rice market research executive summary

MARKETS …making agribusiness work for Nigerian farmers

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

August 6, 2010

Source: USAID Markets / Lodestar International Rice Point of Sale Survey June 2010 - 2 -

• 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

Contents

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

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)

10 firms representing 17 integrated Rice Mills

FGN N10 Billion from Rice Levy A/C

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


Multi-Stakeholder Platform for 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.

Building a multi-stakeholders partnership based on complementary

roles and responsibilities is a critical step towards assuring agricultural

development


• Ensure consistently available volume of paddy • Ensure availability of the appropriate quality

paddy INPUTS

PRODUCT / OPERATIONS

DISTRIBUTION

MARKETING

• 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 • 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

• Ensure packaging matches customer needs • Develop a brand and marketing approach that

builds awareness and distinguishes your rice

• Address systemic barriers to creating a good competitive environment (e.g., access to allocated funds) CONTEXT

How USAID MARKETS Supports the Success of Rice Processors

Paddy Mapping

Farmer Training

Rice Processing Best Practice

Training

End Consumer Market

Research

Support / Advocacy


Timeline of MARKETS Work in Rice

9 February Rice Investors

Kick-‐off Mee;ng

14 April Research Design Mee;ng

Rice Farmer Best Prac;ce Training

3 -‐ 5 August Research Review and One-‐on-‐One Mee;ngs

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

Focus: Clarify areas of necessary collaboration to support industry growth

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

1 – 10 April Site Visits at 5 mills

Focus: Agree upon the scope and content of the rice processing training

Focus: Agree upon the design of the end-consumer market to ensure it is practical and helpful to the rice stakeholders group

Focus: MARKETS staff gain a practical understanding of the current status of development of processing mills in various regions of Nigeria


Milestone Achievements to Date

End Consumer Market

Research

Support / Advocacy

 Galvanized rice processors to collaborate

 Prompt response from BOI/other banks to open L/Cs and banking facilities (Labana’s N500M loan).

 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.


Paddy Mapping

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).

Milestone Achievements to Date











Contents


Distribution Marketing

Branding

Product

Pricing Packaging

Competitive Position

DEFINING THE PRODUCT

OFFERING

BRINGING IT TO MARKET

Market Size & Competitive Landscape

Ensuring You Win in the Marketplace

•  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, Branding and Marketing define HOW you are bring your offering to the market

•  These areas are intertwined and interdependent

Taking Advantage of the Market Opportunity for Rice in Nigeria


Key Decisions Driving Market Research

Competitive Positioning Defining the Product Offering Bringing it to Market

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

Import Local

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

Business Question

Branding

Distribution

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

Focus of distribution activities, to balance business growth and feasibility

Product

What must physically change about your rice to successfully compete given customer expectations for quality and available resources,

Packaging

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

Pricing Price at which to sell rice, relative to other rice in the market and relative to what customers will pay

High Quality Local Rice

Marketing

Future Focus


Summary of Market Research Approach

Consumer Buyer Survey

Brand Inventory

Wholesale 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


Demographics of Interview Respondents H

ouseholds In

divi

dual

s

Gender Age

64% Male 36% Female

Average age = 32

A higher percentage of rice purchasers who

responded to the survey in the North were male

compared to the Southern regions

Likewise, a higher percentage of Northern respondents were in the

younger age groups than in the Southern

regions

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

Position in HH Size of HH

• 24% were male head of household / husband

• 44% were female of household / wife

• 49% have 3 or fewer members

• 31% have 4-6 members

• 20% have 7 or more members

Monthly Household Income

HH Weekly Food Expenditures

23%

35%

42%

0% 10% 20% 30% 40% 50%

150,000 Naira or more

50,001 to 150,000 Naira

50,000 Naira or less

Percentage of Total Respondents

47% 62%

38% 30% 53%

71%

33%

33%

40% 47%

30% 19%

19% 4%

20% 24% 17% 11% 1% 1% 2%

North East

North Central

North West

South West

South South

South East

10,001 Naira plus

5,001 - 10,000 Naira

2,501 - 5000 Naira

<2,500 Naira

Weekly RICE expenditures are more consistent across regions, with roughly 50%

of respondents spending less than N1,000 / wk











Contents


The Market is Dominated by Imported Brands

145 brands found in Brand Inventory

90% Imported

10% Local

Share of rice available by country of origin

74%

11%

4% 3%

7%

Thailand

Other Brazil

USA

Nigeria

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)


