Consistent growth in income and productivity levels in Africa, which is home to about 1.2 billion consumers, has opened up a new retail sector. Johannes Richter investigates the opportunities.
Consumer spending in Africa has grown at a compound annual rate of 3.9% since 2010, reaching R20 trillion in 2015, and is expected to grow to R31 trillion by 2025, according to a recent Brookings Institution report. The fast-moving consumer goods (FMCG) subsectors for food, beverages and tobacco account for about two-thirds of the total consumption, the Economist Intelligence Unit reports. And once the Continental Free Trade Area (CFTA) is fully implemented in 2030, the continent will become a single market of 1.7 billion people – surpassing China and India. Industries supplying food, beverages, luxury goods, hospitality and recreation in particular will benefit from this expanding market.
Currently most of Africa’s consumer spending is still concentrated in the informal sector. There are 700 000 informal stalls in Nigeria selling soft drinks, compared with only seven Spars and two Game stores in the entire country. “African retail environments generally remain fragmented and reasonably unsophisticated,” DGB International director Greg Guy confirms. “Large amounts of wine are still sold in informal markets. This is not ideal from a merchandising or quality control perspective.”
But the proportion of Africa’s population living in cities is projected to increase from 40% to more than 60%, with some of the most lucrative markets such as Nigeria, Ghana and Angola likely to top 80% urbanised population, the Brookings report says. Meanwhile don’t underestimate the power of informal trade in Africa, adds KWV international markets executive Bernard van Tonder. “In most markets this is still 80% of where the volume lies, depending on your product’s position on the price or brand ladder.”
“Transformation in the telecommunications, banking and retail landscape, and a boom in construction present big opportunities for South African wine producers,” says Matome Mbatha, WoSA’s market manager for Africa. The blurring of physical borders through technology will lead to greater adoption of e-commerce. Faster internet access means an improved online shopping experience and more sophisticated stores. Omnichannel solutions that integrate various shopping methods will be indispensable for reaching these well-connected consumers. E-commerce can help bridge the gap between a massive informal sector and established physical retailers, providing the distribution logistics are in place.
“It’s important that you control the price and that the market in which you operate is mature enough with a proper route-to-market mechanism that can deliver your product – and you have it in stock – over the area you advertise,” Bernard says. “It can kill your brand if your end users are able to undercut your distributors in the market through this platform.”
With little consolidated country data and consumer information available, Greg and Bernard both advise spending time on the ground to understand the realities and potential risks. “Spending time with your importers and consumers, and walking the markets have always yielded the best information available,” Bernard says. Both also agree SAWIS is an indispensable resource. “We find SAWIS data a great benchmark to test our market share in each country as it’s extremely good at tracking South African wine exports,” Greg says.