How to win in Africa: 5 lessons from successful companies
2. Develop multi-tiered models to route products to market and reach the largest number of consumers.
The challenge is to gain traction in a marketplace where the majority of consumers still buy from traditional or informal retailers.
Traditional trade represents more than 80% of formal retail across Africa and consists of very small outlets and specialty stores dispersed across urban and rural areas. Modern retail is growing, primarily out of South Africa, but is still a minor portion of the formal retail landscape. Informal retailers are unregistered sellers – such as “hawkers” (street vendors), “spaza shops” (run out of homes) or “shebeens” (unlicensed pubs) in South Africa – and are deemed to account for a significant, although hard to measure, share of the African trade market. One benchmark: The informal economy is estimated to represent 30% to 60% of the gross national product in selected African countries, and some consumer packaged categories, such as food, alcoholic beverages or tobacco, are particularly prone to being sold through informal channels.
Winning companies gain a competitive advantage by having the flexibility and adaptability needed to accommodate such a varied retail market. They strike partnerships with third-party distributors and wholesalers to maximise reach, collaborate with traditional retailers at the point of sale and help informal retailers formalise and progressively develop capabilities required to grow alongside modern retail.
Many companies establish a network of trusted third-party distributors and wholesalers to accelerate market coverage, teaming their own sales force with distributors to ensure a measure of control. For example, one leading food company appoints sales supervisors to each one of its sub-distributors – they have 10 to 30 of them per market. The sales supervisor works at the sub-distributor, managing inventory and brand image while the sub-distributor handles logistics and accounting. Similarly, another food player relies on its distributors to replenish products and collect cash, but its local sales employees will be on the ground to identify new outlets, place product displays and help distributors build their capabilities.
Another approach involves collaborating with traditional outlets directly to increase sales and improve distribution, and in the process, professionalise the way shopkeepers work. For example, Diageo helps traditional retailers improve their business by teaching them category display and shopper management.
In some categories, players can also bolster sales by encouraging unauthorised sellers to formalise their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets by offering support, including assigning dedicated employees to assist with the application process and leading information workshops. In addition, the company made all licence applicants eligible for training in customer care, stock management, bookkeeping, credit control and responsible alcohol use. SABMiller’s investment, launched in 2002, has transformed off-the-books sellers into a thriving new retail segment.
Finally, leading players in Africa are proactively preparing for the growth of modern trade. They’re investing in category management, joint shopper research and integrated supply chains. Some companies have started designing their own in-house distribution operations to service more densely concentrated urban centres and centralised trade networks.