Three Measures of Competitive Landscape

Availability

Awareness

Purchase MARKET SHARE

Customer demand

Distributor demand

Availability Awareness Purchase

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

How frequently a brand was purchased by respondents to our survey

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


The Competitive Landscape is Crowded in All Regions of Nigeria North West

70%

South West

36%

South South

46%

South East

51%

North East

49%

Available: 21 Brands

26% local 74% import

Awareness: 16 brands

Purchased: 10 brands



Awareness: 3 brands


49%


6% local 94% import



46% 49%





51% 46% 49%





36% 51% 46% 49%


8% local 92% import



North Central


Entering the Market

Imports Domestic

Compete with Traditional Local Rice

Compete Against Imports as an

“import”

New Category : Commercially Processed

Domestic 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.











Contents


Customers Interact with a Product on Three Distinct Levels

TANGIBLE AND VISIBLE

ATTRIBUTES

USAGE BENEFITS

ASSOCIATED IMAGES AND

EMOTIONS + I’m proud to buy Nigerian products

- Nigerian rice will never be as good as imported

+ “It is as good in the morning as it was the night before”

+ “It fills me up…”

+ Imported + Stone-free -  Can’t be sure the rice is

actually what the bag says…

Examples

Why they Buy

What they Buy


74.3%

25.7%

0% 20% 40% 60% 80% 100%

Unpackaged

Packaged

Packaging Type


6.2%

0.5%

0.6%

87.3%

5.4%

0% 20% 40% 60% 80% 100%

Other

Ofada

Brown

Parboiled

White

Type of Rice Purchased


0.2%

8.0%

91.8%

0% 20% 40% 60% 80% 100%

Flour

Broken

Unbroken

Grade of Rice Purchased


20.0%

20.1%

59.9%

0% 20% 40% 60% 80% 100%

Unbranded

Unknown Brand

Known Brand

Branding


Note: N for all questions = 1080.

Both Wholesale and Consumer Buyers Select Primarily Parboiled, Unbroken, Branded and Unpackaged Rice


Buyers Purchase – and Have a Clear Bias Toward – Imported Rice

Consumer Buyers

81% 19%

Domestic

Imported

Note: N for Share of Rice Purchased = 1080, n for Consumers = 1020, n for Wholesalers = 59. All data are percentage of Total Respondents

Wholesale Buyers

86%

14%

Domestic or Mixed

Imported

Consumer Buyers Preference for Local vs. Imported Rice

79%

8% 13%

58% 15%

27%

Prefer Imported

Prefer Local

No Preference

Wholesale Buyers Preference for Local vs. Imported Rice

Percentage of Purchases Local versus Imported

Preference for Local and Imported Rice

Prefer Imported

No Preference

Prefer Imported

Wholesalers buyers are

somewhat more open to Local rice


2 6 6 7 7 9

Brand New rice

Local Familiarity

Recommended Imported

However Quality, Rather than Origin, Drives Choice of Rice

TANGIBLE AND VISIBLE

ATTRIBUTES

USAGE BENEFITS

Number of Mentions (out of 3065 total responses)

25 46 57 62

136 167

370 447

Economical Fills me up

Nutrition Smell

Stickiness Easy to cook

Swelling Taste

14 44 54 77

110 139

180 183 197

228 280

Unbroken grain Attractiveness

Dry Appearance

Long grain Available

Color Price

Cleanliness Quality

Stone free

Unprompted Response to “Why did you select the rice you purchased today?”


EMOTIONS

Higher number of selections

•  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


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)

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

84.5% 15.5%

0% 20% 40% 60% 80% 100%

Brand Buyers Packaged Buyers Higher Income Buyers

74%

80%

90%

26%

20%

10%

Unbranded

Unknown Brand

Known Brand

82%

91%

18%

9%

Unpackaged

Packaged

81%

87%

87%

19%

13%

12%

< 50,000 N

50,001 - 150,000 N

150, 000+ N

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).

Note: Tradeoff n=1080, Brand Buyer n=1080, Packaged Buyer n=1080, Higher Income n=850.


•  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.

