Perhaps the most visible manifestation of Africa’s growth surge is the flood of branded and packaged edible products now sweeping the continent. A decade or so ago, only a small number of packaged items, mostly confectionery, cooking ingredients such as oils and margarine and well-known soft and alcoholic drinks were available from traditional retail outlets. South Africa, with its department stores, was the exception. Today shoppers are faced with a bewildering variety of products from all corners of the earth. Convenience stores, supermarkets and hypermarkets are replacing the humble ‘duka’ and the entire African shopping culture is being changed. But is this just the tip of the iceberg? Is the African food and beverages industry about to undergo its most profound transformation yet?
The African food and drink industry is currently experiencing bullish growth, and prospects for further growth are excellent. “From a low base, Africa is going to become a much more important contributor to overall sales across a number of global food and drink companies over the next 10 to 15 years,” says Shonil Chande, a food and drink analyst at Business Monitor International (BMI), a leading information provider in country risk and industry research.
While the food and drink sector is not the only booming industry on the continent (one could say the same about the electronics consumer market or the construction industry), what is perhaps unique about the sector is that, generally speaking, growth is strikingly well distributed across the continent. Dynamism in the industry stretches from developed South Africa to emerging Democratic Republic of Congo; East Africa, Southern Africa and West and Central Africa are all experiencing positive trends in the food and beverages industry and are all posting upbeat growth outlooks for the future.
Statistics from a few African countries illustrate how well distributed the exciting outlook for the sector is.In East Africa, it is perhaps no surprise that in thriving Kenya, where the wealthy middle class is increasing in number, per capita food consumption is set to increase by 13% in 2012, according to BMI. In Tanzania, the growth is more spectacular, with per capita food consumption set to increase by as much as a fifth.
Moving westwards, in Nigeria, unsurprisingly for the continent’s most populous country, the food and beverage sector is galloping along at a healthy pace. This trend is replicated in most of the stronger West African nations such as Ghana, Senegal and Cameroon. Even in Côte d’Ivoire, which has been through tough economic times due to political turmoil, the outlook for the industry has an upward curve: grocery retail growth is set to surge by 14%, according to BMI.
Down south, despite the fact that the market is much more mature, growth is still dynamic in South Africa. And fast-growing countries like Zambia and Angola are performing well; in Zambia, BMI predicts that retail growth will surge by just under 25% this year. And in Angola, consumption of beer alone will increase by almost 16% in 2012.
However, Chande at BMI does qualify generalisations about the distribution of growth by pointing out that activity in some places is more striking than in others. “There are stand-out regions and countries,” he says. “Individually, Nigeria stands out in West Africa. Ghana and Angola are also very interesting. The East African Community bloc carries huge potential too. With a combined population of about 130m, Kenya, Tanzania and Uganda are going to provide some excellent opportunities going forward,” he adds.
Nonetheless, Chande equally asserts that international firms are not necessarily restricting themselves to “obvious” markets. “Political risk is an important consideration too but some of the largest companies are happy to chase growth even where risks may seem high,” he says.
Euromonitor International, a world leader in research for consumer markets, also attests that several African countries are experiencing strong growth in the area. According to Euromonitor, for example, last year the packaged food industry in Nigeria, “continued to grow rapidly in line with the ongoing switch by Nigerians from unpackaged, unbranded products to packaged products, as well as a fast-growing overall population.”
Equally, “the good performance of soft drinks in Cameroon was driven largely by sales of bottled water in 2011. This category continued to thrive due to a lack of clean tap water in the country, with the majority of houses having no running water.” And in Kenya, which has traditionally been an exporter rather than a consumer of hot drink products like tea and coffee, “2011 continued to see an increased number of visits to coffee shops as consumers became more aware of coffee specialities such as latte, cappuccino and macchiato. Worth noting is the increasing number of younger people aged between 18 and 35 showing a greater interest in coffee.”
The most visible sign of the accelerating shift from unpackaged food and drink to branded products is the rapid increase in number and size of supermarkets in most of Africa’s larger economies. The variety and quality of products available is comparable to anywhere in the developed world. In fact, according to frequent travellers, South African supermarkets offer far better value for money and a much wider range of products (especially in fresh products such as meats and fish and ready meals) than their counterparts in the developed world).
Dramatic change of lifestyle
The dramatic change in the way urban Africans shop for and consume food and beverages is one manifestation of the burgeoning African middle class, which has sufficient disposable income to join the global consumer society. Depending on which statistics you look at, the continent had more than 856m consumers in 2010 and this figure is anticipated to climb to 1.3bn by 2030.
