How to profit from Africa’s different consumer groups

  

Beer producers could benefit from a rise in consumer spending.

A recent NKC Independent Economists report reveals some interesting consumer behaviour trends that can help retailers better understand the needs of their African customers.

The report categorises Africa’s consumers into six income groups that define their spending and behaviour.

Income groups
Income groupIncome bracket $ p.a.Key characteristics
Low income0 - 1,000 Subsistence agriculture; fulfilling of basic needs; day-to-day survival.
Lower middle income1,001 - 2,500Output per person rises so that there is less of a subsistence living.
Emerging middle class2,501 - 3,975Usually in urban areas, these consumers have emerged from the previous two brackets and are striving to be in the middle class.
Middle income3,976 - 6,500Brand consciousness is awakened, and more emphasis is placed on quality.
Upper middle income6,501 - 12,275High purchasing power; quality and convenience are increasingly important. More leisure time.
High income12,276 - Very high purchasing power; quality and luxury products are valued highly.

Food and nutrition

“The majority of the African population find themselves in the first three income brackets, either living off basic staple foods, starting to buy cheap processed food, or forming part of the emerging middle class,” states the report.

  • The average caloric intake per capita across the African continent has been steadily increasing since the 1960s.
  • In the lowest income group, over 70% of expenditure is spent on food.
  • The inclusion of meat in diets is gradually increasing.
  • At present, the African population remains heavily dependent on cheap staple foods such as maize, wheat, and cassava.
  • The majority of the African population is still currently focused on increasing consumption quantity rather than quality. The report believes that improved domestic agriculture production would assist with a shift towards quality.

As incomes increase, people will start tending to previously neglected dietary needs, such as eating more. The research highlights that at a certain point on the income spectrum, food consumption will start to shift from quantity to quality foods, such as including more meat in the diet and switching to better brands. “Further along the income spectrum, consumers will start adding luxury food products – from ice cream to caviar – to their diets,” notes the report.

Alcohol

As more than half of the sub-Saharan Africa population falls in the lowest income category, consumption of branded alcoholic drinks is low as there is “very little discretionary income available after the very basic needs have been met,” says the report.

However, with increasing incomes, there is huge potential in the alcoholic beverages market, especially for the beer industry.

  • Beer is generally the first to benefit from increasing incomes due to its low cost.
  • In 2011 it was estimated that South Africa, Nigeria and Angola account for 51% of total beer consumption on the continent.
  • There is a strong estimated growth rate in per capita spending on beer in the low middle income bracket. While informal trading still dominates this market there is a gradual shift from traditional beers to clear beer in this bracket.
  • Informal trading currently accounts for approximately 74% of Africa’s total alcohol consumption.
  • The emerging middle class has seen a noticeable increase in consumption of branded beer as they start to focus more on quality.
  • The upper middle income category sees more consumption of spirits with international beer brands in high demand. An increased consumption of wine has also been noticed.
  • The high income category is experiencing a decline in beer consumption and a rapid rise in demand for international wine brands.

Luxury goods

When it comes to expenditure on luxury goods, the report states that poor infrastructure in low income countries decreases availability and affordability of luxury products. At present, Africa’s lowest income level spends nothing to very little on luxury items.

Mobile phones:

  • Mobile phones have become more affordable, even for the poor.
  • While not a common feature of low income households, mobile phones are often the first of the luxury items that are purchased.
  • By end of 2012, more than 50% of the African population is forecast to own a mobile phone.

TVs:

  • Countries like Malawi, Mozambique, Rwanda, Tanzania and Uganda have below 20% TV penetration rates, according to 2010 statistics.
  • Algeria, Egypt, Libya, Morocco, Tunisia and Mauritius had TV penetration rates of above 90% in 2010. These countries have much higher GDP per capita levels than the African average.
  • Africa’s overall household TV penetration rate is expected to increase from 42.4% in 2009 to 50.8% in 2015.

The report states that the market for household appliances is still in its infancy in sub-Saharan Africa due to low income levels. However, because income levels in North Africa is generally much higher than in the rest of the continent, there is more interest from international retailers in this appliance market.

Vehicles

In Mauritius vehicle penetration is around 166 per 1,000 people, while in Mozambique it is around 12 per 1,000 people. However, in Mozambique only 20.8% of the roads are paved while in Mauritius 98% of the roads are paved.

  • According to the report, there is double-digit growth in vehicle purchases in the highest income bracket.
  • South Africa, Mauritius, Botswana, Algeria and Namibia have relatively high levels of vehicles, which correlates to their higher GDP per capita levels and better quality infrastructure.

“With the exception of South Africa and a number of countries in North Africa, most African countries do not have well developed auto industries, and in fact, African governments and non-governmental organisations tend to be the principal buyers of vehicles,” highlights the report. “Although the situation is expected to change, it might still take a long time for vehicle purchases by Africans to increase significantly…”



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