Krispy Kreme’s flagship store in Nigeria was shut by National Agency for Food and Drug Administration and Control, (NAFDAC) on 8th August 2018 after the Consumer Protection Council (CPC), discovered expired products in store. The discovery was made during a showpiece raid led by the CPC’s Director General, with great fanfare, catalogued on Twitter. The store, in Victoria Island in Lagos. It has only been open since May 2018 and is one of two Krispy Kreme stores in Nigeria. We expect the shut down to be temporary.
Director General of the CPC, Babatunde Irukera, commented, “Increasing margins is a deliberate and intentional approach to business, but adopting the same approach to evade food safety regulatory oversight is exploitative and unscrupulous. We reject that.”
Nigerian regulators, in common with their counterparts in many other countries in Africa, are keen to make examples of foreign and foreign-owned businesses that are seen to sell/use expired products. This sensitivity follows a long history of manufacturers and importers being accused of dumping out of date, and possibly unsafe, products on African markets – especially in pharmaceuticals but also in the food sector.
In Nigeria, Guinness was fined N1bn ($5m) in November 2015 for having out of date raw materials. Similarly, in May 2015, bakery and café company Chocolate Royal was temporarily closed down by NAFDAC after considerable quantities of expired products were found.
Typically, regulators and consumers make little distinction between use by dates, which indicate when a product is safe to consume, and best before dates, which indicate when a product’s taste or performance may be less good.
The products in question, imported dough mix and strawberry filling, had been overstickered with new expiry dates. The original use by date on dough mix products shown to Nigeria media indicated an expiry on 3rd July 2018, six months after the date of manufacture. The overstickered information showed a new best before date of 9th July 2018.
The issue for Krispy Kreme’s franchisee, Quality Foods Africa
The key issue for Krispy Kreme’s franchisee, Mauritius-based Quality Foods Africa, is the need to import ingredients. In reality, this means at least 8 weeks of transit time via sea freight, so stock has an effective lifetime of four months in Nigeria. This seems to be the underlying rationale behind overstickering a further two months of lifetime onto stock.
Even so, four months should be enough for a fast food franchise to turnover stock.
It is worth noting that Quality Foods Africa is a first time franchisee: the company has no track record running franchises, although executives within it do. The company has just two Krispy Kreme outlets at present, the other one being in Ikeja City Mall.
Trendtype believes the issue with expired stock primarily comes down to overordering.
Firstly, photos indicate that the CPC raided a shipping container used by the store to hold stock, suggesting either limited in-store storage or considerable quantities of unused stock.
Secondly, Quality Foods Africa will have had little clear idea of consumer demand when launching its stores, but will definitely have been afraid of running out of imported stock. The company will have placed its orders for stock months before both Lagos stores opened.
It is also possible that demand for Krispy Kreme has been under what was forecast. However, even if demand had been strong, Quality Foods Africa would still have held larger than normal stocks to mitigate the risk of imports not arriving in time, or having to import stock via air freight.
Finally, it is possible the company hasn’t managed its inventory properly, not using older stock first. Certainly, with just two Krispy Kreme stores, Quality Foods Africa has limited option to push soon-to-expire stock out to multiple stores, compounding the problems.
But Trendtype believes the issue is overordering because of a fear of out of stocks and import delays.
What we don’t definitively know is whether the extension of the expiry date was done with franchise holder Krispy Kreme’s agreement. If it was, it represents a major error of judgment and lack of local sensitivity around “expired” products.
If the overstickering was not agreed, it will cause considerable consternation in Krispy Kreme’s North Carolina HQ that its franchisee may not be good enough.
The operational challenge for foodservice franchises
The CPC raid highlights some of the operational issues affecting foodservice franchise brands trying to expand in African markets. Especially while restaurant networks are small, sub-scale and reliant on imported product, the risks are high. When people wonder why McDonald’s has been so reluctant to rapidly expand into much of Africa, events like this serve as a cautionary tale.
We expect the shut down of the Krispy Kreme store to be short lived. Quality Foods Africa has invested $7m in the franchise and will be keen to open up again, and eat the cost of disposing of out of date stock. This isn’t fundamentally a safety issue, regardless of what the CPC says. At worst, it is a quality issue.
Ultimately, we do not think consumers in Lagos to be especially bothered by the raid. Nigerian consumers have a strong appetite for sweet baked goods. Krispy Kreme has made a strong opening and has little competition in Nigeria: Dunkin Donuts is not present, for example, although it has talked about entering.
In the universe of sins against consumers, where counterfeiting, expired pharmaceuticals and adulterated products are regular features, Krispy Kreme’s infraction – extending best before (rather than use by) dates is relatively minor. But we still expect the regulator to issue a penalty and punish Quality Foods Africa. Because the raid on Krispy Kreme was more about the CPC showing its teeth by targeting a big name brand than it was about the risks of 8 month old doughnut mix.
