Understanding the African consumer
“When we were investigating the growth in Africa, one of the myths that was always there was that the growth in Africa is only coming from resources… But actually when you go and look into the numbers, a big part of this growth is actually driven by the rise of the consumer,” said Reinaldo Fiorini of McKinsey & Company.
At last month’s African Awards for Entrepreneurship in Accra, Fiorini and his colleague Safroadu Yeboah-Amankwah discussed the changing face of the African consumer based on research they gained from surveying 15,000 consumers across the continent.
“The GDP per capita has risen 10% a year. So that is significant. People see that in their lives; their consumer patterns change,” said Fiorini. “Actually, you are creating consumers for the first time.”
Fiorini added that the growth of spending in Africa is higher than Brazil or India, providing a great opportunity for global consumer-facing businesses. But in order to embrace these opportunities, companies need to understand two things: who are Africa’s consumers, and how do they think and behave?
“Africa presents over 40% of the population growth in the world,” said Fiorini. At around one billion people, Africa’s population growth is of considerable interest to consumer companies, and is set to grow by 50% in the next 20-30 years, according to McKinsey’s research.
In addition, the research revealed that more than 50% of Africa’s population is below the age of 20 and urbanising. For retailers, this is an important factor to consider. As illustrated by Fiorini, only 25% of African consumers above the age of 45 years care about jeans brands. “For the younger guys in the range between 16 and 24, more than half of the people [surveyed] think that the brand is important,” said Fiorini. “So you see that this consumer is emerging, and this consumer is not the same consumer that we are used to. It’s a new consumer. So you have to understand how they think and how they behave to be effective.”
Fiorini pointed out that the number of African cities with a population of one million people or more is on par with the US and Europe, at around 50 cities. “If you look at the growth of this spending power, it’s going to be concentrated in the cities. So 40% of the growth going forward is in the cities and that has remarkable implications for consumer companies.”
Instead of targeting countries, Fiorini believes consumer companies should target cities, or even neighbourhoods first. “So really, countries are just a starting ground, but to be really effective you have to think about what are your strategies for the different cities.”
According to Safroadu Yeboah-Amankwah, the majority of African consumers are hopeful and aspirational. “At least 55-ish% of people feel like their lives are going to be better. What is even more shocking is that in Ghana 97% feel that their lives are going to better in the next two years.”
Furthermore, a large chunk of the consumer population is saving money each month. Of the 15,000 consumers that McKinsey surveyed, 72% said they make an effort to save every month. What is interesting about this is that only around 25-26% of these consumers are saving for an emergency. The rest, as Fiorini pointed out, are saving for large purchases.
However, consumer saving behaviour differs across countries and cities. “On one extreme you have South Africa for example where only about one-third of the people say that they save. On the other hand you have Angola where 80% of the people are actually trying to save. So again it’s important to understand, in your category, who is your consumer…” said Fiorini.
When it comes to the influences of consumer decisions, McKinsey’s report shows that television and radio are ranked as the most important and trusted channels for consumers to make purchasing decisions. “What was very surprising is that we found – in terms of who [consumers] use when making a decision – that people listen to their friends and family but they actually generally ignore them… which is by the way very different in North America where friends and family, in terms of recommendation, is actually a huge driver of purchases,” explained Fiorini. “It’s actually maybe a question of evolution of the market, but it is especially surprising of how strong radio is in this market.”
The research also highlighted how consumer behaviour and trends differ between cities in the same country. “If you compare the cities with the rest of the country… you see very [noticeable] market differences in disposable income and spending power… something like 80-120% difference in the consumption per capita,” stated Fiorini. “So we are not talking about one country with one spending profile. You have different countries [with] different types of consumers in a single country.”
In addition, Africans have proven to be brand loyal. “It actually turns out, especially in West Africa, people are very loyal in apparel. Women are unbelievably loyal to local brands. But generally Africans are very loyal,” added Yeboah-Amankwah.
Fiorini also noted that many African consumer goods categories are hugely fragmented. For example, the top six clothing retailers in Nigeria make up less than 2% of the apparel market share in the country. “So you can see the huge fragmentation – the game is there to be taken,” said Fiorini. “The retail industry is there to be transformed.”