North Central North East South West X X X X X X X X X South South South East

Big ike Paint ike Rubber Mudu Big derica / paint Kongo Medium derica Small derica Cigar cup Cup / Milk tin

To analyze and compare bulk purchase amounts, we had to determine the kg equivalent of the various measures of rice used for bulk purchases. This enables us to determine those package size it may be most attractive to offer.

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 32 -

As Package Size Increases, Perception of Value Decreases


60% Local 50% Import 42% 40%
% Respondents who Said Value for Money
Local Imported

Assessment of Price Fairness (% Value for Money)


Ave. Amount 12.8 kg 12.9 kg Ave. Price 145 N/kg 199 N/kg

30%

29% 22% 24% 21% 14% 16% 9% 10% 9% 3% 2%

20%

10%

0% 2 kg or less 2-5 kg 6-10 kg 11-25 kg 26-50 kg >50 kg

As sizes increase, consumers feel they are getting less value for money. It seems they focus on total cost as opposed to unit cost. This tendency could support sales of smaller packages of rice.
Note: Source: n = 1020. Responses to the question Would you say the price you paid today was cheaper than expected, good value for money, or more expensive than expected? USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 33 -

Quality Assurance Drives Purchasers Toward Package Choice


DRIVERS
Packaged rice tends to be higher quality than unpackaged rice

60.7%

Quality

You trust what the package says (for example if it says it is stone-free or a specific volume) When you buy unpackaged rice, you are concerned that the rice you are buying is not the actual brand claimed. When you buy unpackaged rice, you are concerned that the volume of rice you buy is not the actual brand claimed Small packages of rice are more convenient to buy than large packages of 25-50 kg
0% 20% 40% 60%

63.6%

49.3%

Trust

47.8%

66.4%
80%

Convenience
100%

BARRIERS
73.8%
Quality Assurance

Percentage of Total Respondents

You prefer to buy unpackaged rice because you can more easily see the size of the grain, the color and the consistency of the rice You prefer to buy unpackaged rice because you can touch it to check for stones or dirt
60% 40% 20% 0%

73.1%
80%

100%

Percentage of Total Respondents

Note: Source:

Responses provided by all consumer buyers, n=1020. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Packaged rice is felt to be higher quality. Yet ability to inspect the rice is seen to be vital. This is most likely because affordable small packages are not yet consistently available.

- 34 -

Determining Package Sizes Key Findings and Implications


Key Findings Implications

Many retail buyers prefer to purchase smaller amounts of rice (or must do so given cost constraints). Openness to smaller packages of rice is likely to be high, assuming the price is within reach. Perception of value for money decreases as package size increases, indicating a tendency to focus on absolute, rather than unit, cost Packaged rice is felt to be higher quality. However, for most consumers, purchase of unpackaged rice is the only option, so inspecting the rice is vital In both cases, quality assurance is the key to purchase

The key benefits of packaging are easier transaction, portability and trust in quality Rice processors should test the interest f consumes in urban open markets in purchase of 2.5, 5 and 10 kg bags Do so without investment in equipment or alteration of processing lines Will enable understanding of who will purchase and overall viability

Initially, the price of smaller bags may have to be at parity with unpackaged rice (loss leader). The price can rise as consumers associate quality with the packaging and the brand Packages should include a tamper proof seal or other indicator that the rice has not been rebagged, as a value signal to customers
- 35 -

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 36 -

Price for Domestic Premium Rice Are Tightly Bounded by Competitors


The price you can set for your domestic commercial rice is influenced and limited by the prices of competing local and imported rice Domestic Commercial Rice

HIGH

Imported Rice

Customer Defined Value

Product

Local Rice

LOW HIGH Price = Cost + Margin


Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 37 -

LOW

Cost Reduction and / or Enhancing Value are Vital to Compete


1.1 Increase Value better product and/or better choice of customers

Quality Competition: Able to compete in the market base on relative quality of product, a more flexible position

Reduce Costs operations and input supply

Price Competition: With this approach, you default to competing in the market based on ability to provide lowest price product

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 38 -

Take off left hand bar

Pricing Landscape for Rice


Distribution of Rice Prices 1500

Average Price / Kg of 12 Brands Most Available (Brand Inventory) Brand


Royal Stallion Super Rice

Origin
Thailand Thailand USA -Thailand Thailand Thailand Nigeria Nigeria Thailand Thailand Thailand

