Modern retail on the rise in sub-Saharan Africa, but traditional trade still rules
This article is a slightly-edited excerpt from Standard Bank’s Africa Consumer Insights Report 2020: Third Edition.
Africa’s modern retail development continues to grow and improve in quality but still lags traditional trade.
A growing population and larger, more developed cities translate into vast opportunities for retail. For example, wholesale and retail are already the third-largest contributor to Nigeria’s GDP while Kenya has seen 54% growth in the number of retail stores over the last five years.
In South Africa, there are almost 2,000 shopping malls. Nigeria, Kenya and South Africa remain the key markets in value terms, while the industry continues to further modernise in promising markets such as Ghana and Côte d’Ivoire.
Sub-Saharan Africa is made up of a combination of traditional and modern retailing channels. These channels vary by market and are influenced by factors such as the economy, state of development, consumer preferences, internet connectivity, availability and cost of labour and the local culture. All of these variables form a factor that puts different countries’ retail markets at different development stages.
Consumer spending is mainly concentrated in the informal/traditional retail sector. However, the modern retail real estate sector has been a major focus for development activity within sub-Saharan Africa over the last decade, causing a rise in the number of shopping malls across major African cities. Africa (excluding South Africa) now boasts over 579 malls, up from 225 in 2010. The development has been mainly driven by the growth of the continent’s consumer markets and the expansion of domestic and international retailers, particularly the USA’s leading quick-service restaurants like KFC and Pizza Hut and supermarket chains from South Africa such as Game stores and Shoprite.
South Africa is by far the most mature, developed and largest modern retail market in sub-Saharan Africa. The country has shopping malls covering over 25 million m2 of retail gross leasable area (GLA), compared with only about five million m2 in the rest of sub-Saharan Africa. The market continued to grow in 2019 with the expansion of the Fourways Mall, which included the addition of 90,000 m2 to the centre, which now has approximately 170,000 m2 making it the largest mall in Southern Africa. In 2016, Atterbury also completed the 131,000 m2 Mall of Africa, the largest single-phase mall development ever in sub-Saharan Africa. During 2017, retail sales figures in South Africa for the first time exceeded ZAR1 trillion ($66 billion) and it is estimated that shopping centre sales represent 65% of this total. Other large shopping malls include the likes of Sandton City at 141,390 m2, Menlyn Park Shopping Centre at 177,000 m2, the Gateway Theatre of Shopping at 150,320 m2 and Canal Walk at 146,828 m2. Retail centres in township and rural areas have also been increasing in both number and size. Developers such as Exemplar have focused on these areas and now the company has a portfolio size of approximately ZAR5.4 billion ($356 million) with Alex Mall, Chris Hani Crossing and Tsakane Mall being its flagship retail properties in the portfolio with good performance.
Outside of South Africa, according to Knight Frank, Kenyan capital Nairobi has the greatest volume of modern retail floor space in sub-Saharan Africa and continues to be a development hotspot. Malls found in the country include Garden City Mall, The Hub, The Karen Waterfront and the largest, Two Rivers Mall, with over 200 stores. In comparison to South Africa, which has an estimated modern retail penetration of over 60%, Kenya’s modern retail penetration is considerably low. We do believe the country has potential for growth in other regions outside of Nairobi such as Mombasa and Mt.Kenya that have retail space demand as well as attractive yields and occupancy rates.
Elsewhere, mall developers including Actis, Atterbury, Resilient and Novare have all delivered modern mall developments in countries including Nigeria and Ghana. While the Ghanaian retail market is still predominantly traditional, there are some major malls found in cities, particularly in Accra. Accra’s first high-end shopping mall was the 20,000 m2 Accra Mall, which has a number of South African retailers and is now over 10 years old. The success of Accra Mall encouraged further developments such as West Hills Mall, Marina Mall and The Junction Shopping Centre at 11,597 m2. While there are some pipeline projects in Ghana, there are concerns that the Accra retail market is close to reaching saturation point and new developments will be entering a challenging economic environment. It is expected that retail development will likely focus on second-tier Ghanaian cities such as Kumasi and Takoradi.
