This article is a slightly-edited excerpt from Standard Bank’s Africa Consumer Insights Report 2020: Third Edition.

Covid-19 will cause subdued consumer spending growth in Ethiopia, with real household spending expected to grow 3.6% y/y in 2020 compared to the previous forecast of 7.7%.

Over the medium term, the outlook is positive for consumer spending, with household incomes rising considerably. Employment gains are expected from the agricultural and manufacturing sectors with a strong demand for Ethiopian exports supporting a transition from subsistence farming to higher-income commercial agriculture.

With a weakening birr and many consumer goods imported (including nearly 10% of food), inflation remains a concern. New forecasts expect inflation to average 10% over the next four years (2020-2024).

Overall, while there are positive trends after Covid-19 impacts abate, the overall profile of the Ethiopian consumer remains weak, with low GDP per capita, inflation eroding income, and much consumer spending on essential items.

Injera remains the country’s most important packaged food item

Injera is a sourdough flatbread made from teff, which is a naturally grown, gluten-free grain that is served at virtually all meals. In addition to its importance as food, injera also plays a significant symbolic role in Ethiopia’s food culture as it is used to scoop up food from shared platters, including during the practice known as Gursha. This refers to the feeding of close friends and relatives by hand to symbolise loyalty and devotion.

Other important grocery items include pulses such as beans and chickpeas and various fresh vegetables. These are eaten by consumers across all income levels and typically purchased from open markets in an unpackaged form. Whereas meat such as lamb, mutton, goat meat and beef are more heavily consumed by high-income households. The largest religious group is Ethiopian Orthodox Christians and it is common for them to abstain from eating all animal products on certain days of the week. Rice and bread are also important staples for many households, however, most of the rice seen in stores was imported. All the bread found in stores was unbranded.

Consumption of soft drinks remains very limited in the country, with Ethiopians buying drinks mainly during weekends and other special occasions. Traditional freshly squeezed juice and coffee remain highly popular throughout the country and are largely affordable even for low-income consumers.

We noticed that there were also many stock outs of basic items such as fresh milk, bread, carbonated soft drinks and sugar across the various stores. The majority of the packaged food items were imported from the Middle East and expensive compared to the pricing in the other countries. We also found that staples such as rice and flour were sold in bulk sizes (5kg) for resale in smaller quantities or bought to be shared with family members.

Personal health awareness campaigns teach consumers about the importance of personal hygiene practices

The transition from unpackaged to packaged personal care and beauty products is mostly observed when disposable income increases for Ethiopians. Among lower-income groups, a greater utilisation of traditional alternatives across the board can be observed. Instead of purchasing boxed hair dye, for example, Ethiopian women in this income group will opt for henna as an affordable alternative. Instead of using conditioner, the women opt to use a clarified butter on their hair called kibbeh, which serves multiple purposes, including heat protection and moisture retention so that hair doesn’t become brittle and break.

However, with this said, it is not to say that consumers are not evolving or are unwilling to change. In most cases, it is a matter of relaying the hygienic benefits of some practices to consumers. The two standout products that gained significant traction as a result of a conscious drive in personal care awareness and health in Ethiopia are toothpaste and bar soap. Traditionally, many Ethiopians have used mefakia (twigs) to maintain oral hygiene. It was not until the government initiated an oral health drive that locals realised the importance of utilising a toothbrush and toothpaste to take care of their teeth.

With the lack of access to clean running water for many residents, and less than 20% of homes in Ethiopia having a bath or shower, additional product sophistication beyond the bar soap will most likely experience lacklustre sales in this region.

The two leading brands in the bath and shower category are Lifebuoy and Lux, both owned by Unilever Ethiopia, which is the leading global manufacturer in the country. Roll-on and deodorant are challenging to find in this market. There is a perception by low-income earners, that roll-on and deodorant are luxury items and only meant for special occasions. Many Ethiopians believe that the practice of washing up with bar soap suffices.

Household income dictates the complexity of the home care basket in Ethiopia

The complexity of the home care basket is influenced by household income and affordability. For many lower-income households, making up majority of the population in Ethiopia, multi-use products come in handy.

In order to keep prices low, many companies have altered their pack sizes. In Ethiopia we observed smaller pack sizes priced at lower, more affordable price points.

The three players that dominate the laundry care category consist of two local players named Shemu Soap & Detergent Industry with the brand Shemu; and TTK Soap & Detergents which makes Sky. Globally, Proctor & Gamble has managed to dominate this category with their brand Ariel, by ensuring national product availability and distribution to retail outlets.

Bleach is a very popular and fast-growing item within the Ethiopian home care basket and like the other popular basket items, it is a multi-use product that has various functions and a low price. Many households use bleach to remove stains, whiten and clean laundry, to disinfect and clean their toilet and as a surface care disinfectant. One can also mix it with other detergents to make a floor cleaner. The bleach market is highly fragmented and competitive with no clear market leader. Many of the containers are poorly labelled or without any labelling at all.

Of the three stores visited in Ethiopia, Safeway supermarket is the most expensive store to purchase a basket of home care items from. This supermarket has multiple stores spread across prime locations in Addis Ababa and is perceived to be an affluent store targeting middle- and upper-income groups, especially expatriates. Our findings show that Shoa presents the most comprehensive list of items.

Ethiopia still in its infancy stage of retail real estate development

The Ethiopian retail market has grown significantly over the past few years. However, further development remains restricted by the fact that foreign investment is not permitted in this sector. Modern retailing in Addis Ababa is in the early stages of development compared to neighbouring countries such as Kenya, Uganda and Tanzania. There are some grocery operators in Addis Ababa, however, these are only local mid-sized companies such as Shoa. The city also has several other small- and medium-sized malls including Friendship City Centre. There is also a new regulation that has just come in place in Addis Ababa, which requires mall buildings to be mixed with residential apartments due to housing/space issues in the city.

The country would appear to have good growth potential, as Ethiopia is the second-most populous country in Africa. However, one obstacle, besides being a closed economy, is that as a landlocked country with relatively poor infrastructure, supply chains can be unreliable.