N/ Kg
172.81 171.00 170.67 164.57 162.50 162.29 160.75 161.64 160.12 149.11 146.96 145.50

Price (Naira / kg)

Texas Gold Dangote Rice Master Caprice 500 Siamese Mama Africa Mama Gold
Mean Median Mean Median

Golden Tomato Green Elephant

60 Imported

76

Local

Note: Source:

all n=533; local = 60; Imported = 463 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 39 -

In all But Brown Rice, Imports Command a Premium Price


Type of Rice Purchased
240 200
Naira / kg

Grade of Rice Purchased


240 200 160 120 80 40 0

201 164 129 140 163 140

Local Imported
126

199 152

205

160 120 80 40 0

132 106

White

Parboiled

Brown

Other

Unbroken

Broken

Flour

Branding
240 200
Naira / kg

Packaging Type
240

207
172

192 193 165


134

212

236 189
140

200 160 120 80 40 0

160 120 80 40 0

Known Brand Unknown Brand


Note: Source:

Unbranded

Packaged

Unpackaged

n=1020 for all charts. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 40 -

But Buyers of Both Import and Local Assess Price Fairness Similarly
All Buyers

% of Respondents

4% 27% 69%

More Expensive than Expected Value for Money Cheaper than Expected

Assessment of Price Paid


100%

80%

More Expensive Than Expected Value for Money Cheaper than Expected 70% 69%

60%

40%

29%
20%

17%

13% 2%

0% Local Imported

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 41 -

Adding Value to Rice through Packaging is Essential to Higher Prices


250 230 210
Naira / Kg

Average Price of Parboiled Rice


Imported Domestic 201 201 175 163 All Parboiled Parboiled and Unbroken Parboiled, Unbroken, and Parboiled, Unbroken, Branded Branded, and Packaged 208 182
8N

244

236

190 170 150

38 N

100%
% Respondents who Said Value for Money

Assessment of Price Fairness (% Value for Money)


71% 59% 53% 71% 52% 70%

80% 60% 40% 20% 0%

Processors ability to price highly depends upon their ability to add value to the rice- through packaging

58% 46%

All Parboiled
Note: Source:

Parboiled and Unbroken Parboiled, Unbroken, and Branded

Parboiled, Unbroken, Branded, and Packaged

parboiled n=866; parboiled and unbroken n=827; parboiled, unbroken and branded n=536; parboiled, unbroken, branded and packaged n=176 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 42 -

Buyers Suggested a Fairly Narrow Window of Possible Prices


Distribution of Rice Prices 1500 Responses to the question What price would you expect to pay for this new, domestic premium-quality rice? Prices Suggested for Domestic, Premium Rice

Price (Naira / kg)

500 270
Mean Median

Price (Naira / kg)

200
Mean Median

147 41 Consumer

Median Mean

100 30 Wholesaler

60 Imported

76

Local

Note: Source:

all n=533; local = 60; Imported = 463. N for Consumers = 346, n for Wholesalers = 59. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 43 -

Three Pricing Strategies for Commercial Domestic Rice


Cost plus pricing results from charging a fixed margin above the cost of producing your rice. This approach will result in domestic premium rice prices varying in lockstep with changing cost of inputs. Advantages Variability ensures consistent margins for processors, it may dissuade buyers Disadvantages May dissuade buyers who want to be able to count on reasonably consistent pricing from a chosen supplier

Cost Plus Pricing

Price Relative to Imports

Pricing relative to imports results from charging a fixed margin below the prices of imported rices available in the Nigerian market. This approach results in fluctuation in rice pricing (albeit less than Cost Plus) Advantages Prices will tend to be higher than cost plus May reinforce higher quality perception of rice (if price signals quality) Disadvantages Pros and cons of variability noted Automatically sets a price ceiling for domestic rice. For processors aiming to product highest quality rice, this strategy leaves value on the table

Value-based pricing results from charging a price that directly correlates to buyers perceived value of your product.