In Nigeria, close to 97% of all retail transactions are carried out in the traditional market channel. Nevertheless, modern shopping centres are beginning to gain traction and the government has increased efforts to discourage informal street trading. Nigeria’s first international-standard mall, The Palms Shopping Mall, opened in Lagos in late 2005, owned by Persianas Group, a Nigeria-UK joint venture. In 2011 a second major retail development, Ikeja City Mall, opened in Lagos – financed by Actis, RMB Westport and local conglomerate Paragon Holdings.
In Ethiopia, modern retail development remains hampered by the restrictions of foreign investment in the sector. Modern retailing in Addis Ababa is still in its infancy stages of development compared to other countries in East Africa. The recent development of Century Mall and the introduction of international retailer Pizza Hut have had a significant positive impact. Nevertheless, the modern retail sector continues to be characterised by local medium-sized supermarkets such as Shoa.
Large volumes of modern retail space remain in the pipeline across sub-Saharan Africa, with most of the region’s major cities now having at least one modern retail mall. As a result, developers are increasingly targeting secondary cities in order to gain first-mover advantage in these areas. Knight Frank also states that most developers are now concentrating on the delivery of well-located small- and medium-sized convenience shopping centres instead of the regional mega-malls.
As competition intensifies between developers, they will seek to differentiate their malls by offering access to sought-after international brands and creating an upscale consumer experience. Selecting the right location will be crucial to the success of new centres, especially in cities with successful existing malls. Mall developments are expected to play a major role in shaping the future landscape of sub-Saharan Africa.
However, modern retailing only accounts for about 10% of the total retailing value in the region. Governments, modern retailers, manufacturers and fintech companies have all developed an interest in the traditional market and have realised that it is not going to disappear anytime soon, despite modernisation across the region.
Will sub-Saharan Africa skip physical space race and go digital?
Whilst formal/modern retail space is expected to grow, we believe there is potential for sub-Saharan Africa to stop short of the oversupply of retail space experienced in other regions. Instead, there is an opportunity to leverage a younger population, digital adoption, and a dominant traditional market to adopt many of the digital trends gaining prominence across the world.
The most significant and most visible disruption to retail of the past 15 years has been the continued rise of online shopping. Predictions of how fast ecommerce penetration will grow over the next 15 years, and when it will cap out, have varied widely.
Where sub-Saharan Africa lags other regions in respect of modern retail (malls, channel distribution, retail outlets, etc.), it runs very closely in respect of digital adoption and preparedness. Many global retail trends spurred by these factors have every chance of success in Africa, and we have already begun to see two big themes unfolding.
Last mile intermediaries
Last mile intermediaries replace the final leg of the consumer journey – fulfilment or delivery. In sub-Saharan Africa, multiple small fulfilment partners are beginning to offer localised services through social media channels. Often, fulfilment is through the traditional market, leveraging its proximity to customer homes and its dominant footprint. While currently still small-scale, these intermediaries have the potential to capture data and feedback from the consumer on quality and price points and ultimately shift consumption patterns in the long term.
In a pre-internet age, physical stores acted as gatekeepers to consumers and were critical in allowing manufacturers to reach consumers. The rise of technology and increased digital adoption means that consumers, by in large, are available as much online as they are in stores. This shift has reduced barriers to entry.
In food retail, manufacturers are also beginning to leverage digital to offer products directly to consumers alongside the traditional store format. DTC marketing and loyalty programmes use social media and direct marketing to engage with and learn from consumers.
Manufacturers selling directly to customers will put more pressure on retailers. However, we do not see this as a fundamental disruption. Ultimately, they are merely setting up alternative retail channels with the same business model: sell products to customers to make a return. Retailers will be able to compete along familiar lines: stay competitive on price and continue to offer a better range and the convenience of a one-stop-shop – but this is particularly difficult for formal players in sub-Saharan Africa.