It is estimated that in Africa, over 70% of food, beverage, and personal care products are sold through informal channels such as open-air markets, kiosks and table-top sellers. However, despite their importance, informal shopkeepers have been held back by a host of challenges, including frequent stockouts, limited access to capital, and difficulty receiving goods from suppliers. In this article, Tridiv Vasavada, chief technology officer at Wasoko – a company that connects informal retailers to manufacturers of consumer goods through digital channels – explores three trends shaping the industry.
1. Smartphones: A new normal for informal retailers
Over the past decade, the supply chain of Africa’s informal retail sector has undergone a gradual process of innovation, with retailers becoming more accustomed to new methods of ordering products via SMS and sales agents. However, 2022 marked a turning point for customer readiness towards tech-enabled solutions, with smartphone and app adoption reaching unprecedented levels, particularly in Kenya, Côte d’Ivoire and Tanzania, where smartphone adoption rates are projected to reach 68%, 67%, and 61%, respectively.
This trend, which has mainly been concentrated in tier-one cities, is expected to accelerate into smaller cities and potentially rural areas. One potential obstacle could be the affordability of devices, but given the significant economic benefits of mass smartphone adoption, there is growing interest from governments, NGOs, and telecom operators in delivering subsidised access. Over the coming year, this will play a crucial role in driving a new level of convenience and efficiency in Africa’s $850 billion informal retail space.
2. An emerging class of market leaders
Traditionally, informal retailers in Africa have offered a limited range of essential goods in small quantities to accommodate for the size of their stores, which can range from as little as 1m2 to 30m2. However, with the growing availability of credit from fintech platforms, we can expect to see more retailers expanding their businesses, resulting in an emerging class of market leaders, similar to what we’ve seen in more mature markets like India and Vietnam.
It’s important to note that these expansions will also need to be driven by a rise in consumer demand. This transition will likely be more gradual, due to factors such as rising food prices and challenging economic conditions throughout the continent. Therefore, it may take a few years for the market to fully evolve in this area, but a growing cluster of informal retailers are still expected to make significant strides in building more competitive businesses.
3. The evolution of logistics networks
Currently, millions of retailers are being constrained by a heavily fragmented logistics industry characterised by unreliable deliveries and unpredictable prices, which can often be dependent upon relationships. However, as informal retailers expand their businesses, they will naturally require faster and more efficient supply chain networks to keep up with their demands, opening the door for more standardised and efficient service providers to cater to their needs.
With this in mind, it is anticipated that there will be a stronger drive from digital platforms – which have been at the forefront of innovation within the logistics sector in recent years – and wholesalers to fill this gap in the market. In 2022, wholesalers began to increasingly expand into areas such as docking (handling of the goods at the port) and last-mile delivery, providing their customers with a more holistic service offering. As Africa’s informal retail sector experiences greater consolidation, it is expected that there will be even more competition between these different players in the logistics industry, which will ultimately benefit local shop owners.