Africa is considered the next frontier for global brands, from fashion to fast food to electronics. Jane Labous outlines the abundant opportunities for business
Wandering around Accra Mall in Ghana’s capital, it’s hard to believe that this city was ever considered part of the “developing world”.
Fashionable couples promenade through Mango, Puma, Levi’s and Apple stores; women emerge from glamorous boutiques; a huge supermarket sells everything from ice cream to barbecues; a five-screen cinema shows all the latest Hollywood releases; and there’s parking for 900 cars – many of them flashy SUVs.
All this without mentioning the food court offering fried chicken, smoothies and a bouncy castle for the kids.
Drive there via the spiralling highways of the city, meanwhile, and you see glossy adverts for iPhones, beauty products, flights, mortgages and the luxury condos that have recently appeared in the region.
It’s the same in many major African cities. Nairobi, Lagos, Cairo and Dakar are all experiencing a shopping boom: it’s the new fashionable pastime, along with fitness (gyms are having a moment, too).
In Dakar, the Sea Plaza mall houses 44 shops including Benetton and Aldo, ten restaurants, a cinema and a spa run by the Radisson hotel group on a site that, back in the 1990s, was a rugged bit of cliff overhanging the Atlantic Ocean without a paved road running past it.
In Lagos, the Ikeja mall opened in 2012, while the Palms centre is home to brands including Hugo Boss, Mango, Mac, Wrangler, Swatch and Sony, plus a cinema, food court and 1,000 parking spaces.
In Lusaka, Zambia, several complexes offer supermarkets, clothing, electronics and everything in between, led by South African retailer Shoprite and Woolworths.
There is more growth to come. In two years’ time, it’s anticipated that there will be 179 new malls in Africa.
Julien Garcier, managing director of Sagaci Research, which in 2013 predicted strong retail growth across the continent by 2017, says: “The number of new malls is impressive, driven by retailers’ growing interest in looking for new growth opportunities. We are today at a major turning point across the continent.”
NEW GENERATION
A burgeoning African middle class with disposable income and a high awareness of global brands via films, TV and music is driving the demand for consumer goods. Africa has the world’s youngest population, with more than half under 20.
The consumption habits of these young people are quite different from their elders – they are more likely to search for information online, seeking products and stores that reflect the right image; they are more brand-conscious, looking for the latest fashions and trends; and they like to try new things. Combined with urbanisation and the increased availability of credit, it seems like a winning formula.
In the cities, more and more people are flocking to malls rather than the smaller, informal shops and markets that have been the traditional choice. They are seen as places to eat, drink and socialise.
According to McKinsey, Africa’s consumer-facing industries are predicted to grow by more than US$400 billion by 2020, accounting for more than half of the total revenue increase that all businesses are expected to generate there by the end of the decade.
Research by Euromoney shows that, since 2000, consumer spending in sub-Saharan Africa has grown at a steady 4 per cent per year, reaching almost US$600 billion in 2010. The market is expected to be worth US$1 trillion by 2020.
These are impressive figures, representing glittering opportunities for brands and property investors. Many consider the continent to be something of a new frontier in retail terms, with its huge, untapped source of potential consumers.
Karl-Hendrik Magnus, a McKinsey analyst based in South Africa who worked on a report called The Rise of the African Consumer, says: “The key factor here is that 45 million households across the continent are entering the ‘discretionary income’ sector. They have enough to spend, not just on bread and other basics but on non-essentials such as entertainment and aspirational goods. Ultimately, we’re sitting in the second-fastest growing region in the world, after Asia, and that’s underlying this.”
Grant Hatch, former South Africa strategy lead at Accenture, says there are nine countries that will account for almost 75 per cent of total consumer spending in sub-Saharan Africa by 2020: Kenya, Ethiopia and Uganda in the east; Angola, Zambia and South Africa in the south; and Senegal, Ghana and Nigeria in the west.
“Within these attractive markets are a wide range of consumers for whom companies must tailor appealing, differentiated offers,” Hatch says. He recommends that they develop a deep understanding of competitors, and build partnerships and trust with local producers.
“Company managers need to be prepared to walk the markets and gain insights from talking to street vendors, watching consumers and building a qualitative model of how the market operates,” he says.
THINK LOCAL
Still, many brands have little idea how to translate the opportunities into action and profit. International investors have to compete with traditional “umbrella” market stalls often offering cheap or counterfeit goods.