Key Findings

•  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 don’t 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

Implications

Defining the Product Offering Key Findings and Implications











Contents


Market Evolution from Bulk to Packaged Sales

• 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”

• 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

Bulk Packaged


Package Sizes Offered by 12 Most Available Brands (Brand Inventory) Brand Origin 2 kg 5 kg 10 kg 12.5 kg 25 kg 50 kg

Caprice Thailand X X X X

Dangote -- X X

Golden Thailand X X

Green Elephant Thailand X X

Mama Africa Nigeria X X

Mama Gold Nigeria X X

Rice Master Thailand X X

Royal Stallion Thailand X X X

Siamese Thailand X X X

Super Rice Thailand X X

Texas Gold USA X X

Tomato Thailand X X

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

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

Local X X

Imported X X X X X X


14%

41%

26% 17%

24% 32%

86%

59%

74% 83%

76% 68%

0%

20%

40%

60%

80%

100%

North West

North Central

North East

South West

South South

South East

Bulk Packaged

Sales of Packaged Rice by Region

Share of Purchases Packaged vs. Bulk

78% 22%

Bulk

Packaged

The Majority of Nigerian Buyers Purchase Unpackaged Rice


They Use a Variety of Measures in Markets Across Nigeria

Rice Measures Used

Kg Equivalent Regions in Which the Measure is Used

North West

North Central

North East

South West

South South

South East

Big ike 12.34 kg X

Paint ike 4.39 kg X X X

Rubber 2.06 kg X

Mudu 1.94 kg X X X X X

Big derica / ½ paint 1.66 kg X X X

Kongo 1.65 kg X

Medium derica 0.99 kg X X

Small derica 0.46 kg X

Cigar cup 0.25 kg X X

Cup / Milk tin 0.165 kg X X X X

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.


As Package Size Increases, Perception of Value Decreases

Note: 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?

29%

22% 21%

16%

10%

3%

42%

24%

14%

9% 9%

2% 0%

10%

20%

30%

40%

50%

60%

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

Local Import

% R

espo

nden

ts w

ho

Sai

d “V

alue

for M

oney

”

Assessment of Price Fairness (% “Value for Money”)

Ave. Amount Ave. Price

Local 12.8 kg 145 N/kg

Imported 12.9 kg 199 N/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.


Quality Assurance Drives Purchasers Toward Package Choice

66.4%

47.8%

49.3%

63.6%

60.7%

0% 20% 40% 60% 80% 100%

When you buy unpackaged rice, you are concerned that the rice you are buying is not the actual brand claimed.

You trust what the package says (for example if it says it is stone-free or a specific volume)

Small packages of rice are more convenient to buy than large packages of 25-50 kg

Packaged rice tends to be higher quality than unpackaged rice

When you buy unpackaged rice, you are concerned that the volume of rice you buy is not the actual brand claimed

73.1%

73.8%

0% 20% 40% 60% 80% 100%

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

Trust

Convenience

Quality

DRIVERS

BARRIERS

Quality Assurance

Note: Responses provided by all consumer buyers, n=1020.



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.


•  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

Key Findings

•  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

Implications

Determining Package Sizes Key Findings and Implications











Contents


Price for Domestic Premium Rice Are Tightly Bounded by Competitors

LOW HIGH LOW

HIGH

Product

Customer Defined Value

Imported Rice

Local Rice

Domestic Commercial

Rice

The price you can set for your domestic

commercial rice is influenced – and limited

– by the prices of competing local and

imported rice

Price = Cost + Margin


Cost Reduction and / or Enhancing Value are Vital to Compete

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

1

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

2


Pricing Landscape for Rice

60 76

1500

500

Imported Local

Median Mean

Median

Mean

Note: all n=533; local = 60; Imported = 463

Distribution of Rice Prices

Pric

e (N

aira

/ kg

)

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

Brand Origin N/ Kg

Royal Stallion Thailand 172.81

Super Rice Thailand 171.00

Texas Gold USA 170.67

Dangote -- 164.57

Rice Master Thailand 162.50

Caprice Thailand 162.29

Siamese Thailand 160.75

Mama Africa Nigeria 161.64

Mama Gold Nigeria 160.12

Golden Thailand 149.11

Tomato Thailand 146.96

Green Elephant Thailand 145.50

Take off left hand bar


172 193

134

207 192 165

0

40

80

120

160

200

240

Known Brand Unknown Brand Unbranded

Branding

In all But Brown Rice, Imports Command a Premium Price

212

140

236

189

0

40

80

120

160

200

240

Packaged Unpackaged

Packaging Type

129

164 163

126 140

201

140

0

40

80

120

160

200

240

White Parboiled Brown Other

Local Imported

Type of Rice Purchased

152 132

106

199 205

0

40

80

120

160

200

240

Unbroken Broken Flour

Grade of Rice Purchased

Nai

ra /

kg

Nai

ra /

kg

Note: n=1020 for all charts.


