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September 21, 2018

No Such Thing As 'Africa', You Must Study Market Before Entry

Delegates during the opening of the two days Africa Hotels Investment forum 2012 held at Intercontinental hotel. Photo/File
Delegates during the opening of the two days Africa Hotels Investment forum 2012 held at Intercontinental hotel. Photo/File

‘No sh*t, Sherlock’, I thought when I read this: “For brands eager to tap into the growing African markets and the region’s estimated 350 million middle class consumers, relying solely on macro-economic data such as GDP growth, population trends and regulatory governance data to identify opportunities and predict success can lead to costly missteps.”

This is the first sentence in a press release on a research report titled ‘Africa: How to navigate the retail distribution labyrinth’ by research firm Nielsen.

I rolled my eyes a bit more at the next Captain Obvious bit: “(It) is the companies that combine retail data from both modern and traditional trade and consumer shopping behaviour with broader macro-environment indicators that are better positioned to identify the right markets, products, marketing and retail execution strategies that lead to sustainable growth and profitability in Africa.”

You’re not saying! So you mean that even in Africa, you can’t just jump at a six per cent GDP growth rate and the ‘youth bulge’ for your retail market strategy, but have to sit down and try to understand the market properly?

Yes, you will no doubt eventually run up against the mystery of local consumers who can be, in the words of former Safaricom CEO Michael Joseph, ‘peculiar’, but even before that, way before that, you need to have a plan for your market. That is really no different here than anywhere else.

At that point, I nearly gave up reading. Those statements are roughly on the level of the query: ‘So what’s the best investment in Africa?’

When people ask me this, I usually stare at them blankly and wonder. And then try to explain: there is no such thing as ‘Africa’, and it really all depends – what are you as the investor good at, which sector are you interested in, which market do you understand (if any), how much do you want to invest? Gimme details, man!

I persevered. Retail is an important sector, both for large corporate investors, but obviously also for little informal traders and anyone in between. We have seen quite a bit of interest in the private equity industry as well, both in retail directly, but also in related areas: retail real estate, for example, or logistics.

And generally, data on the retail industry in sub-Saharan Africa are limited and unreliable. So, it’s actually interesting to see that Nielsen have started publishing retail data and 2013 analysis of seven countries in sub-Saharan Africa: Nigeria, Kenya, Ghana, South Africa, Tanzania, Uganda and Zambia.

And thankfully, the press release eventually moves on beyond stating the most obvious of the obvious. What are the key elements to understand for successful brands? “Who shops where and for what, which retail outlets are the best for the product to generate sales, and how to build demand amongst retailers and consumers.”

The rest is perhaps not exactly news for you if you know this market, but at least it’s a good bit more specific: For all the Nakumatts and other retailers, even in South Africa an estimated 40 per cent of trade is done by ‘traditional’ retailers, i.e. mostly in an informal setting – by the roadside, on a table, in a stall. Outside of South Africa, this figure is estimated to be as high as 90 per cent.

Generally, Nielsen finds, African consumers prefer brands and products they already know or that were recommended by someone they trust. Levels of openness differ by country, unsurprisingly (since Africa is not, evidently, a country), and that in Nigeria, consumer willingness to try new products increased to 73 per cent in third quarter 2014, but decreased in Ghana to 53 per cent. How is that for peculiar? What does it take to change that?

So, here you have a retail market that is dominated by a large number of informal outlets, and at the same time end customers are often quite conservative in adopting new products – which also implies that brands do matter to clients, even those in the low-income demographics.

And if you are seeking to enter such a market, then you not only need to adapt your market research methods, but also the sales conditions with retailers to reach the informal vendors. Some companies have recognised this quite some time ago when they started retailing in much smaller packages.

Because it’s not just the middle class who want a brand detergent. The mass market may be low on individual purchasing power, but it’s a mass market. And if you let the duka vendors open your package and sell the detergent in transparent plastic bags, nobody will see your brand.

So, this is where it gets interesting, and I do very much hope to read more such details from Nielsen and others: how you work in a market that is still largely informal, and how you capture the peculiarities of retail clients.

The writer is an independent country risk analyst.

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