Retail seeks investment, but beware
Johannesburg – The burgeoning African consumer sector offers attractive opportunities to businesses looking to enter new markets. But the key to unlocking these opportunities is sound commercial navigation and balance-sheet backing. In addition, understanding the intricacies of the local consumer landscape is crucial.
“From ‘farm to fork’, the entire consumer value chain offers exciting potential,” said Brendan Grundlingh, an Executive from Standard Bank’s Global Consumer Sector team.
“Business practices and commercial climates may vary from region to region, but there is one thing that rings true: Africa has millions of expectant consumers-in-waiting. Retailers, and businesses through the chain, which formulate competitive strategies and team up with the right local partners, are well positioned to benefit despite the current headwinds caused by the weak global market conditions,” added Grundlingh.
Geographic opportunity on the continent can be found across several markets. Within the retail sector Ethiopia is establishing itself as a clothing and apparel manufacturing hub, offering opportunities for clothing retailers looking to establish operations on the continent. Family conglomerates dominate the agribusiness sector in East Africa and are sizeable enterprises that rival multinationals.
And opportunities lie in unlocking the route to market in Nigeria for the FMCG (Fast Moving Consumer Goods), and Food & Beverage sectors, despite a challenging economic and regulatory environment.
Lifting the lid on some key statistics shows that the potential and growth of the consumer sector is expected to drive industry advancement well into the future.
Multinational fast moving consumer goods companies are already taking the leap with organic growth in key African markets.
The continent’s population is expected to reach 2 billion by 2050, accounting for 24% of the world’s population, a significant jump from 15% in 2010. In addition, a strong shift is taking place from grassroots LSMs 1-4 into LSMs associated with middle class lifestyle.
According to United Nations data, almost 60% of Africa’s population will live in cities by 2050. McKinsey’s recent ‘Consumer Sector in 2030’ report anticipates that middle class spending globally will almost treble by 2030, and the ‘2014 Africa Annual’ report by Ornico Group expects consumer spending on the continent to rise to US$1 trillion by 2020.
Another important factor is that there are currently over 950 million mobile subscribers in Africa, according to telecommunications researcher Ovum.
“This is a significant opportunity for retailers to harness by bringing their shop windows and value propositions into the digital world, which now includes rural-based consumers that were previously unreachable,” said Grundlingh.
“Africa’s large youthful population, upward urban growth trajectory, socially-connected mobile users, untapped physical resources and the deepening of the financial sector are the key trends propelling the African economy into the future. But it is important for businesses to look deeper, into the sectors themselves,” he said explaining that it is important to know that the need for greater regional food security will spur future development.