27% 69%

4%

More Expensive than Expected Value for Money

Cheaper than Expected

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

of R

espo

nden

ts

All Buyers

17%

29%

70% 69%

13%

2% 0%

20%

40%

60%

80%

100%

Local Imported

More Expensive Than Expected Value for Money Cheaper than Expected

Assessment of Price Paid


59% 53% 52% 46%

71% 71% 70% 58%

0%

20%

40%

60%

80%

100%

All Parboiled Parboiled and Unbroken Parboiled, Unbroken, and Branded

Parboiled, Unbroken, Branded, and Packaged

201 201 208

244

163 175

182

236

150

170

190

210

230

250

All Parboiled Parboiled and Unbroken Parboiled, Unbroken, and Branded

Parboiled, Unbroken, Branded, and Packaged

Imported Domestic

Average Price of Parboiled Rice

Note: parboiled n=866; parboiled and unbroken n=827; parboiled, unbroken and branded n=536; parboiled, unbroken, branded and packaged n=176

Nai

ra /

Kg

8 N

38 N

Assessment of Price Fairness (% “Value for Money”)

% R

espo

nden

ts w

ho

Sai

d “V

alue

for M

oney

”

Adding Value to Rice through Packaging is Essential to Higher Prices

Processors ability to price highly depends upon their ability to add

value to the rice- through packaging


41 30

270 200

Consumer Wholesaler

Mean

Median

Prices Suggested for Domestic, Premium Rice

Pric

e (N

aira

/ kg

)

Buyers Suggested a Fairly Narrow Window of Possible Prices

Note: all n=533; local = 60; Imported = 463. N for Consumers = 346, n for Wholesalers = 59.

Responses to the question “What price would you expect to pay for this

new, domestic premium-quality rice?”

147 100

60 76

1500

500

Imported Local

Median Mean

Median

Mean

Distribution of Rice Prices

Pric

e (N

aira

/ kg

)


Three Pricing Strategies for Commercial Domestic Rice

Cost Plus Pricing

Price Relative to Imports

Value-based Pricing

Advantages Disadvantages •  Variability ensures consistent

margins for processors, it may dissuade buyers

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.

•  May dissuade buyers who want to be able to count on reasonably consistent pricing from a chosen supplier

Advantages Disadvantages •  Prices will tend to be higher than

cost plus •  May reinforce higher quality

perception of rice (if price signals quality)

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)

•  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

Advantages Disadvantages •  Least variability in price over time,

which aids strategic and operational planning

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

•  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


•  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., Olam’s Mama Gold, Mama Africa)

  Buyers do not yet associate domestic rice with quality levels that command a premium price

•  Packaged rice commands a premium price, yet is seen as less “value for money” by cost-conscious buyers

Key Findings

•  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

Implications

Identifying a Price Point Key Findings and Implications











Contents


Making Informed Decisions about Distributor Partnerships is Vital

Large Distributor

Retail Channel

End Consumer

Frequency of Switching to Another Rice

Likelihood to try New

Commercial Domestic

Rice

Amount Purchased, Price Paid,

Frequency of Purchase

Imported Rice

Distributor

Local Rice

Distributor

While you may wish to serve specific regions and

markets, for most of you, your only real choice is:

Your ability to work with your distributors so that you both profit from selling more rice

at higher prices is dependent on you knowing:

…you CAN make better informed distributor choices

Although you can’t directly control where your rice is sold…

Wholesale Market

Open Retail Market

Small Retailer

Supermarket

Who is my distributor?

Which regions, market locations and

customers are most attractive for you to

serve?

Local or Regional Trader

Northeast

North Central

Northwest

Southwest

South / South

Southeast


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.

Working with Imported Rice Distributors

Product

Package

Pricing

Go to Market

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).

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.

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.

Implications: These distributors don’t have resistance to accepting commercial domestic rice…assuming that it is priced in accordance with its quality. There is no premium for domestic rice.

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.

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

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.

Distributor Retail Location Consumer


Buy a whole range of branded and unbranded rice; mop up the market” by buying what is available at given point in time.

Working with Local Rice Distributors

Product

Package

Pricing

Go to Market

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.

