Looking to expand into Africa? How to work with local distributors
Finding the right distributors to work with in sub-Saharan Africa can be a challenging task for companies wanting to do business in the continent. The local distribution landscape varies from country to country. In general, it is shaped by traditional and nascent modern trade channels, the role and dominance of wholesalers, but also differing regulations such as import bans, price controls and cloudy business processes.
Distribution services across the continent can be divided into broadly defined categories of traditional and modern trade, with the latter being more prominent in countries such as Kenya and South Africa. But modern trade typically centres around urban and semi-urban areas. While modern trade is growing, the point of sale still takes place predominantly through traditional trade channels for most customers.
As more companies enter the continent, local distribution businesses are being set up and the quality of service is improving. However, increasing competition also means that the battle to work with the best is getting fiercer.
To find the right distribution partners, companies have to do a thorough analysis of the distribution landscape in the selected market to understand local realities, find potential partners and ultimately reduce challenges and costs. This is not easy, nor cheap, but crucial for success on the ground as selecting the right local partner can be the difference between commercial success and failure in sub-Saharan Africa.
Following an analysis of the distribution landscape, companies can identify potential partners through the following sources, for example:
- Networks: Executives should speak to companies already present in the market, experts with experience, and also reach out to local business people and entrepreneurs to benefit from their experience
- Relevant organisations: Chambers of commerce, country-specific industry associations, relevant government departments, local embassies, and investment promotion agencies can help in identifying local partners
- Walking the market: Executives can walk the market to get a better understanding of the distributors operating on the ground and reach difficult-to-access areas
- Industry events: Attend relevant industry events in the region or, if possible, in the country of choice to get a better understanding of the industry and meet potential partners
- Yellow Pages/ Pages Jaunes: Traditional paper-based directories still play important roles in some countries; many of the larger distributors are listed or advertise in directories
- Social media: Follow Twitter and LinkedIn for relevant industry groups that can provide information. Social media is increasingly important in sub-Saharan Africa
- Advertising: Companies should consider reaching potential partners via advertising in the country’s major media outlets
- Widening your scope: Established distributors often deal in various sectors: a foodstuffs importer in Uganda may also import automobile spare parts. Consider working with an established distributor even if the distributor may not distribute similar products. Similarly, some countries are regional trading hubs. Watch if local distributors serve a regional territory that can benefit your expansion plans
- Taking advantage of international relationships: The Burundian distribution sector has, for example, several foreign operators from Belgium, China, India, Netherlands and Pakistan. Often, French distributors operate in French-speaking countries because of historical relationships. Identify international relationships and take advantage of them, where possible
What is most important is for companies to manage their expectations. Companies may not find the ideal distributor they would like to work with, as often they simply do not exist. Instead executives should focus on finding the best possible fit and invest in building the distributor’s capabilities.
Once potential business partners have been identified, the vetting and prioritising process begins. As sales data is limited in sub-Saharan Africa and financial backgrounds of distributors are hard to obtain, companies need to account for a longer vetting period than in other markets.
During the vetting process, companies should make sure to invest resources in building relationships and trust with potential partners. This will not only allow companies to evaluate business owners – a key criteria in an environment where business decisions often come down to personal relationships – but it will also make the potential partner more willing to disclose crucial information required for the due diligence process.
Structuring successful working relationships
Successfully managing distributors requires monitoring, incentivising, and supporting them. To optimise the resources put into this process, companies should ensure that the three activities reinforce the common objective of building critical distributor capabilities.
For example, if the capability a company seeks from a distributor is better market information, the company should not only incentivise the distributor for sales growth but for the quality of information received. At the same time, the company should support the distributor through technology that enables an easier collection of this market information.
To optimise distributor performance, create a self-reinforcing distributor management process:
Monitoring distributors: Most executives with successful operations in sub-Saharan Africa interviewed by Frontier Strategy Group understand the importance of personal relationships in doing business in the continent. They emphasise the need of having a local presence on the ground and maintaining a close line of communication with distributors. Often, dedicated staff is responsible for checking in frequently with distributors. Local presence and frequent communication allow companies to:
- Increase distributor control
- Gain a greater understanding of the market
- Work closely with distributors on the ground to build capabilities
- Build relationships and distributor loyalty
- Hire local staff directly and put employees in key positions to gain market intelligence
- Be poised for rapid expansion with increasing level of experience in market
Incentivising distributors: Companies often lack sufficient incentive structures that motivate distributors to develop key capabilities. Instead, incentives are primarily tied to financial indicators. Companies with successful operations in the continent understand that supporting distributors in building their businesses is an incentive that will ultimately add value to their local operations. Apart from monetary incentives, popular incentives in sub-Saharan Africa include:
- Branded cars/vans, refrigerators, and other goods
- Materials to decorate and paint outlets (with the company’s logo)
- Advertising in local media with distributor name to give visibility
- Recognition among peers (through award programmes)
- Rewards such as trips (to see how products are made, to sporting events)
- Smaller presents from company headquarters that strengthen the importance of the personal relationship and partnership
Supporting distributors: By providing support to distributors across a variety of categories, companies can build capabilities and increase performance. Companies need to think long-term about building capabilities and closing the skills gap. For example though educating the distributor across a variety of business issues such as finance and credit control, general management, compliance and sales. By providing training, the distributor will view the company as a partner and loyalty is likely to increase.
But it is not enough to educate the distributor. Customers also require education to understand certain products and the benefits of using them. Companies can either engage directly in providing customer education or work jointly with the distributor. Educating customers on the benefits of using products will ultimately drive sales. But also, by providing customers with training on certain products, the company and the distributor will be seen as adding value to local communities. For example, Procter & Gamble, employs nurses to act as sales representatives to educate young mothers about the health benefits of using nappies and sanitary pads. The nurses visit schools and clinics. P&G nurses offer educational sales pitches in pop-up clinics where potential customers may arrive.
Access to capital is often limited for distributors across sub-Saharan Africa, particularly for smaller distributors. Most executives with successful operations in the continent interviewed by Frontier Strategy Group emphasise the importance of supporting distributors financially during the startup phase and, in many cases, also providing loans or bridge capital to support cash flows. However, in the continent, markets are often disrupted by liquidity issues, which affect the distributor, but are also often caused by the distributor. Sometimes, distributors in the startup phase get distracted and use their working capital to invest in other areas (buying a house, selling SIM cards), after which they run out of capital and/or underperform on their sales. This happens most commonly within the first two years. This is a risk that companies can only manage by staying in frequent contact and building relationships with distributors.
Companies will also need to support distributors with expertise, materials, and training to succeed with marketing campaigns. Companies should work with distributors to develop marketing campaigns that fit the market and the customer segment.
Navigating logistical challenges
Markets across sub-Saharan Africa are dominated by logistical bottlenecks including poor roads, electricity shortages, insecurity and corruption. Distributors have to navigate through this environment on a daily basis to ensure goods reach their final destination. Companies can support the process. For example, by solving infrastructure bottlenecks: SABMiller paved the roads that link its distributors to its plants, making sure it has the infrastructure required to operate in new markets. Equally, Coca-Cola operates in remote areas by using micro distribution centres, which are owned by local entrepreneurs, but supplied by the distributors. From there, local sellers make use of any means of transportation – be it bikes, walking, pushcarts or donkeys – to reach customers in difficult-to-access areas.
Anna Rosenberg is senior analyst for sub-Saharan Africa at Frontier Strategy Group. This article is a summary of the report ‘Evaluating and Managing Distributors in Sub-Saharan Africa’ published by Frontier Strategy Group. To listen to a podcast recording of the report please click here.