US embassy cable - 05LAGOS1570

UNCLAS SECTION 01 OF 02 LAGOS 001570 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, EIND, PGOV, PREL, NI 
SUBJECT: NIGERIA'S VERSION OF MCDONALD'S SAYS PROFITS ARE 
DOWN 
 
 
1. (SBU) Summary.  The increase in food and transportation 
prices had cut into the profit margins of Nigeria's 
equivalent to McDonald's -- Mr. Biggs.  The company's 
executives told us food prices are rising because of weak 
infrastructure, inconsistent agricultural policies, and lack 
of local capacity to match demand for certain staple foods. 
Executives stated profit margins decreased by one to two 
percent from 2004 as the restaurant was forced to find 
substitutes for food items such as rice.  End Summary. 
 
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Mr. Biggs - Nigeria's Own McDonalds 
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2. (U) The United Africa Company (UAC) is one of Nigeria's 
largest, diversified companies involved in agriculture, 
manufacturing, logistics and warehousing, and the food and 
beverage service industry.  It owns the largest chain of fast 
food restaurants in Nigeria -- Mr. Biggs with 137 stores 
nation wide, including: Lagos (53), Port Harcourt (13), 
Ibadan (8) and Abuja (7).  UAC also produces its own brand 
name ice cream, bread, and cereal goods. 
 
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Rising Food Prices Hurt Profit Margins 
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3. (SBU) UAC Head of Finance, Layi Adetomiwa, told us food 
price increases as well increases in fuel prices, 
transportation costs, and infrastructure costs were cutting 
into the company's profit margins.  Cost of production has 
risen by 15-20 percent over last year, he said.  Last year, 
Mr. Biggs exceeded sales of naira 10 billion (USD 77 million) 
with a profit margin of eight percent.  This year, with more 
stores, projected sales are between naira 11-12 billion (USD 
85 million to USD 92 million), but the profit margin has been 
reduced by one to two percent, Adetomiwa said.  Company 
executives have indicated that they are now placing greater 
focus on providing restaurant services to foreign oil 
companies to recuperate some of the lost revenues from its 
local restaurant businesses. 
 
4. (SBU) Increased food prices forced the company to shift 
additional costs onto consumers by raising the price of many 
menu items.  Consumers are now paying 10% higher prices than 
in 2004.  Meat pies, a very popular item, sell now for naira 
100 (USD .76) as opposed to naira 90 (USD .68) last year and 
combination meals (consisting of rice, chicken, and 
vegetables) now sell for naira 350 (USD 2.69) as opposed to 
naira 320 (USD 2.46) in 2004.  Mr. Biggs is also finding 
substitutes for rice because "there is not enough local 
capacity to provide good quality rice," Adetomiwa said. 
 
5.(SBU) Comment.  Nigeria's Federal Office of Statistics 
(FOS) reports an increase of 18% for various staple foods 
during the past year.  Nongovernmental industry experts give 
a higher estimate.  Depending on their location and on their 
particular dietary mainstays, the average consumer in Nigeria 
is paying between 20-60% more for various staple food items 
than 2004, calculating for both inflation and naira 
fluctuations.  A 50 kilogram bag of rice now sells for naira 
6,000 (USD 46) as opposed to naira 4,500 (USD 35) last year, 
an increase of 33%.  Imported food items like frozen chicken 
and turkey now sell for naira 4,000 (USD 31) per 10 kilogram 
carton, as opposed to naira 2,500 (USD 19) in 2004, an 
increase of 60%.  A standard loaf of bread now sells for 
naira 150 (USD 1.12) as opposed to naira 120 (USD .90) in 
2004, as input costs for sugar and wheat, increased. 
According to industry experts, food items like beans and 
maize have increased by 16.7% and 54% respectively.  End 
Comment. 
 
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Weak Infrastructure and Inconsistent 
Agricultural Policies Hurt Food Industry 
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6. (SBU) UAC representatives said poor infrastructure remains 
the key obstacle in local companies' ability to provide lower 
priced meals and services to consumers.  Inadequate power 
supply and bad roads significantly increased transportation 
and production costs.  UAC CEO, Ayo Ajayi, believes Nigeria 
has the capacity to export agricultural products, but 
inadequate infrastructure and an undercapitalized 
agricultural sector are major obstacles.  Adetomiwa said that 
"years of inconsistent agricultural policies had led to an 
underdeveloped sector." 
 
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Comment 
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7. (SBU) Comment.  The rising cost of food has hurt both the 
average Nigerian and the local restaurant industry.  Fuel 
price increases, bans on agricultural products, and high 
infrastructure costs negatively affected UAC and other 
companies involved in the food industry.  If Nigeria's 
largest fast food chain restaurant felt the impact of higher 
costs, it is almost a sure bet that less financially robust 
companies have felt an even deeper sting.  So long as 
imprudent agricultural policies remain in play, 2006 is 
likely to be a repeat of 2005 for the local food and 
restaurant industry.  End Comment. 
BROWNE