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.

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.

Implications: Availability and volume are key

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

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.

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



Retailer Sourcing of Rice at Present

29%

16%

4%

57%

66%

35%

52%

82%

91%

19%

34%

8%

0%

44%

3%

19%

56%

35%

Supermarket Open Market Retail Shops

Imports Rice Directly Buys From Local Importer Buys From Local Trader

Buys from Local Processors Buys from Commercial Rice Mill Buys from Intermediary Supplier

Source Of Imported Rice

Source Of Domestic Rice

Rice Sources for Retail Locations

Note: Rice Sources n=203; Channel Share n = 1020

% of Rice Sold through Channel 29.4% 51.4% 19.2%


Approaching local importers and local traders could be a viable channel for distribution of your rice


Retailer Sourcing of Rice at Present


4.85 4.29 4.29

4.00

1

2

3

4

5

Sm

all Retail R

eseller

Institution/Others

Open M

arket Reseller

Eatery

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

4,935 4,971

5,229

4,800

Sm

all Retail R

eseller

Institution/Others

Open M

arket Reseller

Eatery

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

In Naira Very Likely

Not at All Likely

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.



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…”

Stay at this location and buy a different rice

Look elsewhere to find the type of rice you want

64.5% 35.5%

0% 20% 40% 60% 80% 100%

Consumer

Go to a different wholesaler at this

location or a different location to find the rice

you want

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

61.1% 38.9%

0% 20% 40% 60% 80% 100%

Wholesale

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: Consumer n=1020; wholesaler n=58

Buyers Value Quality over Location Loyalty Distributor Retail

Location Consumer


63%

31%

30%

28%

24%

17%

5%

2%

Close to my home

Lower prices

High quality products

Easy to find my regular rice

I trust this vendor

Variety of different brands to choose

from

Could not find my rice at my regular

outlet

Other

54%

53%

42%

39%

37%

27%

20%

3%

Lower prices

Easy to find the rice I want to buy

Variety of different brands to choose from

High quality products

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

Why Buyers Chose their Location of Purchase

Note: retail n=1020; wholesaler n=59

Retail Consumers Wholesale Consumers

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.



Location Selection and Customer Value


16%

48%

27%

9%

0%

10%

20%

30%

40%

50%

Less than 120 N/Kg

120 to 180 N/Kg

180 to 300 N/Kg

300 or more N/

Kg

Rice Amounts Purchased Purchase Frequency

37%

23%

17%

13% 10%

1%

2 kg or less

2 to 5 kg

6 to 10 kg

11 to 25 kg

26 to 50 kg

More than 50 kg

Rice Prices Paid

Objective: Find customers who want my rice AND who frequently buy larger volumes at higher prices


14% 14%

28%

39%

5%

Once per

month or less

2-3 times per

month

Once per

week

Every few

days

Every day


Retail Customer Value by Region

Note: 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.

Customer Value (Volume X Price X Frequency) by Region

Customer Value

N 6,579 / month

N 11,655 / month

N 8,553 / month

N 6,298 / month

N 7,017 / month

N 8,869 / month

9.6

18.4

9.8 6.7

9.0

13.4

2.9 3.5 2.8 2.6 2.7 3.0

210

153

220

151

211

189

0

50

100

150

200

250

-

10.0

20.0

30.0

40.0

50.0

North West North Central North East South West South South South East

Kg Purchased Purchases / Month Price N/Kg

Kg N /Mo

Kgs

Pur

chas

ed &

Tim

es P

er M

onth

Naira

Kg N /Mo Kg N /Mo Kg N /Mo Kg N /Mo Kg N /Mo

Customer Value identified regional differences in purchase patterns.



Retail Customer Value by Channel

Note: 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.

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

Customer Value N 15,875 / month N 5,828 / month N 8,582 / month

42.8

7.8 10.1

2.5

9.0 8.4

245

193 183

0

50

100

150

200

250

300

-

10.0

20.0

30.0

40.0

50.0

Supermarket Small retailer Open Market

Kg Purchased Purchases / Month Price N/Kg

Kg Naira /Month Kg Naira /Month Kg Naira /Month

KG

s P

urch

ased

& T

imes

Per

Mon

th

Naira

Customer value varies significantly by market

location



•  Distributors of imported and local rice have very different approaches to and demands of their suppliers

