While multinational consumer goods companies such as Unilever have been operating in Africa for decades, many new entrants are looking to capitalise on the expected growth in consumption across the continent.
Michael Wood, co-founder and director of consulting firm Aperio, has significant experience in helping fast moving consumer goods (FMCG) companies expand their businesses across Africa. During a recent talk at the University of Stellenbosch Business School in South Africa, Wood shared some of his market insights.
1. On-the-go consumption
According to Wood, many people in Africa consume food items on the go, which offers opportunities for companies to produce filling or refreshing products that can easily be consumed.
“Most people in urban areas start early in morning, finish late at night, and don’t have time to stop and have a real meal,” says Wood.
2. Route to market
Africa’s retail landscape is made up of thousands of small stores, kiosks and open markets. Wood notes that although many modern shopping malls are being built, these still make up a relatively small proportion of the market.
“If you are basing your strategy on being present in supermarkets across Africa, I’m afraid you are going to fail,” he says.
“Reaching these outlets is complicated, it is expensive and it is the biggest challenge for FMCG companies. [However], it is critical if you want to reach consumers in a meaningful way across Africa.”
He says building an effective route to market strategy is probably the most important success factor for consumer goods companies in Africa.
3. Affordability and quality
Despite recent reports about Africa’s growing middle class, the majority of people on the continent still struggle to make ends meet. For this reason it is important for companies to ensure their products are affordable and of a high quality.
According to Wood, low-income consumers can’t afford to buy poor quality products because the risk of these products failing is too high.
Wood notes that many companies operating in Africa offer products such as diapers or concentrated milk in single-use units. However, it is essential that these single-use units offer the right amount of value at the correct price.
He says because many African countries have hyperinflationary environments, consumer goods companies often face the dilemma of deciding between increasing the price of a product or lowering the quantity/quality.
“This whole question of how do you manage affordability… [and] value in a hyperinflationary environment is a critical one… I’ve seen companies who have made huge mistakes by tampering with the quality of their product to keep it at the same price, and have lost market share because of that.”