Accra, Paris and Johannesburg - To get her weekly staples, Joana Bimpong spends four hours slogging round Accra’s Makola Market. She dreams of doing it all in one place.
“I would love to buy from formal grocery shops,” said Bimpong, 40, dropping two large bags at her feet to adjust her toddler on her back.
Pent-up demand from African shoppers like Bimpong has lured Carrefour to enter the region of a billion people, set to grow at three times the pace of the US next year. The French retailer, which has spent much of the past two years exiting markets it failed to dominate, has partnered with distributor CFAO to open shops in eight African countries by 2015.
After the boom and eventual bust of the past three decades of retail growth – Carrefour had to pay e220 million (R2.8 billion) to get out of Greece alone last year – Carrefour chief executive Georges Plassat chose a safer route for Africa by partnering with CFAO, a distributor and the continent’s biggest supplier of cars, trucks and pharmaceuticals. He’s hoping to avoid the roadblocks competitors, including Walmart, have faced expanding beyond South Africa: a lack of distribution and available property.
“Carrefour is taking early advantage of what will be an increasing move in Africa of people looking to do a weekly grocery shop of items kept fresh through modern advancements like refrigeration,” said Michael Dennis, an analyst at Cantor Fitzgerald. “Setting up good distribution channels in Africa can be extremely difficult and CFAO’s local connections with companies and relationships with governments are an advantage.”
Walmart’s South African unit, Massmart Holdings, said yesterday that it had met “several important players” in Kenya’s retail industry as it sought expansion abroad.
CFAO, which will own 55 percent of the venture with Carrefour, aims to generate about e1bn in revenue a year in 10 years from the link-up and from revenue generated by malls it plans to build.
Building a successful network in Africa would help Plassat cement his turnaround of a company that trades at less than a third of its price at the start of the century. The shares are up 69 percent since Plassat took over last year, buoyed by exiting markets including Colombia and Greece and a promised revival in France, where it gets close to half its sales.
While Carrefour’s expansion in Africa appeared to contradict Plassat’s strategy of focusing on key markets, relying on CFAO helped limit the risk, said Planet Retail analyst Gildas Aitamer. “Carrefour cannot afford at the moment to sustain strong expansion in Africa. [It] can gain by having a low-risk footprint on the continent.”
CFAO, owned by Toyota Tsusho, distributes by road goods ranging from Mercedes trucks to Viagra across mainly west and central Africa.
Its first project with Carrefour will begin this year in Abidjan, Ivory Coast, and should be operational by 2015. The deal also covers Nigeria, Ghana, Cameroon, Congo, the Democratic Republic of Congo, Gabon and Senegal.
The potential upside for Carrefour is significant. Africa’s top 18 cities will have a combined spending power of $1.3 trillion (R12.8 trillion) by 2030, compared with estimated consumption of $539bn in France, McKinsey & Company estimates. Carrefour had 4 635 outlets in France alone, meaning there was room to open hundreds in Africa, said Wayne McCurrie, a portfolio manager at Momentum Asset Management in Johannesburg.
“Africa is massively underserviced in terms of formal retail options,” McCurrie said. “There is plenty of interest in Africa, so those companies that don’t make a move now will be left behind.” – Bloomberg