Nigeria: Food Concepts to seek debt finance for international expansion

By David Whitehouse
Posted on Tuesday, 5 October 2021 16:30

Nigeria's Food Concepts plans long-term expansion beyond West Africa. Photo supplied.

Nigerian fast-food provider Food Concepts plans to raise debt finance in the next six to 12 months for international expansion, managing director David Butler tells The Africa Report.

The company, which is currently debt-free, has reached an “agreement of understanding” with a bank [that] will manage the fundraising, Butler says in Lagos. Food Concepts has also carried out projections on how the cash would be used. “A lot of people are sitting on cash. It’s about finding the right partner.”

Food Concepts, which was set up in 2001, operates the Chicken Republic, PieXpress and Chop Box brands in Nigeria and Ghana, and currently has about 180 stores. The company trades on Nigeria’s NASD over-the-counter (OTC) securities exchange. At the end of September, private-equity investor African Capital Alliance (ACA) agreed to buy 31% of Food Concepts from Development Partners International (DPI), which will retain a majority stake.

  • ACA’s investment won’t mean significant changes in the company’s strategy, Butler says.
  • The company’s expansion in Nigeria and Ghana will continue, and Butler sees an opportunity for new brands.
  • He hopes to enter new markets in anglophone and francophone West Africa in the next 12 to 18 months.
  • The expansion plans have been delayed by Covid-19. Butler hopes, at some point, to expand beyond West Africa. “That time will come.”

Cost inflation

The stubbornly high Nigerian inflation increases cost pressures for a company seeking to offer ‘affordable value’ with some standard meals costing just over $1. Nigeria’s annual inflation in August dropped for a fifth straight month to 17%; but food inflation remained at 20%, driven by higher prices for bread, cereals, milk, cheese, eggs, and oil and fats.

Food Concepts remained profitable in 2020, with revenue growing to 18.2bn naira ($44m) from a restated 13.8m in 2019. The company has been able to absorb some of the higher costs, and has had to pass some on to customers, Butler says. However, “disposal incomes are under pressure” and further naira depreciation could affect import prices and increase the set-up costs for new stores, he says.

  • Oxford Economics Africa analyst Cobus de Hart has predicted that inflation in Nigeria will continue to gradually slow [down] for the rest of 2021.
  • There has been “some stabilisation” in costs over the last month, Butler says. “I am hoping that we have seen […] the worst [of it].”

Higher costs force the company to be innovative, for example in the use of solar power, which represents a “significant” cost saving, Butler says. Using solar power makes PieXpress outlets possible in parts of Nigeria that the company could not otherwise reach, he says.

  • The ovens needed by Chicken Republic are harder to run on solar, but some PieXpress outlets are now 100% solar powered.
  • Investing in solar power, on average, has a payback period of about two years, Butler says.
  • He aims to open 200 new outlets over the next 18 to 24 months, running on solar power where possible.

Bottom line

Food Concepts is betting its low-cost model can overcome inflationary pressures for both suppliers and consumers.

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