  Payment and credit terms

  Marketing expectations

•  Retail locations use a mix of both import and domestic channel suppliers. Those using import suppliers may be attractive for high-quality domestic rice producers

  They exhibit openness to trying domestic, commercially-processed rice

  But they don’t expect local processors to produce a rice with quality worth more than 5,000/ 50 kg bag

•  Customer value varies by channel

Key Findings

•  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

•  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

Implications

Bringing Your Product to Market Key Findings and Implications











Contents


Evolution of a Buyer Relationship

Switch Buy Loyal

Objective: Try your rice

Objective: Only buy your rice

Objective: Repeat purchase

of your rice

• Initial awareness from advertising or market presence, distributor recommendation

• Association of brand with first use / experience

• Easier repeat purchase as brand becomes proxy for quality

• Buyer strongly associates brand with preferred quality.

• Trust accrues in brand that promotes consistent purchase


Current Rice Switching Behavior

Note: n=1080 for all charts

How likely are you to try this new type of domestic,

premium-quality rice?

80%

12% 8%

Likelihood to Try New Rice

Likely

Unlikely Unsure

How often do you try new brands of rice?

27%

73%

Frequent switchers (Sometimes or Often)

Infrequent switchers (Rarely or Never)

Switching Frequency

Although buyers do not often switch rice, many indicate that they are curious to try a domestic, premium-quality rice.


22%

20%

15%

14%

9%

7%

5%

3%

3%

1%

20%

23%

18%

4%

11%

11%

2%

6%

1%

2%

Quality

Better taste

New brand

Regular brand not available

Seller recommendation

Price

Better value

Comparism

Customer demand

Texture

Branded (Known + Unknown) Unbranded

Upgrade in Quality, Curiosity and Lack of Availability Drive Switching

Percentage of total mentions of buyers of branded or unbranded rice

Top Reasons for Switching Rices

Quality and taste drive choice to switch rice, but trying new brands and brand

availability are close behind.

Note: n = 252 frequent switchers and 768 infrequent switchers; n=863 Branded and 217 unbranded


25% 24%

17%

13%

6% 4% 3% 3%

35%

15% 15%

22%

7%

2% 2% 1%

Quality Support economy

Price Taste Local New brand Stone free Nutrition

Branded (Known and Unknown)

Unbranded

Quality at an Affordable Price will be the Key Lever for Domestic Commercial Rice

Per

cent

age

of to

tal m

entio

ns o

f buy

ers

of

bran

ded

or u

nbra

nded

rice

(ric

e 1

only

)

Unbranded buyers will buy because you’ll solve their quality problems, while branded buyers will buy because you’ll meet their quality threshold while offering

them the chance to support the growth of Nigeria

Note: n = 1080 overall; n = 863 branded; n = 217 unbranded

Top Reasons for Trying Domestic Premium Rice

Per

cent

age

of to

tal m

entio

ns o

f buy

ers

of

bran

ded

or u

nbra

nded

rice

(ric

e 1

only

)

Perc

enta

ge o

f Tot

al R

espo

nden

ts

80% 79%

11% 13%

9% 8%

Branded Unbranded

Unlikely Unsure Likely to Try

Likely to Try


Influencing Buyers to Try Your Rice

How do you get to know about new rice in the market?

776

700

277

162

160

104

67

66

47

38

13

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

Number of Respondents Who Selected Option

•  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

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

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

Why Brand is Important

TANGIBLE AND

VISIBLE ATTRIBUTES

USAGE BENEFITS


EMOTIONS

Tangible Proof of Quality

Brand As a Proxy For Quality

Objective: Try your rice

Objective: Only buy your rice

Objective: Repeat choice

of your rice

Quality

Consistency

Availability

Trust

Switcher

Buyer

Loyalist


Strategies for Entering the Market

Imports Domestic


Compete Against Imports as an

“import”


Domestic Rice

Requirement

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

Requirement

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

Requirement

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

Challenge

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

Challenge

•  Ability of commercial rice processors to offer import-quality rice.

•  If not, this could be short-term win, long-term loss.

Challenge

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


Imports Domestic


Compete Against Imports as an “import”


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

Product

Package

Go to Market

How to Successfully Occupy the New Market Position

Pricing











Contents


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

 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)

  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

Areas of Potential Support to Rice Processors Going Forward Sc

hedu

led

Pote

ntia

l

rice market research executive summary

Documents

kgs purchased

small retail

implicationskey

open market

market promoting

commercial

traditional

market intercept