A lack of information about the African consumer is leaving companies at a disadvantage, and it is those with years of experience here that do well.
Then there is corruption and bureaucracy to overcome, while the logistics can be unreliable and infrastructure lags behind much of the developed world. Plus, the very diversity of Africa – 54 countries with differing cultures, languages, demographics and currencies – makes local knowledge implicit to success.
It is notable that the brands that are successful are those creating market-specific products catering to the needs of the consumer in different countries. Africa is enormous, and the taste of shoppers in Senegal differs widely from those in Kenya or Zambia. David Gyori, executive director of Banking Reports, which provides banks with research and analysis of economic markets in Africa, says it is the brands that understand these specificities that do best.
“The African consumer is changing at high speed, so a dynamic understanding of their journey is what makes a Western brand especially successful,” he says. “Part of this understanding is the right price point, one that takes buying power into account and that brings the joy of owning a certain brand to the customer at an affordable price.”
Despite controversies, Nestlé has been present in Africa for decades, specialising in food products such as instant coffee and powdered milk – yet a recent announcement that it will scale back its operations has been attributed to a misunderstanding over the past few years of the continent’s changing consumer base. It is seen to have chased the middle class while neglecting the low-income consumer that was always its major customer base.
In contrast, Unilever has adjusted its strategy to take into account local needs, resulting in double-digit growth on the continent over the past decade.
It has created affordable food, water-thrifty washing powders and grooming products to fit local tastes, such as a line of black hair products in South Africa, which previously relied on expensive US imports. It has also packaged products in smaller sizes and at low prices to capture the loyalty of poorer customers.
Casino, the French supermarket giant, operates in Dakar, offering a huge range of products catering to this francophone market. Still, high prices are prohibitive – one afternoon I paid the equivalent of £6 for a kilo of French tomatoes and £5 for a goat’s cheese – and it will be a while before anyone but the very wealthy Dakarois will shop there rather than at local markets.
Gap entered the South African market in 2012, while Walmart purchased a majority share in local retailer Massmart some years ago and has seen huge expansion on the continent using the same strategies as Unilever to launch products such as cheap, effective sun cream in South Africa.
Other brands exploring the market include Zara, Cadbury, Coca-Cola and KFC. Still, few international names have yet dipped their toes in the water, despite consumers crying out for new places to shop.
“In Dakar, furniture and clothing is really expensive, even when it’s second-hand,” one Senegalese friend tells me. “We hear about shops like Ikea and Primark and we’d love to see them open here. Everyone would go.”
So how long will it be before such retailers wise up?
Garcia says: “I’d agree that consumers are looking for mass-market quality products [from the likes of] Primark, Zara and H&M. But entering these markets can be complex for those firms as they often face high import duties and transportation costs, and need to make sure that the market can handle their business. For Ikea, it’s going to take a long time before they enter the sub-Saharan African markets since it needs a very large customer base, as well as the right infrastructure and customs set-up.”
Yet as shopping malls develop and multiply, more and more brands should gain confidence. Add e-commerce to the mix, enabling companies to enter these sectors without going through the bricks-and-mortar store phase, and it could be that in 15 years, Africa will be the world’s new shopping heaven.
CASE STUDY – NIGERIA
As a major consumer hub, Nigeria has several large-scale shopping malls catering for an increasingly veracious, brand-aware consumer.
Most of these are anchored by South African brands. Lagos’s Ikeja mall has South African retailer Shoprite as its main store, while the city’s Palms Centre has 69 outlets including many major brands, a food court and a cinema.
Nigeria currently has only around 100,000 sqm of leasable space in modern shopping centres, and is to add a modest 180,000 sqm of retail space by 2016, according to the Broll Property Report as revealed by the AFK Insider website. Still, research by McKinsey shows Nigerians are optimistic about their economic future, with 74 per cent of those polled believing they will be better off two years from now, giving them more spending power.
In Nigeria, international store openings are growing by 36 per cent a year, only hindered by a lack of available real estate. This means there is huge opportunity for retailers who can find appropriate sites.
Being market-savvy can also improve their chances of success. More than 70 per cent of Nigerian consumers regularly check the price of rice, and 80 per cent check the cost of red meat, according to McKinsey.
Sagaci Research reports that countries such as Nigeria, Kenya, Angola, Tanzania and Ethiopia remain very attractive for investors, with an unmet demand of ten to 20 shopping centres in each between now and 2017.
