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Massive Retail Business Opportunities In Africa – 4 FACTS You Must Know About

Do you still remember the images of ‘the milk man’ in the West who would deliver milk at your door? Yes, these are now nostalgic memories….and Africa, too, is slowly but steadily changing. Business opportunities in African retail are massive and as a result, local, regional, and international retailers are spreading their wings to succeed in Africa. A fast growing economy and middle class are the engine behind changing retail patterns on the continent.

Let’s look at some of the numbers: By 2020 about half of all Africans are said to be living in cities – I find that a little hard to believe – but fact is that as disposable income grows the retail sector is expected to grow to over 1 trillion Dollar!

Frankly, I fondly remember how I used to buy tomatoes, onions, and honey off the bikes of farmers in front of the house I rented in Asmara, Eritrea. They used to go through the residential areas shouting ‘tomatooooooes’  or ‘there is honey, there is honey!’ (well in local language of course), and you could get it fresh and with a smile on your face, because the farmer was happy selling, which meant he could buy a few items in town before starting his long and tiresome journey back to his village. It makes ‘food shopping’ so much more joyful and meaningful. But then, I always had a soft spot for Africa’s rural population.

Both quality and convenience are becoming increasingly important to a growing number of population segments, and Africa is getting ready for modern retail. A major shift will occur within the retail industries for food and clothing, which are dominated by the informal sector.

According to A.T.Kearney, formal retail on the continent currently makes up only 1% of total retails on the continent. A mind-blowing imbalance indeed – this just shows the enormity of opportunity out there!

But which African market do you enter, what kind of products should you sell, how do you overcome infrastructure and supply chain challenges, and how can you better understand local consumer patterns?

Let me make you aware of some facts that may assist you navigating:

There are large consumer markets that are 100% unsaturated !

Ethiopia is regarded as a great destination for retailers, due to its large population and fast-growing economy. And here it comes: with only 40 supermarkets and 100 minimarts it is regarded as being an unsaturated market at a level of 100%. Other large markets are Tanzania with a 79% unsaturated market and even Nigeria, which is Africa’s most populated market and hence a favourite among many retailers is a unsaturated retail market at a level of 75%. There is enormous space for you to get in! In comparison, South Africa, Namibia, and Botswana are regarded as fairly saturated and well developed retail markets. Having said that they are hugely dynamic and spending is still growing, so they still belong to some of Africa’s top retail destinations.

Supermarkets have great potential, but hardly sell local food

While supermarkets in South Africa look very much like those in the West, and Kenya has become a retail hot spot for popular supermarket chains such as Nakumatt shelving increasingly a wide range of local brands, the situation in many other African countries looks very different.

Tanzania for example imports a whopping 80% of goods sold on supermarket shelves, most of it is imported from Dubai, Kenya, and South Africa. Fresh produce is also rarely found in many supermarkets across the continent, as people continue to buy that directly from informal markets.

This offers great potential for everyone who is prepared to move in early. Providing a range of well-known international brands and good quality, more affordable local brands would be the right strategy.

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The TOP TEN current retails opportunities are currently found in….

East: Ethiopia, Rwanda, and Tanzania

West: Nigeria, Gabon, and Ghana

South: South Africa, Botswana, Mozambique, Namibia

This is according to a recent study by A.T.Kearney. You may wonder why countries like Kenya or Angola did not make it into the list of the top ten, and frankly, they seem to have not done so well on certain indicators such as growth of spending per head for example.

Rwanda, Botswana, and Gabon have all relatively small market size, but they are viewed as vastly overlooked retail gems. Botswana in particular has a high GDP per capita and a very dynamic retail sector, so the situation would be very different from Rwanda where the market is largely unsaturated.  Both landlocked Rwanda and Botswana also attract due to a high level of ease of doing business.

Africans are very brand-loyal

Africans are both brand aware and brand-loyal. They are ready to spend more for a brand even if income is low and find it difficult to switch to a new brand. This is important for you to understand when you go into retail and it is an added factor why some local products don’t sell as well as imported ones. Having said that, there is an increasing number of local brands that are making a name for themselves. Their advantage: they sell usually at a much lower price than imported goods, and because Africans are also very price-sensitive, there will be huge potential for certain local brands to grow very fast if they use the right approach. We can witness that certain local brands in food, cosmetics & care products, cleaning products, and shoes are doing particularly well.

Be flexible and adapt to Africa’s retail climate!

One of the biggest challenges retailing in Africa are highly fragmented markets. If you are a manufacturer, it is very difficult to get your product in and increase sales. You need to have a distribution strategy in place!

According to Nielsen, it is important for manufacturers to find the right kind of retails stores and to get close to retailers and gain their trust. In Africa’s young consumer markets, it is the retailer rather than the brand that is initially trusted by consumers. Getting close to the retailer is therefore a key component of an effective distribution strategy.

But then there is the consumer you have to reach; knowing their buying patterns is equally important. Meeting consumers’ needs in Africa means not only being timely, but also thinking about the required pack size, format, affordability and denomination – this applies to food, skin care and hygiene products. If a branded packet is too expensive, the retailer may open the pack, split it into smaller ones, and sell it unbranded, resulting in profit for the manufacturer, but weaker brand identity.

You will also find smaller shops or kiosks in residential proximity, this is where people quickly shop because of location, while many visit the larger supermarkets to get quality and products they cannot get elsewhere.

In closing, going into retail in Africa provides ample of opportunity, but your local entry strategy in a certain market can be very complex, hence it is important that you give it the needed time and focus or your products may simply not sell.

Article was first published on Africa Jumpstart

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