Where to look for the next big thing in retail
Most U.S. retailers make their first international foray in contiguous markets such as Canada or Mexico for obvious reasons. However, for those interested in massive growth potential who have a long term perspective a more exotic market beckons.
The retail opportunities in Sub-Saharan Africa are impossible to ignore. There are many variations, and things change rapidly, but there are some things that are inexorable. For one, the population is growing — closing in on 900 million people, with an urbanization growth rate that is higher than any other region in the world. Furthermore, GDP per capita, while still quite low, is increasing; more consumers today are embracing international brands, products, and lifestyles, traveling more and getting the global brand bug. Formal retail remains a small portion of shopping, representing no more than 10% of commerce across the region – excluding South Africa – and less than 1% in fast-growing East Africa. As A.T. Kearney’s first African Retail Development Index rankings show, there is clearly room for massive growth in African countries big and small.
Yet, for all the talk of growth, much of the retail news in sub-Saharan Africa has been about the struggle to gain a foothold there. For many international brands, expanding beyond South Africa, the region’s most developed market, has been easier said than done. More than three-quarters of Shoprite’s African business comes from South Africa, as does 88% Wal-Mart’s and 67% of KFC’s. South African retailer Woolworths recently pulled out of Nigeria, which has twice as many people as any other country in Africa, after just a year and a half in the market.
Africa is full of opportunities, but capturing them requires patience, hard work, and more than a little ingenuity. While researching the African Retail Development Index, which ranks the most immediately attractive markets in sub-Saharan Africa for retail development, the team at A.T. Kearney quickly found that there is no single strategy for a continent of such remarkable diversity. We found three go-to-market approaches that can help capture the opportunity in each different country.
Start with the basics
The majority of Africa has newly blossoming markets with limited saturation by global brands. Included in the segment are Rwanda, Tanzania, Ghana, Mozambique, and Ethiopia. Consumer spending remains low, and while these markets demonstrate positive trends, the best opportunities right now are focused on offering basic products, preferably international brands, at low prices. But first movers who can overcome the supply chain problems may find a long-term advantage.
Some countries in Africa — in particular Gabon and Nigeria — are evolving rapidly, with many retailers already established or planning entry. What it takes to win in these countries is changing: price and brand still matter, but bulk purchases are increasing, and store size, look and feel, and assortments (including fresh produce) are growing more important.
The most established markets in Africa (in the ARDI rankings it’s Botswana, Namibia, and South Africa) have Africa’s most advanced retail sectors as well as an existing presence of international retailers. As in many modern markets, many buyers are willing to pay extra for fresh foods and convenience.
By 2020, nearly half of all Africans will be living in cities, and, as disposable incomes rise, consumer spending will grow to almost $1 trillion. As Africa continues to grow, continued retail growth is inevitable. While many African markets are starting from low bases, making an immediate impact in these countries could lead to long-lasting brand loyalty and a growing advantage in coming years. Even with the challenges of entering and succeeding in Africa, the opportunity — particularly in the top 10 markets in the ARDI — is impossible to ignore.
Mike Moriarty is a partner with leading global consulting firm A.T. Kearney and co-author of the African Retail Development Index which ranks sub-Saharan African countries on their attractiveness for retail development.