Africa's retail maze; consumer demand rising sharply, but you need to be a wizard to win

Walmart-controlled retailer plans to open 13 outlets outside South Africa, including Nigeria, Zambia, Mozambique and Kenya over the next two years.

MASSMART supermarket, the South African retailer controlled by Wal-Mart says it plans to step up expansion on the continent after sluggish growth in its home market caused the company to miss its profit targets.

Net income fell 17% to 1.11 billion rand ($96.8 million) in 2014 compared to the previous year, the Johannesburg-based company said in a statement on Thursday.

South African retailers have been struggling over the past year as high unemployment and inflation limit spending power, with lower-income to middle-income earners particularly vulnerable, and the country’s power shortages having an adverse impact on the economy.

With such a disappointing business environment at home, the company is reaching further afield for better returns. Massmart plans to open 13 outlets in Africa outside its domestic market including Nigeria, Zambia, Mozambique and Kenya over the next two years, increasing store space by 45%, CEO Guy Hayward said.

But outside South Africa, the continent’s retail market is famously tricky to crack.

At first glance, it may seem like a virgin territory ripe for an early bird pioneering investor – incomes are rising, towns and cities are getting bigger, and many companies are mobilising to capture this existing demand.

But delivering strong growth in Africa’s markets is “not as easy as merely being present with… [a] solid brand, awaiting demographic tailwinds”, a new report titled Africa: How to Navigate the Retail Distribution Labyrinth by market research firm Nielsen says.

Sheer complexity

Beyond the well-known infrastructure constraints, one of the more overwhelming challenges, the report says, is the sheer complexity of the retail market, paradoxically disguised as simple and underdeveloped.

The majority of Africans do their shopping in small, local, informal outlets – these account for 70% of purchases in Kenya, 96% in Ghana, and 98% in Nigeria and Cameroon, data from Nielsen shows.

The most common shopping channel of all is the simple table-top: a stand set up on the side of the road or in a local market to capture passing trade. A good 80% of consumers shop from these table-tops, of which there are no less than 200,000 in Nigeria alone, and over 550,000 in the 14 sub-Saharan countries represented in the report.

It makes distribution even in a single country an incredible logistical endeavour, which would be daunting for most brands, as companies have to figure out how to reach consumers in hundreds of thousands small informal outlets, instead of large, centrally co-ordinated distribution chains that are the standard in Western markets.

For example, Nielsen analysed a range of new products in Nigeria, Africa’s largest consumer-goods market, which has a retail universe of 745,000 outlets – that’s everything from the roadside table-top, local kiosk and vegetable stall, all the way up to formal supermarkets.

In the course of six months, the highest- selling new product measured in Nielsen’s Retail Index was being sold in 65% of the retail universe, while the next nine best-selling products were available in just 30% of these outlets.

Writing in the report’s introduction, Allen Birch, head of Africa for Nielsen, is incredulous at this fragmentation: “In what developed market would bestsellers [in positions] 2-10 reach only 30% of possible outlets in six months?” he asks.

But it isn’t all doom and gloom – there are ways of navigating these distribution challenges, and the Nielsen report highlights a few.

In the first place, consumers in the African markets surveyed tend to visit different kinds of stores for different reasons.

Where supermarkets lose out

The research showed that supermarkets were visited less frequently, but consumers value them for stocking a wide range of products, and for the fact that goods were rarely out of stock.

By contrast, although a table-top vendor stocks only a very narrow range of products, consumers value them for their flexibility - products are helpfully sold in decanted or single servings and in rounded denominations (e.g., 100 Kenyan shillings or 2 Ghanaian cedis) – and the vendor is right around the corner in your neighbourhood.

As a result, consumers tend to visit local kiosks to “top-up” small goods that run out frequently, such as milk and bread.

In Madagascar, the data showed consumers went shopping 70 times a month on average, while in Kenya the average was 38. Some Madagascar shoppers visited the same outlet two or three times a day.

Airtime, cigarettes and sodas may be delivered to the shop as often as three to five times a day – so it requires a nimble distribution service, for example, delivering product to the stall either on a bicycle, boda boda (motorcycle taxi), or perhaps even on a pushcart or by foot.

Success in this market requires matching the flexibility the vendor has developed, and it could include repackaging and branding products into single servings or smaller sizes, providing branded packaging such as wrappers or sachets that retailers can use if they spilt up larger portions, or branding the selling vessel, for example, the basin from which water or juice sachets are sold.

Second, companies need to identify the best channels and retailers for a given product. The data showed that in Lagos, laundry detergents are present in no less than 100,000 outlets, “an impossibly large number for [one manufacturer] to reach.”

But further analysis shows that 80% of the sales value comes from just 35,000 of those outlets, and a full 50% from a more manageable 10,000.

Similarly, in the same city, beverages are sold in 61,000 outlets, but only 24,000 of those outlets generate 80% of sales.

It means that manufacturers can optimise their supply chains, maximise sales and eliminate waste if they knew which stores to deliver to. The problem, though, is that such detailed data is so difficult to come by.

To shine some light into the data dark hole, Nielsen has developed a nifty mobile app that enables manufacturers to develop highly detailed distribution strategies designed to optimise sales and profit.

The app collects data on 1.5 million retail outlets – from local kiosks to big supermarkets – in 30 African cities, with details such as store location (via GPS), type of store, trading days, opening hours, access to power and water, the presence of a storeroom, type of goods stocked, and an extensive list of other characteristics. 

It’s invaluable information for any supplier – for example, simply knowing which stores have a refrigerator can transform a cold drinks supply business.

Additional reporting by Bloomberg

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