Value-based Pricing

Advantages Least variability in price over time, which aids strategic and operational planning

Disadvantages Striking the right balance between quality to achieve and price that domestic prices can feasibly command in the market will be a challenge at first

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 44 -

Identifying a Price Point Key Findings and Implications


Key Findings Implications

The price ceiling in the market is set by imported rices, which have a wide variety of selling prices What matters for pricing is buyer perceptions of quality; must price relative to these perceptions Domestic rice is consistently lower priced than the average imported rice; there is a penalty, rather than a premium, for being locally-produced
This is true even for higher quality rice (e.g., Olams Mama Gold, Mama Africa) Buyers do not yet associate domestic rice with quality levels that command a premium price

Processors must select their approach to pricing, in large part based on their fixed costs and the planned quality of their rice Those who are backward integrated with more control over their input costs will be better able to adopt value-based pricing Processors who go to market as a purely imported product (e.g., by mimicking an existing brand) may be able to command a slightly higher price in the short run In the long run, however, promoting the attributes of domestic rice that people value (e.g., freshness, taste) will allow processors to largely decouple the price of their rice from fluctuations in either input costs or import rice prices

Packaged rice commands a premium price, yet is seen as less value for money by cost-conscious buyers
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 45 -

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 46 -

Making Informed Decisions about Distributor Partnerships is Vital


Although you cant directly control where your rice is sold Large Distributor Local or Regional Trader
Northeast

Retail Channel
Wholesale Market

End Consumer

Imported Rice Distributor

North Central Open Retail Market

Frequency of Switching to Another Rice

While you may wish to serve specific regions and markets, for most of you, your only real choice is:
Who is my distributor?

Northwest

Southwest

Small Retailer

Likelihood to try New Commercial Domestic Rice

Your ability to work with your distributors so that you both profit from selling more rice at higher prices is dependent on you knowing:
Which regions, market locations and customers are most attractive for you to serve?

Local Rice Distributor

South / South Supermarket

Southeast

Amount Purchased, Price Paid, Frequency of Purchase

you CAN make better informed distributor choices


Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 47 -

Distributor

Retail Location

Consumer

Working with Imported Rice Distributors


Do not make distinctions among local rice they think in terms of imports and cottage rice. All commercially processed domestic rice is treated as import. Vital to be branded as imported / or be able to pass as imported brand. Implications: These distributors dont have resistance to accepting commercial domestic riceassuming that it is priced in accordance with its quality. There is no premium for domestic rice.

Product

Package

The vast majority of rice is sold in 50 Kg bags. When distributors carry smaller bags, they are always bundled inside 50 Kg wrappers. They assess rice quality based on whether it has import quality packaging (high quality bags, nice printing, clear branding, well sealed).

Implications: High quality packages are a must to work with distributors, as they are a strong signal of the value of the rice. Must convince distributors that there is consumer demand for smaller packages of rice in order for them to accept them.

Pricing

Recurring relationships garner the best prices, both for suppliers and for retail buyers. Distributors are accustomed to working with importers and would prefer that their suppliers mirror the service and terms that importers provide. Distributors expect marketing support from their importers, and would expect the same from local mills. There is an expectation of product promotion: advertising support, sample distribution, etc.
- 48 -

Implications: Set up terms that match standard for importer distributor relationships, e.g., credit terms, FOB pricing, marketing support, incentives

Go to Market

Implications: Some degree of investment in sales and marketing, as well as incentives to distributors, may be necessary to build demand for new brands of local, premium rice.

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Distributor

Retail Location

Consumer

Working with Local Rice Distributors


Buy a whole range of branded and unbranded rice; mop up the market by buying what is available at given point in time. Buy bags of 50 kg or more, depending upon what is available. Package type is less important. In fact, rebagging originates with these distributors in many cases, as they will buy large amounts of rice, which are bagged into whatever packages are available at the time of purchase. Implications: Availability and volume are key

Product

Package

Implications: Lower investment in packaging required to partner with local distributors. Less of a push for smaller packages of rice

Pricing

Domestic distributors buy all the rice up front and prepay in order to secure volume. They estimate processor total costs based on their knowledge of paddy prices and production costs, and create a fixed margin above this level. They treat purchased on a cost plus basis, with little pricing premium for quality. No expectations of marketing on the part of the supplier. Local distributors do any marketing / branding themselves. Availability is what matters to them. Incentives for uptake of rice are common, to encourage distributors to aggressively market a given rice.
- 49 -

Implications: In start-up phase, will be easier for rice processors to work with local distributors who are able to pay in advance for rice. Downside is the loss of premium pricing opportunity.

Go to Market

Implications: Relationship based go to market approach, with some investment in incentives to distributors required.

