Eight retail trends that are driving growth in sub-Saharan Africa
There is a lot of positivity in 2016 for the growth of retail sales across the region and howwemadeitinafrica.comtook PwC’s report and identified eight sections where retailers and manufacturers can earn more.
1. Income growth
Although there has been much debate about the true size of the middle class, and even the appropriate definition of the term itself, most analysts seem to agree that incomes are indeed rising. This view is supported by the vast majority of business leaders interviewed for PwC’s report, although several say the segment might not be growing as fast as some seem to think.
Perhaps Citigroup’s senior economist for Africa, David Cowan, provides the most instructive assessment: “We think that at least in the coming decade or so, the key consumer markets in sub-Saharan Africa will largely be low-end, with a splash of high-end colour. While there can be talk of an emerging middle class, we think it is much more logical to talk about the emergence of a new consumer market in sub-Saharan Africa.”
2. Busier, healthier, and more informed consumers
Business leaders point to evolving consumer lifestyles and ambitions that are influencing purchasing behaviour. Due to growth in internet penetration and travel, Africans are more connected to global trends than ever.
Generally speaking, consumers in sub-Saharan Africa are becoming more aspirational and brand-conscious. Ramesh Sadhwani, joint managing director of Ghanaian retail group Melcom, says where price used to be the main factor influencing purchases, consumers are paying more attention to brands, packaging and product details.
Those who can afford it are also more health-conscious, favouring nutritious foods and monitoring their sugar intake. According to Phil Roux, chief executive officer of South Africa’s Pioneer Foods, this is a trend that cannot be ignored, and one his company takes seriously as it formulates its new products.
3. Home-grown champions making their mark
Across the continent there are numerous examples of indigenous companies holding their own, and even winning, against foreign competitors due to nimbler business structures and a better understanding of consumer and on-the-ground market realities.
Having become dominant players in their home markets, African champions are also boosting their presence in the rest of the continent. Faced with a saturating domestic market, South African retailers have been among the most aggressive in expanding. Supermarket group Shoprite Holdings has been one of the pioneers, having first entered Zambia in 1995. Over the years Kenyan supermarket chains such as Nakumatt and Tuskys have also expanded into the greater East African Community (EAC) region.
4. Shift towards modernisation, but informal trade continues to lead
Informal retail will continue to dominate sales in sub-Saharan Africa for the foreseeable future. With the exception of South Africa and Angola, it is estimated that upwards of 90 per cent of sales in the focus countries is through informal channels such markets, kiosks, table-top sellers and street hawkers.
The industry is, however, slowly modernising and the past decade has seen the development of numerous western-style shopping centres. In countries such as Ghana, Nigeria and Zambia, many of the malls are anchored by South African retailers. French company CFAO, in partnership with French multinational retail group Carrefour, has also announced its intention to build shopping centres in a number of West African countries. Modernisation is, however, not purely associated with shopping malls, as is being seen in Angola where some of the cantinas (small grocery shops) are developing into mini supermarkets with multiple check-out counters and a greater assortment of products.
5. Online retail showing promising potential
Although online retail is still in its infancy in sub-Saharan Africa, the industry is certainly showing promising potential. While South Africa and Nigeria already has numerous e-commerce players, the industry is less developed in countries such as Cameroon and Ghana.
Due to under-developed brick and mortar retail, e-tailing holds a unique value proposition for sub-Saharan Africa, not only in terms of better pricing but also for the convenience it provides as shoppers no longer have to sit through the gridlocked traffic to reach markets or shopping malls. Online shopping may offer even greater value for those living outside the big cities where the choice of goods available may be limited. With growing internet penetration through smartphones, it is conceivable that online retail could to an extent leapfrog traditional brick and mortar trade.
Successfully selling products online in sub-Saharan Africa, however, comes with multiple unique obstacles, including unreliable internet connections, logistical challenges, as well as a general distrust of transacting online and low bank card penetration, which is why most e-commerce companies allow consumers to pay cash on delivery.
6. A more sophisticated retail sector
Formal retailers will exploit growth and margin-enhancing initiatives such as private labels, loyalty programmes and retail credit. In less developed retail environments, the entry of regional and foreign players is expected to boost these types of initiatives as they already apply them in their home markets.
Private labels are already common in countries such as South Africa and Kenya where retailers have sufficient scale. In Côte d’Ivoire, retail group Prosuma sells home brands, such as juice and frozen foods, from French supermarket chain Casino with whom it has a partnership. In South Africa, private labels have evolved into trusted brands as opposed to merely cheap alternatives, with supermarket group Pick ‘n Pay already having a range of tiered in-house brands, each aimed at specific consumer segments.
Loyalty programmes are expected to become more sophisticated, and provide retailers with better consumer insights, in turn allowing them to customise electronic communication messages. The majority of South African retailers already have relatively advanced loyalty programmes, which they are slowly introducing in the rest of the continent. Kenya’s Nakumatt has launched its Nakumatt Global Card, which doubles as a prepaid debit card as well as a loyalty card through which customers earn points every time they shop. Ghanaian chain Melcom also offers 5% discount to its loyalty card holders.
Consumer credit is already big business in South Africa, but has been relatively slow to catch on in the rest of the region, partly due to the lack of strong credit bureaus. It is, however, an area that holds significant potential. Some South African retailers have already piloted credit offerings in the rest of the continent. In Ghana, Melcom has partnered with a bank to allow customers to purchase certain items on credit.
7. Moving into secondary towns
The expansion of modern retail in recent years predominantly focused on the continent’s capitals and major commercial hubs. Second-tier cities and emerging ‘boom towns’ are now increasingly attracting interest. Sub-Saharan Africa is urbanising, but not everyone is moving to the chief commercial centres, creating opportunities in secondary urban areas.
Across the region a number of emerging ‘boom towns’ have experienced fast growth on the back of nearby mining and oil projects or other business activities. While the decline in oil and other commodity prices has impacted some of these centres, the long-term outlook remains positive.
8. Import substitution
Thousands of containers of consumer goods still arrive at Africa’s ports every month. While the continent is likely to be a significant importer for the foreseeable future, in nearly all the countries included in the report there is a growing movement towards local production. This trend is driven by:
- Growing democracy and stability.
- Companies moving to local production to avoid delays at the port of entry.
- Governments are granting incentives for local manufacturing to boost jobs and the economy..
- Africa’s enormous agricultural potential provides ample opportunities for local agri-processing.