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VENTURES AFRICA – The Maputo Shopping Center is doing another good day of business on a Saturday morning. The mall, one of the few large shopping centers in Mozambique, is Maputo’s only central find-everything-you-need location with grocery supermarkets, electronics stores and clothing stores among other stores. It fills with Maputo’s middle and upper class – those individuals most willing to pay MZN 3,000 (or approximately $100) for a dress or MZN 30,000 (or approximately $1,000) for a new TV.
The prices are not abnormal for developed countries. But they raise eyebrows for a country with more than 50 percent of the population living below the poverty line. Yet the Mozambican shopper is a microcosm of the changing African consumer behaviour.
Africa’s New Consumer
Across the continent, African consumers are starting to retreat from traditional markets for Africa’s major shopping centres and online stores. On street-side, open-air stalls, sub-Saharan traders little time on presentation but rather push their products to anxious consumers based on price and use. Unrefrigerated vegetable produce sells with chilled local drinks; non-matching undergarments and dust-covered t-shirts still grab the consumer attention because of the cut price.
These markets will ‘hold their own’ in the near term as the shops and stalls are affordable and consumer focused. The produce can be half the price and stall operators send text messages when the pineapple have ripen and arrived to the stall.
But the arrival of shopping centers indicates change is on the horizon. Growing spending power and maturing retail palates provide large retailers an emerging opportunity for growth. The arrival of the West Hills Mall in Accra, jointly owned by Ghana’s Social Security and National Insurance Trust (SSNIT) and Mauritius-based Delico Property Development Limited, is the epitome of the new consumer.
They say it will add 1,000…or maybe 2,000 jobs…but those who make the money will be there spending it on new goods outside their affordability, says a local Ghanaian familiar with the project, but this is the African buyer.
Bigger Pockets, Greater Tastes
A new phrase has emerged among investors: the African consumer cannot make money as quick he can earn it. African pockets are getting bigger. But it is spending habits and tastes that are arguably changing quicker than the incomes. The region drinks more beer and wine (Nigeria consumes one of the highest volumes of champagne). The region is home to extraordinary mobile and mobile-related boom (mobile penetration in SSA is on the increase). Consumers demand the most up-to-date electronics and newest fashions while also breeding uniquely local but opportunistic tastes.
The trend is most apparent in emerging business hubs, such as Accra, Nairobi and Lagos. The Lagos weekend weddings, says Funmi, is simply a short two-day special preview of the growing Nigerian spending. Funmi, a local human resource specialist speaking form London, admits that Nigerians, including herself, make numerous trips to London throughout the year simply to shop for their ‘Western needs’ including clothes and luxury bags.
Newly resource rich Mozambique and Angola have seen similar changing tastes evident in Maputo and Luanda despite the poverty in those cities. Weekend trips to Cape Town and Johannesburg for local Angolans indicate that consumers are ready to spend for quality products. Ivoirians and other West Africans share a similar appreciation for Paris.
But it is not simply a growing preference for Western goods motivating spending habits. Nigerian fashion designers, such as the established Zizi Cardow and the young and talented Soares Anthony, demonstrate that local fashionistas can compete against Western brands. Those companies operating in other sectors have also performed well against competition. Local cosmetic brands in West Africa have thrived, particularly in Nigeria and Cote d’Ivoire. And local agricultural products and household care products have thrived in a variety of East and West African countries, including Tanzania, Kenya and Ghana.
Making an Entrance
American retailer Walmart created the biggest noise when it purchased a 51 percent stake in South African retailer Massmart in 2012. The purchase was the company’s calculated entry into sub-Saharan Africa as Massmart openly considers expansions in the rest of continent with West Africa as its first venture.
But Walmart’s entry should not overshadow the relatively more active efforts of South Africa’s Shoprite or South Africa Woolworths. Shoprite recently unveiled its plans to add 65 new outlets in Nigeria and Angola. Woolworths operates in 12 African countries and Kenyan Nakumatt is considering expansion beyond the East African region.