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Distributor

Retail Location

Consumer

Retailer Sourcing of Rice at Present


Rice Sources for Retail Locations
Source Of Imported Rice Imports Rice Directly Buys From Local Importer Buys From Local Trader Source Of Domestic Rice Buys from Local Processors Buys from Commercial Rice Mill Buys from Intermediary Supplier 57% 52% 91% 82%

66% 56% 44% 34% 35% 35%

29% 19% 19% 16% 4% 8% 3%

0%

Supermarket % of Rice Sold through Channel 29.4%

Open Market 51.4%

Retail Shops 19.2%

Approaching local importers and local traders could be a viable channel for distribution of your rice
Note: Source: Rice Sources n=203; Channel Share n = 1020 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 50 -

Distributor

Retail Location

Consumer

Retailer Sourcing of Rice at Present


How Likely Would You be to Buy This New Type of Domestic, Premium-Quality Rice?
4.85 4 4.29 4.29 4.00

5
Very Likely

What Price Would You Expect To Pay for a 50 Kg Bag?


In Naira

5,229

4,935
3

4,971 4,800

2
Not at All Likely

Open Market Reseller

Small Retail Reseller

Wholesale buyers especially retailers are open to trying domestic, commercially-processed rice. However, their estimated price for a 50 kg bag reflects a significant discount from imported rice.
Note: Source: Rice Sources n=203; Channel Share n = 1020 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 51 -

Institution/Others

Eatery

Open Market Reseller

Small Retail Reseller

Institution/Others

Eatery

Distributor

Retail Location

Consumer

Buyers Value Quality over Location Loyalty


Tradeoff Between Location and Type of Rice Responses to the question If the rice that you purchased today had not been available, which of the following would you have done Consumer

Look elsewhere to find the type of rice you want


0% 20%

64.5%

35.5%

Stay at this location and buy a different rice


100%

40%

60%

80%

Wholesale

Go to a different wholesaler at this location or a different location to find the rice you want

61.1%

38.9%

Buy a different type of rice from the same wholesaler at this location
100%

0%

20%

40%

60%

80%

Customers are more likely to go to another retail location in search of a particular type of rice than to remain location loyal. Ensuring your rice is consistently available in locations where it is introduced will be vital to buyer uptake.

Note: Source:

Consumer n=1020; wholesaler n=58 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 52 -

Distributor

Retail Location

Consumer

Why Buyers Chose their Location of Purchase


Retail Consumers
Close to my home

Wholesale Consumers
63%
Lower prices

54%

Lower prices

31%

Easy to find the rice I want to buy Variety of different brands to choose from

53%

High quality products Easy to find my regular rice

30%

42%

28%

High quality products

39%

I trust this vendor Variety of different brands to choose from Could not find my rice at my regular outlet Other

24%

I have a specific vendor / supplier I buy from Closer to me / my organization Variety of different wholesale vendors to choose from Could not get my rice from my regular wholesale channel

37%

17%

27%

5%

20%

2%

3%

Retail buyers choose a location based on proximity first. Price and quality of products, however are important choice factors. For wholesale buyers, value and ability to find preferred rice are the key drivers of location choice.
Note: Source: retail n=1020; wholesaler n=59 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 53 -

Distributor

Retail Location

Consumer

Location Selection and Customer Value


Rice Amounts Purchased
50%

Rice Prices Paid


48%

Purchase Frequency

37%

40%

39%

30%

27%

28%

23% 17% 13% 10%


10% 20%

16% 9%

14%

14%

5% 1%
0%

2 kg or 2 to 5 6 to 10 11 to 26 to More less kg kg 25 kg 50 kg than 50 kg

300 or Less than 120 to 180 to 120 N/Kg 180 N/Kg 300 N/Kg more N/ Kg

Once 2-3 per times month per or less month

Once per week

Every few days

Every day

Objective: Find customers who want my rice AND who frequently buy larger volumes at higher prices
Note: Source: Rice Sources n=203; Channel Share n = 1020 USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 54 -

Distributor

Retail Location

Consumer

Retail Customer Value by Region


50.0

Customer Value (Volume X Price X Frequency) by Region


210 220 211 Kg Purchased Purchases / Month Price N/Kg 189

250

Kgs Purchased & Times Per Month

40.0
153 151

200

30.0

150
Naira

20.0

18.4 13.4

100
9.8 6.7

10.0

9.6 2.9 3.5 Kg N /Mo

9.0 2.8 2.6 Kg N /Mo Kg 2.7 N /Mo Kg 3.0 N /Mo

50

Kg

N /Mo

Kg

N /Mo

North West
Customer Value N 6,579 / month

North Central
N 11,655 / month

North East
N 8,553 / month

South West
N 6,298 / month

South South
N 7,017 / month

South East
N 8,869 / month

Note:

Source:

n=987; Volume = (average Purchase size, Kg; Price = N/Kg; Frequency = Purchases / Month); Customer Value is the average of Customer Value calculated for each respondent; Respondents selecting a purchase frequency of once per month or less were calculated as 1/month. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 55 -

Customer Value identified regional differences in purchase patterns.

Distributor

Retail Location

Consumer

Retail Customer Value by Channel


50.0

Customer Value (Volume X Price X Frequency) by Market Location


42.8 Kg Purchased 245 Purchases / Month Price N/Kg 193 183

300 250 200


Naira

KGs Purchased & Times Per Month

40.0

30.0 150 20.0 100 10.0 2.5 Kg Naira /Month Kg Naira /Month Kg Naira /Month

7.8

9.0

10.1

8.4

50 0

Supermarket
Customer Value N 15,875 / month

Small retailer
N 5,828 / month

Open Market
N 8,582 / month

Note:

Source:

n=987; Volume = (average Purchase size, Kg; Price = N/Kg; Frequency = Purchases / Month); Customer Value is the average of Customer Value calculated for each respondent; Respondents selecting a purchase frequency of once per month or less were calculated as 1/month. USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 56 -

Customer value varies significantly by market location

Bringing Your Product to Market Key Findings and Implications


Key Findings Implications

Distributors of imported and local rice have very different approaches to and demands of their suppliers
Payment and credit terms Marketing expectations

To compete effectively with imports, rice processors should explore working with imported rice distributors
However, in the short term, while cash flow is constrained and volume uncertain, working with local distributors may be the best option

Retail locations use a mix of both import and domestic channel suppliers. Those using import suppliers may be attractive for highquality domestic rice producers
They exhibit openness to trying domestic, commercially-processed rice But they dont expect local processors to produce a rice with quality worth more than 5,000/ 50 kg bag

Processors should seek distributors who sell their rice on to those market locations frequented by higher value customers
The goal is targeting customers who have ability and willingness to pay the premium for high-quality domestic rice

Customer value varies by channel

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 57 -

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 58 -

Evolution of a Buyer Relationship

Switch

Buy

Loyal

Objective: Try your rice


Initial awareness from advertising or market presence, distributor recommendation Association of brand with first use / experience

Objective: Repeat purchase of your rice


Easier repeat purchase as brand becomes proxy for quality

Objective: Only buy your rice


Buyer strongly associates brand with preferred quality. Trust accrues in brand that promotes consistent purchase

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 59 -

Current Rice Switching Behavior

Switching Frequency
How often do you try new brands of rice?

Likelihood to Try New Rice


How likely are you to try this new type of domestic, premium-quality rice?
Likely

Frequent switchers (Sometimes or Often) 27%

80%

73% Infrequent switchers (Rarely or Never)

8% Unlikely

12% Unsure

Although buyers do not often switch rice, many indicate that they are curious to try a domestic, premium-quality rice.
Note: Source: n=1080 for all charts USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 60 -

Upgrade in Quality, Curiosity and Lack of Availability Drive Switching


Top Reasons for Switching Rices
Quality Better taste New brand Regular brand not available Seller recommendation Price Better value Comparism Customer demand Texture 5% 2% 3% 6% 1% 3% 7% 11% 15% 18% 14% 4% 9% 11%
Branded (Known + Unknown) Unbranded

22% 20% 20% 23%

Quality and taste drive choice to switch rice, but trying new brands and brand availability are close behind.