The burgeoning of Africa’s consumer pool is ultimately traceable back to powerful demographic and economic shifts. Africa’s urban population is set to grow from 414m to over 1.2bn in 2050. And, crucially, the middle class is expanding in Africa as countries become wealthier. This increased wealth derives from a very high level of global demand for Africa’s hard and soft commodities allied to a sharp growth in services, agricultural and manufacturing output and construction. It has generated the most sustained period of growth for Africa since the early days of independence.
According to the African Development Bank, the African middle class already numbers 313m, which is 34% of the continent’s total population. A little-known fact is that the African middle class is also already bigger than that of India.
The impact of that middle class expansion can be clearly seen in general consumer expenditure figures, which are, of course, relevant to the food and drink sector as well: overall consumer expenditure was $600bn in 2010, representing 8% of consumer spending in emerging markets. Overall consumer spending is expected to jump to as much as $1 trillion by 2020.
Moreover, the increased activity of large multinational food and drink organisations in the continent is in itself causing the market to expand. “A number of multinational companies are spending heavily on expansion,” says Chande of BMI. “More capital is to be invested across Africa and much greater investment from large-cap multinationals across the food, alcohol, soft drinks and retail industries can be expected.”
Customers are taking advantage of the new products on offer and expectations in terms of choice and product quality are increasing, fuelling extra spending on everyday food and drink.
Multinational and local food and drink producers have been quick to jump on the consumer-spending bandwagon. The Coca-Cola company, which has had a presence on the continent since 1928, plans to double its investment in Africa, from the current $6bn to $12bn by 2020. It will invest $187m in Tanzania alone over the next three years. The American company Kraft Foods’ revenue sourced from Africa has grown by more than 10% annually since 2009 and drinks maker Diageo says its annual growth in Africa is expected to exceed the current 15% due to strong sales of its Senator keg beer, Smirnoff and Johnnie Walker brands.
Moreover, the upbeat attitude of Unilever, a market leader in the food industry, is typical. Doug Brew, External Affairs Director for Africa at Unilever sums up the upbeat mood among the multinationals: “We want to double our business in Africa. We don’t have any narrow focus in terms of geography. We are looking everywhere. Wherever we have some sort of presence.”
Lack of market research
But the sector still faces serious challenges. One is that growth and thus disposable income in some countries is still precarious and vulnerable to economic fluctuations; although Africans have demonstrated a capacity to spend on food and drink, they are equally prepared to rein in their consumption during tougher economic periods. Euromonitor has highlighted the implications of this possibility for particular countries, such as Kenya. “The current high inflation rate that has taken root in the Kenyan economy has brought with it increased fuel and production costs that have affected all the major industries. The Kenyan shilling having dropped in value vis-à-vis the US dollar has made the cost of fuel, and hence energy and transportation as well as importation costs, much higher, compelling manufacturers and other producers to incur higher production costs most of which are passed on to the consumer.”
BMI agrees. “Food price inflation and high fuel costs are major risks. With incomes still so low across much of the continent, mass-market consumers can be very sensitive to these factors, as we saw in Nigeria earlier in 2012 with the spike in fuel prices,” says Chande of BMI. “Also, with so many countries heavily reliant on commodities, a deterioration in the global economy could impact growth.”
Another challenge is in offering low-cost goods to target the mass market in countries where infrastructural shortcomings often render this problematic. “The value chains and distribution chains are not currently set up in a way that helps us to sell products at the price that people would expect to pay for a particular item,” says Brew of Unilever.
Another issue that inhibits growth in the sector is the fact that African consumers still remain, in many ways, a mystery to food and drinks companies; knowledge about how African consumers think and what their preferences, requirements and expectations are is still immature. So is insight into how African consumers differ from region to region, and from country to country.
“The African consumer has so far not been given a fair deal. In terms of market research, they have been left behind for some time. One of the big challenges now is to play catch-up in terms of market research in order to get the right products to the right people. That will take a lot of investment to achieve across a continent of 1bn people,” says Brew.
Moreover, specific sectors must contend with particular challenges. The soft drink industry in particular faces unprecedented challenges in terms of responding to the health-related demands of urbanised Africans in the more developed countries in the region.
“With strong media campaigns promoting health awareness, consumers have become more health conscious when selecting soft drinks. Over time, this is forecast to impact volume sales of carbonates as more consumers become increasingly aware of the health risks of these products and their link with obesity,” notes Euromonitor in relation to Kenya. Another example is the confectionery industry, which must endeavour to increase sales in countries with hot climates, where their products may seem less attractive or practical to the consumer.