Meet the new African consumer
In order to gain success in African markets, multinational companies need to become truly local.
Africa’s growing economies and urbanisation are increasing the number of Africans with discretionary income. Many Africans we spoke with during our research expressed near-term plans to buy laptops, upgrade their mobile phones, and spend more on entertainment, homes, cars and education. In fact, compared with consumers in other markets, even mature ones, Africans are more likely to trade up on nonfood items, according to Boston Consulting Group’s (BCG’s) 2013 Africa Consumer Sentiment Survey.
African consumers, like consumers everywhere, want to buy products and services that meet their specific needs. They desire brands that connote both quality and value. And they want access to products that are available in the rest of the world. For forward-looking companies, the African market will be worth well over $1tr by 2020 and offer access to millions of new customers.
For their income levels, African consumers are heavy users of the internet and mobile technologies, although this varies by country. In BCG’s survey, nearly half of African internet users said they spend two hours or more each day surfing the web.
The way consumers access the internet varies tremendously. In sub-Saharan Africa, they primarily use their smartphones, while consumers in Algeria, Egypt and Morocco rely more on desktop or laptop computers. Mobile technology, in particular, is enabling the continent to overcome its lack of infrastructure and has enhanced consumers’ access to information and knowledge.
Digital technologies cannot cure all of Africa’s problems. While urbanisation is increasing, most Africans still live in rural areas and in small villages and towns. Distribution to this “last mile” is difficult, given that only 19% of the roads are paved and 70% of the continent’s rural population lacks access to all-season roads. Vehicles tend to be in poor condition, and the destinations that companies must reach are far-flung. Few logistics companies have the comprehensive network required to ensure product delivery across multiple markets. Companies need reliable ways to reach these consumers.
The prevalence of traditional-trade formats in Africa compounds the challenges. Most people buy from traditional stores, street hawkers, kiosks and markets. This makes distribution especially challenging for many multinationals, which are accustomed to working with modern retailers.
Finally, the African business-to-business market is a frequently overlooked segment. As African businesses expand and mature, their need for goods and services will rise. Companies in fields as diverse as advertising, equipment manufacturing, transportation and logistics have an opportunity to jump in on the ground floor.
In order to win in this environment, companies will need to become truly local. This will require that they do the following: create an African offering; build and leverage brands; and control distribution.
Create an African offering
Companies that have succeeded in other emerging markets have done so by tailoring their products. In Africa, however, companies cannot modify their product portfolio to appeal to all their target countries and to specific market segments within those countries. They must balance local preferences against the need to achieve scale and consistency.
Several companies have achieved success in this area. Bajaj Auto’s Boxer motorcycle became the market leader in Nigeria in two years, even though it was priced 30% higher than Chinese models. The product is adapted to local uses and weather conditions and is less expensive than similar Japanese vehicles.
Samsung’s appliances for the African market frequently have built-in surge protection. Its refrigerators frequently have extra insulation, and its washing machines are energy efficient. “We have a vision of developing technology that is built in Africa, for Africa, by Africa,” said George Ferreira, the chief operating officer of Samsung Electronics. “We will over the next few years be allocating more local R&D investment for further local product planning, design and development.”
Build and leverage brands
The relatively short list of pan-African brands has enabled several multinationals to move into Africa and build up their own. OMO, Gillette, Colgate, Pepsi and Nike are all well-known and well-liked brands on the continent. In Morocco, detergent is commonly referred to as Tide, while in Ethiopia, training shoes are called adidas. In fact, according to BCG’s Africa Consumer Sentiment Survey, brands seem more important to consumers in Africa than to those in developed nations or in other emerging markets, such as China and India.
The challenge is to figure out how to strengthen brands in ways that are economical and measurable. The continent’s diversity will require companies to deploy several channels and platforms. Ideally, they can leverage their global brand to fight through some of the local media clutter. Finally, companies will need to work with local governments to combat counterfeiting, which can quickly dilute the brand equity that companies spend years building.
Pepsi used the 2010 World Cup football championship in Africa to promote its products. The company created a viral music video campaign featuring a number of famous football players, Senegalese-American singer Akon, American singer-songwriter Keri Hilson, and the Soweto Gospel Choir. Proceeds from the song were donated to charity. The campaign garnered so much media attention that many Africans believed that Pepsi was the official sponsor of the World Cup, when in fact it was sponsored by Coca-Cola.
Control distribution
Many companies have historically relied on local distributors to deliver their goods to consumers who do not live in a port city or in one of a few other locations that they serve directly. These companies have not wanted to go to the trouble of understanding the local conditions and practices that would enable them to extend their footprint deep into the continent. It is an approach that exemplifies the trading post mentality.
By delegating distribution, companies have often ceded control of pricing, branding, channel management, inventory—and, ultimately, profitability and competitive advantage. In our work in Africa with manufacturers of consumer goods, construction materials and even fertiliser, distribution consistently emerges as a critical part of the puzzle. Companies cannot be successful in Africa unless they control distribution. They do not necessarily need to do it themselves. But they need to do it right, and doing it right will often require novel approaches.
About one-third of Nestlé’s sales in Africa occur through informal channels, and in order to facilitate these sales, the company has turned to a small army of distributors who travel by foot, bicycle and car. In 2011, Nestlé was able to double its number of sales outlets in South Africa by relying on these unconventional distributors. Similarly, Vodacom has created more than 100,000 points of sale in Africa through wholesalers and independent contractors. Its Gimme That! programme recruits and trains young people to sell prepaid vouchers on commission. Top performers are awarded distributor franchises. Diageo, meanwhile, trains its distributors in basic financial and sales-demand analysis and health and safety issues. The training programme, called Platform for Growth, has helped increase revenues for both Diageo and its distributors.
This is an excerpt from Winning in Africa: From Trading Posts to Ecosystems written by Patrick Dupoux, Tenbite Ermias, Stéphane Heuzé, Stefano Niavas and Mia von Koschitzky Kimani and published by Boston Consulting Group.