Sub-Saharan Africa’s top five retail markets

Sub-Saharan Africa’s potential as a retail destination has attracted significant attention in recent years. Strong economic growth and changing perceptions about the continent have lured many foreign retailers, while African companies have also expanded regionally.

However, not each of sub-Saharan Africa’s 48 countries hold equally good potential from a retail perspective. So which countries offer the greatest opportunities?

Research company A.T. Kearney attempts to answer this question with its recently released African Retail Development Index (ARDI).

To compile the rankings, the firm considered the current state of each country’s retail environment, as well as its future potential. The ARDI is based on four elements: market size, market saturation, country risk and time pressure, and ranks the potential and urgency of moving into each country accordingly.

Below are sub-Saharan Africa’s top five retail markets.

1. Rwanda

Despite the fact that Rwanda is a small country of about 12m people, A.T. Kearney ranks it as the market with the most potential for retailers.

“Although small in land area and just 20 years removed from the 1994 genocide, Rwanda has an efficient government and strong macroeconomic indicators that reveal many opportunities for international retailers than can offer basic packaged goods.”

Rwanda currently has a handful of formal retailers, including Kenya’s Nakumatt and South Africa’s Mr Price.

The report notes that store convenience plays an important role in Rwandan consumer purchasing decisions, as most prefer shopping at smaller stores closer to home, rather than travelling longer distances to modern outlets.

A.T. Kearney says people from neighbouring countries such as the Democratic of Republic of Congo also travel to Rwanda to shop, which increases the market size.

2. Nigeria

With Africa’s largest population, the second biggest economy and increasing urbanisation, Nigeria clearly holds significant retail potential. However, A.T. Kearney says Nigeria is one of sub-Saharan Africa’s toughest markets to master for outsiders.

“Regulations, land availability, distributor and supplier capabilities, and ease of imports are all roadblocks that will require time and effort to overcome,” notes the report.

The fact that South African clothing retailer Woolworths last November announced it would be pulling out of its three stores in Nigeria, a mere year and a half after it first entered the market, questions how lucrative the country is for retailers.

The reasons cited by Woolworths were high rental costs, duties and supply chain challenges in the country.

3. Namibia

Due to its relatively small population spread out over a massive area, Namibia is not often highlighted as a consumer hotspot.

However, A.T. Kearney says the Southern African country’s relatively high income per capita (seventh highest in Africa) and efficient transport network makes it an attractive market.

Retail in the capital Windhoek is dominated by South African firms such as Shoprite, Woolworths and Pick n Pay. South African property developer Atterbury has also announced plans to develop one of the largest malls in Namibia, expected to open later this year.

Because of saturation in the market, A.T. Kearney says newcomers should offer competitive, differentiated products.

4. Tanzania

Tanzania’s vast scale (it is Africa’s thirteenth largest country by size) and its location on the Indian Ocean coast make it an attractive market for international retailers seeking a regional base,” states the report.

While most purchases are made at small family-owned shops, the report notes that supermarkets are becoming more popular, especially for higher income Tanzanians and expatriates seeking variety and more sophisticated products.

South African and Kenyan retailers such as Shoprite, Game, Woolworths and Nakumatt are all operating in the country.

5. Gabon

Only 3%-4% of grocery retail in Gabon is currently done through modern outlets, presenting good growth opportunities. Last year French chain Carrefour, one of the biggest in the world, announced it plans to enter Gabon.

A.T. Kearney says entering the Central African country of less than 2m people is likely to be challenging. “The market remains relatively early in development, and the ease of import and supply and distribution capabilities remain low.”

Companies looking to establish a presence in Gabon will need to “move quickly”, according to the firm. It says the country’s retail dynamics and demographics are rapidly evolving, and first movers will have an advantage.