The opportunity is huge. Africa’s consumer-facing industries are expected to grow by more than $400 million by 2020, according to consulting firm McKinsey & Consulting, accounting for more than 50 percent of total revenue growth to be generated by all businesses in Africa by 2020. Africa’s population is expected to double by 2050 with more than a billion people as middle class spenders.
The new middle class consumers will be urbanized, more educated and increasingly attuned to the branding and offerings in the market for products that cross all aspects of life. Africa, in other words, will rapidly become a retailer’s dream – a continent of more refined, highly urbanized and concentrated and less cost-conscious consumers.
Local consumers are starving for a more targeted and expansive product offering at an affordable price. High-cost real estate is a sad reality in Africa, explains Nina, a local Mozambican businesswoman, as she waits for flight from Johannesburg back to Maputo, but high-cost baby products, essential electronics and food should not also become the norm. But, while a norm, rent fees and property costs are a hefty add-on to the end-price to consumers.
High rents are assumed in business hubs such as Accra and Lagos where price per square meter per month can go as high $130. Yet the fastest growing rents have been seen in newly emerging frontier countries, such as Uganda, Mozambique and Angola where price can get up to $150 per square meter. Real estate investors and developers salivate at these prices. On recent stops in Rwanda and Zimbabwe, the talk of new mega mall projects were the buzz of the town. With retailers amazingly still able to pass rent costs down to the consumer, these projects should continue.
The cost of rent is good for developers but often challenging for retailers. Throw in the expensive input costs of transport and sourcing and locals confront high prices at the counter, then the pinch is even more painful to the purse. The sourcing and logistical challenges are not new or unknown. A recent announcement by Woolworths on its planned exit from Nigeria, which included a very vocal call for local efforts in Nigeria to improve the business environment, specifically with logistics and production, was only a manifestation of frustrations commonly stressed by African operators.
In Agriculture, production requires retailers to seek and constantly nurture strong partnerships with producers as soon as they locate a quality partner. Transporting goods encounter delays and involve losses along the way. Tariffs and duties can be extremely high and challenging, particularly in Central Africa and West Africa. But as economic unions gradually improve and become more cooperative, these costs will reduce. Until then, product offering and product quality remain a challenge.
Spanish clothing retailer Zara, for example, thrives in South Africa, introducing new items 2 to 3 times per week in South Africa. Yet its push into Angola and Mozambique through exclusive contracts has been mixed. Angola’s big-spending upper-middle and upper class bump up sales numbers while a comparable Mozambican populace spends little at the retailer outlet and sees very little change in product offering from month to month let alone week to week.
Unique political incidences also unexpectedly surface. Zambia and Shoprite battled for a period over the sacking of 3,000 employees following a local strike
Navigating these challenges, which are always unique to each African country, require ‘localization.’ For example, Kenyan operators speak to the necessity to allocate funding for technical assistance and interact periodically with providers to ensure continued cooperation and ease. Similar operators, in consideration of expansion to Uganda and Tanzania, highlight struggles however to employ similar strategies with sourcing and relationship building.
Specific product offerings can create opportunities. Selling products, such as detergent, in small packets, compared to Western-sized containers, gained access for manufacturers to largely untapped parts of Africa’s poor (that approach has been quite successful in Nigeria, Africa second-largest economy). Retailers have introduced different variations of layaway across Africa to access newer consumers. These financing schemes generally introduce cash-strapped consumers to companies and products at an early stage and create loyalty as the consumer creates greater income and wealth over time.
It is all the complexities that create the high rewards. The source of the opportunity can be found in the challenge as they are the best barrier to market entry, says an American-based pan-African investor, and those retailers that successfully navigate local challenges will unlock high local rewards. It is not for the faint-hearted as each new country can be starkly unique she continues, but then again if it was so easy, some of us would be out of a job.