Africa is full of potential for global retailers, with its billion people and growing economy. Seven sub-Saharan African countries are among the 10 fastest-growing economies in the world. But while pickings are rich for those that succeed in the retail sector, Africa remains one of the world’s most challenging markets. Dr Mirko Warschun, partner and managing director at management consultants A.T. Kearney, offers a guide to unlocking the secret of success.
The region’s GDP growth is now close to 6%, and seven sub-Saharan African countries rank among the 10 fastest-growing economies in the world. A middle class is emerging, and increasingly wealthy consumers are embracing international brands, products, and lifestyles.
At the same time, no one is naïve about the challenges. Supply chains are underdeveloped and differ widely among countries, and how to develop a supply base in Africa remains an open question.
Despite the urbanisation, the population remains widely spread out across a vast region of thousands of cultures and languages where roads are often difficult to traverse. Poverty remains an issue in many places. As retailers tiptoe into sub-Saharan Africa, figuring out where to enter and how to begin is a daunting task.
While Africa is becoming a serious investment option for retailers, questions abound about how to succeed there. It is with this in mind that A.T. Kearney embarked on its first African Retail Development Index™.
Building off our Global Retail Development Index™ (GRDI), which for more than a decade has helped retailers uncover the most attractive developing markets for expansion, we rank the top 10 countries in sub-Saharan Africa (see figure 1).
The ARDI, like the GRDI, is unique because it not only identifies the most attractive markets today, but also those that offer the most potential in the future.
The African retail landscape
Sub-Saharan Africa is a region of remarkable diversity: 48 countries, more than 3,000 distinct ethnic backgrounds, and more than 2,000 languages, a spread that makes expansion by international businesses so difficult.
Although Africa is urbanising at a faster rate than any other region in the world and there are now more than 1,000 cities in sub-Saharan Africa, only Lagos, Nigeria, is a megacity of more than 10m people.
GDP has grown impressively over the past several years – spurred largely by natural resources – and middle and upper classes have expanded (particularly in urban areas), yet GDP per capita remains at about $1,400, roughly one-third of India’s GDP per capita, one seventh of China’s, and one ninth of Brazil’s.
This limits many consumers to focusing on the basics (such as food and drink, public transportation, and healthcare), leaving the greatest opportunity for grocery retailers.
Traditional, ‘informal’ retail options still dominate the landscape, even among the growing middle class. About 90% of commerce in Africa occurs at these informal retailers, including small independent stores, kiosks, and non-organised open-air markets.
Formal retail – such as malls, shopping centres, and other defined retail spaces – remains in the nascent stages in most sub-Saharan African countries, limited primarily to a handful of urban areas.
However, the low rates of formal retail coupled with increasing urbanisation and the relative stability of many African economies demonstrates massive room for growth. For example, Nigeria, with its formidable and growing middle class, had only two shopping malls in 2012, compared to more than 200 in South Africa. As a result, domestic, regional, and international retailers are taking notice and increasing investment.
African retailers such as South Africa’s Shoprite, which operates in more than 16 African countries, and Nakumatt, which is based in Kenya and has stores in neighbouring Uganda, Rwanda and Tanzania, have done most of the expansion, but global retailers are moving in. In 2011, Wal-Mart acquired South Africa’s Massmart, and it plans to open 90 supermarkets across Africa over the next three years.
In addition, French retailer Carrefour recently announced it would enter four West African countries. Still, expanding in Africa beyond South Africa, the second-largest economy on the continent, has proven difficult.
More than three quarters of Shoprite’s African business comes from South Africa, as does 88% of Wal-Mart’s and 67% of KFC’s. As incomes rise across Africa, there remain relatively few retail options in many countries for spending that money.