Be patient in Africa, retailers advised

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Johannesburg - South African and international retailers that have either left or are planning to exit countries elsewhere in Africa should learn to be more patient, because consumers in these regions are brand loyal and highly dependent on informal markets.

These were some of the suggestions made by consultancy AT Kearney as it released its 2014 African Retail Development Index yesterday.

A co-author of the report, Marieke Witjes, said that consumers in Africa were very brand conscious and about 90 percent of the retailing market was informal.

This posed a challenge for the formal trading sector, but with time and education it could be overcome.

South African retailers such as Woolworths and Shoprite have exited some African market, citing trading difficulties. Woolworths pulled out of Nigeria, saying high rental costs and duties were among the problems that made operating in Africa’s most-populous country unprofitable.

Shoprite sold its three Tanzanian stores to Kenyan retailer Nakumatt.

Tiger Brands, which owns Nigeria’s Dangote Flour Mill, has expressed concerns about informality in this region.

The index identified Rwanda, Nigeria, Namibia, Tanzania, Gabon, Ghana, South Africa, Botswana, Mozambique and Ethiopia as the top-growing countries on the continent.

The criteria included market size, country risk and time pressure, and it excluded countries with fewer than 1.5 million people.

Edcon, Mr Price, The Foschini Group, Woolworths, Truworths, Shoprite, Pick n Pay, Spar, Woolworths and Game are local companies with a presence in the other fast-growing African countries identified by the index.

By 2020, nearly half of all Africans will be living in cities, according to the index. As disposable income rises, consumer spending will grow to almost $1 trillion (R10.7 trillion at prevailing exchange rates).

Sub-Saharan Africa has a population of more than 860 million and is expected to have more than 1.3 billion by 2030. Current consumer spending is estimated at more than $700 million annually.

The compilers of the index said retailers should seize this opportunity despite supply chain challenges. While modern retail trade was growing, informal trade, street hawkers, spaza shops and shebeens accounted for a significant share of the market.

“If you enter these markets early you could have a huge advantage because the consumers are fairly brand conscious but they will learn to love your brand over time.”

It might take some waiting or another 10 years, Witjes said.

“Retailers have an advantage because they could choose what to put on their shelves,” she said. They could either roll out a pilot store and test which brands consumers responded to or they could do decent research to understand the brand loyalty of local consumers, Witjes said.

For example, local or international retailers setting up in Mozambique could have a mix of Portuguese products and their own products. The same approach could be applied to French-speaking countries.

Witjes said retailers should enter markets with a different business model in order to accommodate diversity.

For example, a market in Botswana would be well organised and would also differ in other ways from one in Rwanda or Tanzania.

“Retailers should consider a region rather than a country. They should also invest in store locations and size, and find a location that is preferably on the outskirts of the city centre and not far from informal markets,” the compilers said.

Retailers were advised to consider local suppliers because consumers knew these products.

Retailers should also be prepared for price wars. “African consumers are, generally speaking, price sensitive yet brand conscious… consumers have little discretionary spending, so every penny they spend must be prudent and useful.”

Other challenges included infrastructure development. The route to market for products could involve any combination of rivers, mountains, deserts, jungles and floods.

Although the South African market was saturated with formal retailers, Witjes said there was still room for international retailers.

However, she stressed that new international retailers should have something different to offer. “If you are coming to open up a supermarket, then you should think twice and offer something a little different,” she said. - Business Report


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