Many international retailers and other consumer-facing companies have started to grow their African footprints. Consulting firm McKinsey recently published a report that might give companies a better idea on how to make a success of their expansion into the continent. To produce the report, McKinsey surveyed 13,000 consumers in ten African countries. Here are the highlights:
1. Quality and brand matters
In many African countries, consumers had in the past been limited to cheap, poor-quality unbranded products. According to McKinsey, companies that operate in this way won’t be successful in the long-run, as African consumers attach strong importance to both quality and brand in their decision making.
2. Offer the latest trends…
Fashion retailers who think they can dump last season’s styles on Africa, also shouldn’t expect to be in business for long. Despite the predominance of informal retail across the continent, 58% of respondents to McKinsey’s survey said that they choose clothing based on fashion, 43% noted it is important to follow the latest trends.
3. …at the right price
Although quality and brand are important, products must also be delivered at the right price. Despite all the media hype of ‘Africa Rising’, incomes remain relatively low.
McKinsey’s research found that 53% of Africans choose their grocery store based on price. Price sensitivity, however, varies from country to country. “In a wealthier market like South Africa, only about a third of respondents said they spend a lot of time searching for the lowest price, compared with more than half of respondents in Ethiopia.”
4. Look and location
In some markets where modern shopping malls are still relatively new – such as Nigeria, Angola, and Algeria – in-store environment and layout, followed by convenience, are the two most important factors driving store choice. In countries where formal retail is more established – such as South Africa – these factors are less important.
“There is a significant opportunity for modern retailers in countries like Angola and Nigeria, in particular for those companies that can overcome the severe shortage of appropriate real estate,” notes McKinsey.
5. Don’t forget about the ‘middleweight cities’
While mega-cities such as Lagos (Nigeria), Cairo (Egypt) and Johannesburg (South Africa) clearly offer opportunities, companies should not ignore the lesser-known ‘middleweight’ cities, including Khartoum (Sudan), Abidjan (Ivory Coast) and Rabat (Morocco). Growth in these middleweight cities are often faster compared to the mega-cities. According to McKinsey, the continent currently has 156 middleweight cities representing only 7% of the population. However, these urban centres are forecast to contribute nearly 20% of GDP growth until 2025. There is also less competition in middleweight cities.
6. Get the timing right
Timing should play a critical role in the decision on which African markets to enter.
Says McKinsey: “Demand for consumer products typically follows an ‘S-curve’ growth profile rather than a linear path. As incomes rise, categories will reach a ‘take-off point’ where demand accelerates by three to five times – we call this the ‘hot zone’. At higher levels of income, markets become saturated and growth slows – we call this the ‘chill-out zone’.
Different products enter the hot zone at different moments – with cheaper products typically taking off earlier. “This is where understanding income levels at a city rather than a country level is critically important,” explains the report. “When looking at the baby food category, our research shows that the take-off point occurs at consumption per capita of $2,700. In the Kenyan market, average consumption per capita is $1,526, leading us to conclude that baby food has yet to reach the take-off point. However, if we focus on the city level, we see that consumption per capita in Nairobi is $2,827, putting it in the hot zone and offering an accelerated growth opportunity.”