South African retailers are capitalising upon rapid growth in Africa outside of SA’s borders, to the extent that it’s reassuring to know that there are a few familiar brands only an arm’s stretch away, sitting on shelves in these displaced homegrown retailers scattered across the continent. In South Africa itself, not much has changed to alleviate pressure on the retail sector, for all the obvious reasons that you can think of.
I mention all of the above in direct response to a recent AT Kearney report on Consultancy.uk. Entitled “The 15 most attractive retail / FMCG markets in Africa”, the report ranks the potential of 48 countries on the continent and opens with the bold statement: “The African region is developing steadily, with the economic growth creating a larger middle class and with it, bigger opportunities for retail companies.”
Opportunities for advertisers
I came across this report while researching whether omni-channel retailing had any impact upon millennials in SA or vice versa and, in turn, what the opportunities are for advertisers and the world of out-of-home (OOH) media, as much of their (millennials’) time is obviously spent out of home.
To say the least, I was pleasantly surprised by the Top 2 rankings in the report (covered in more detail below), but equally depressed when acknowledging the truth that the growth potential for the retail sector in SA is so low that the country has still not made it into the Top 5 Countries of the Africa Retail Development Index (ARDI).
Let’s contextualise the report and provide a definition on the methodology and process applied before discussing the rankings and opportunities in further detail and the implications for each country and for the retail sector in Africa.
Ranking the FMCG*
Reference: AT Kearney report (Consultancy.uk.)*: “The 15 most attractive retail / FMCG markets in Africa”
To assess the retail attractiveness of the investigated countries, AT Kearney uses four categories, each bearing 25% of the total weighting:
- Market Attractiveness measures the level of retail sales per capita (40%), population (20%), urban population (20%) and business efficiency (20%)
- Country Risk looks at the country risk (80%) and risks to business (20%)
- Market Saturation looks into the metrics of share of modern retailing (30%), number of international retailers (30%), modern retail sales area per urban inhabitant (20%) and market share of leading retailers (20%)
- Time Pressure measures the CAGR of modern retail sales (2010 — 2014) weighted by the general economic development of the country and the CAGR (2010 — 2014) of the retail sales area weighted by newly created modern retail sales areas
ARDI 2015 reveals “that a number of African nations are witnessing the development of a shopping culture”, which as we know, is being enabled on the back of strong economic figures, the growth of an emerging middle class and an increase in urbanisation — particularly strong in countries such as Gabon, Ghana, Angola and South Africa, among others.
While the region as a whole has more-favourable long-term GDP growth potential, and therefore remains a massive potential for business development, the continent is plagued with ongoing instability in some regions. The opportunities for many brands are huge, although much of the young, growing middle class has not yet decided upon brand favourites.
The ARDI Top 5 Countries:
- Gabon (2014 ranking #1)
- Botswana (2014 ranking #8)
- Angola (2014 ranking #12)
- Nigeria (2014 ranking #2)
- Tanzania (2014 ranking #4)
What is interesting to note is that Nigeria and Angola still carry a high level of investment risk. Surely the radical drop in the price of oil has affected both their respective economies, as well as Nigeria having to deal with recent national elections and terrorist threats from Boko Haram.
While SA moves up one position, from 7th to 6th in this year’s ranking, is obvious to see why it has not made it into the Top 5 yet again. As much as SA scores very high in Market Attractiveness and Country Risk (measuring mitigation of risk), the well-saturated retail sector and slow-growing economy mean that the opportunities are far less than those in the Top 5 markets.
So what will retailers be looking for in the most-attractive markets?
Apart from the blatantly obvious, as per the evaluation criteria headings, sustainable delivery and performance across these criteria are essential. The countries in question should not just have high GDPs internally, but be catalysts for the region in which they are positioned. These countries should have a growing middle class — in excess of 66% of the total population.
Any country with political stability, rich in resources, with high agricultural output, with a sustainable tourism industry and a productive large population, is a contender for the further development of its retail market. All of these are criteria that SA has had in place at different times in its democracy, but certain factors will continue to impact negatively on our economy (the tourism industry, in this instance).
Ripe for the picking
That said, the continent remains ripe for the picking and I know that there is a long list of brands and retailers waiting to capitalise upon these opportunities, such as a certain big red brand.
While the bulk of shopping is still taking place within the bricks-and-mortar stores of the well-established retail environments, such as SA, and from the kiosks and street vendors lining the many miles of Africa’s streets, the opportunity surely remains for the many retail-mall developers operating across the continent. From the likes of BG International in Ghana and Shoprite Holdings in Nigeria to the development funds of Stanlib and the state-owned Public Investment Corporation and a host of other equity group funds, a large target market exists.