Opinion by Laine Barnard, owner of 8brand.
The time is thus ripe for big brand retailers to set up shop in Africa. Africa’s economic growth has always been largely dependent on its natural resources. There is the gold from South Africa, the oil from Gabon, the coffee beans from Ethopia.
But this picture is changing. Retail is playing an ever-growing role in Africa’s economic landscape. Africa’s middle class is growing and, with it, the continent’s spending power. According to A.T. Kearney’s first-ever African Retail Development Index, African consumers will spend almost $1tn in 2020. This is in line with other reports that African consumers are now, more than ever, feeling positive and happy to spend at the tills.
Not surprisingly, retailers are encouraged to explore the African market. Naturally our diverse continent is not without its challenges. But before exploring these, a closer look at what makes Africa an investor’s dream in 2014 and beyond is mandatory.
Urbanisation in Africa is happening faster than in any other region in the world. With this trend comes an acceptance of Western brands, products and lifestyles. This means consumers are hungry for a sleeker, more polished shopping experience than is the norm in most African countries.
This, the norm, as indicated by research, is informal trading. Kiosks, spaza shops and the like make up 90% of Africa’s retail trade.
But, as Wayne McCurrie, a portfolio manager at Momentum Asset Management, pointed out to Bloomberg, “Africa is massively underserviced in terms of formal retail options. There is a sizeable part of the population that has the means to buy from formal shops, but don’t have the options available.”
The time is thus ripe for big brand retailers to set up shop in Africa.
Further proof that Africa is a good investment option can be found in the fact that Africa’s GDP has grown with more than 5% in the past decade. No less than seven of the world’s 10 fastest-growing economies can be found in Sub-Saharan Africa.
Africa’s prosperity is not only changing how consumers shop, but also what they shop for. There has been a definite shift from “need” to “want” purchases with African shoppers. A 2013 survey done by Boston Consulting Group among 10 000 consumers from eight African countries found that 60% to 90% of consumers have a strong desire to buy more each year. And they’re not in the market for perishable goods. The majority of respondents planned on spending their money on durable goods, such as apparel, cars and consumer electronics.
As pointed out, however, all of the circumstances creating opportunities for retailers are not without their challenges. As can be expected, these challenges are as unique as the African continent itself.
Africa is home to millions of people, as well as thousands of culture and languages. This in itself makes sales and marketing in Africa a challenge. No two countries, or even regions, are the same. Product selection, and getting it right, is made rather difficult.
Adding to the challenge of breaking into the African market is the fact that African consumers, while price sensitive, are extremely brand loyal. Most African consumers will make financial cuts in order to buy the brands they love.
The survey done by Boston Consulting Group revealed that quality, performance and familiarity were the top motivators when it came to choosing one brand over another. Almost 70% of Africans feel that brands represent who they are, validate and communicate their personal values, and provide a sense of belonging.
To address these issues, Marieke Witjes, co-author of the African Retail Development Index, tells IOL that “[Retailers] could either roll out a pilot store and test which brands consumers responded to or they could do decent research to understand the brand loyalty of consumers”. Other advice to retailers by Witjes and her co-authors include different business models for markets to accommodate diversity, and considering local suppliers because consumers are familiar with their products.
Besides diversity and an intense loyalty to brands, supply chains present a massive challenge in Africa. Infrastructure in many countries is still heavily underdeveloped. Furthermore, the route to the market for products can involve any combination of rivers, mountains, deserts, jungles, floods and drought. This is not to forget road and railway difficulties, as well as governance issues.
Retailers that ignore the challenges and seize the opportunities presented by Africa are likely to be rewarded in coming years. The key is to enter the market early, ahead of competitors, so that African consumers are introduced to a brand and products sooner, rather than later. Appeal to their values and beliefs and long-lasting brand loyalty could be fostered. The key is to be patient, both with consumers and the unique circumstances of Africa.