1% 2%
Percentage of total mentions of buyers of branded or unbranded rice

Note: Source:

n = 252 frequent switchers and 768 infrequent switchers; n=863 Branded and 217 unbranded USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 61 -

Quality at an Affordable Price will be the Key Lever for Domestic Commercial Rice
Likely to Try
Unlikely Unsure Likely to Try

Top Reasons for Trying Domestic Premium Rice


35%
Branded (Known and Unknown) Unbranded

9%
Percentage of Total Respondents

8% 13%
Percentage of total mentions of buyers of of Percentage of total mentions of buyers branded or unbranded ricerice (rice 1 only) branded or unbranded (rice 1 only)

11%

25%

24% 22% 17%

15%

15% 13% 7% 4% 2% 3% 2% 3% 1%

80%

79%

6%

Quality

Branded

Unbranded

Support economy

Price

Taste

Local

New brand Stone free Nutrition

Unbranded buyers will buy because youll solve their quality problems, while branded buyers will buy because youll meet their quality threshold while offering them the chance to support the growth of Nigeria
Note: Source: n = 1080 overall; n = 863 branded; n = 217 unbranded USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 62 -

Influencing Buyers to Try Your Rice


How do you get to know about new rice in the market?
Informed by vendor / see at store Friends / Family Television Radio Billboards / Posters Restaurant / Hotel Customers asked for it Newspaper Magazines My suppliers told me Competitors carry it
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

776 700 277 162 160 104 67 66 47 38 13


Number of Respondents Who Selected Option
- 63 -

Distributors / retailers and Friend / Family are the two most powerful levers for influencing buyers to try new rice. Rice processors should focus marketing activities in ways that promote word of mouth in these two groups.

Building Brand and Driving Purchase of Domestic, Premium Quality Rice


Brand As a Proxy For Quality
ASSOCIATED IMAGES AND EMOTIONS

Loyalist
Objective: Only buy your rice

Trust

Consistency

Availability

USAGE BENEFITS

Buyer
Objective: Repeat choice of your rice

TANGIBLE AND VISIBLE ATTRIBUTES

Quality
Tangible Proof of Quality

Switcher
Objective: Try your rice

Time
Initial Awareness from advertising or market presence Association of brand with first use / experience Easier repeat purchase as brand becomes proxy for quality Brand ensures a buyer the same level of quality over time

Why Brand is Important

Buyer associates emotion benefits from brand (pride in Nigeria, buys the best, etc.)

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 64 -

Strategies for Entering the Market


Imports Domestic

Compete Against Imports as an import

New Category : Commercially Processed Domestic Rice

Compete with Traditional Local Rice

Requirement Ensure quality of rice is high enough to be comparable to imports

Requirement Positively differentiate versus local and Imported rice currently available in the market

Requirement Ensure price of rice is comparable with that of available local rice

Challenge Ability of commercial rice processors to offer import-quality rice. If not, this could be short-term win, longterm loss.

Challenge Balance higher operating costs and higher quality requirements to offer a premium-quality rice at a more affordable price than imports

Challenge Can commercial processors offer their rice at a comparable price point given their fixed costs?

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 65 -

How to Successfully Occupy the New Market Position


Imports
Compete Against Imports as an import
Product

Domestic
New Category : Commercially Processed Domestic Rice Needs to be seen as better / different than current local rice and value compared to imported rice. Build brand based on quality, freshness, local flavor, and Nigerian pride Targeted mix of bulk and smaller packaging to match customer preferences for purchase amount Price relative to imports (and to value). Seek higher prices in future as category and brand become established Invest in promoting name of rice, quality, and associated non-product benefits Focus on customers with interest in Nigerian rice and ability to pay
- 66 -

Compete with Traditional Local Rice

Package

Pricing

Go to Market

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

Contents
Review of MARKETS work with Rice Processors and Investors Focus of Rice Point-of-Sale Market Research Competitive Landscape (Brand Inventory) Defining the Product Offering Determining Package Sizes Identifying a Price Point Bringing Your Product to Market Promoting Switching to Domestic, Premium-Quality Rice Potential Next Steps with Rice Processors
Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 67 -

Areas of Potential Support to Rice Processors Going Forward


Providing a research Briefing Packet with key slides to support conversations with banks, investors and distributors (Note: in process)
Scheduled

Continued support for outgrower development and farmer technical training (ongoing) Training on best practices in rice processing (Sept. 2010)

Support creation of a formal rice processors association, which can serve as a venue for advocacy, best practice sharing, joint marketing and enforcement of standards (e.g., Proudly Nigerian)
Potential

Training on and support for implementation of best practices in packaging, branding and pricing Price tracking for key rice categories to chart annual fluctuations (paddy prices, truly local rice, high quality domestic and imported) Validation of key findings from JICA-funded report on paddy mapping

Source:

USAID Markets / Lodestar International Rice Point of Sale Survey June 2010

- 68 -

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