africa rising white paper bve v1 - aperio.co.za · fmcg consumption growth ... companies were...

Aperio FMCG Consulting 1st Floor, Design Quarter Centre, cnr Leslie and William Nicol Avenue, Sandton, Johannesburg +27(0)11 367 4951

Africa Rising White Paper

Version 01 Date: 05.01.2013

APERIO | Africa Rising White Paper 2

Expanding into Africa is a logical growth step for brands who want to increase their footprint and take advantage of the Billion consumers who exist in Africa. However, few companies have a focused African strategy in place that

takes cognisance of the unique and varied differences of consumers and doing business in the variety of regions. In this white paper we delve into the growth of Africa and its

complexities. In addition, we outline strategies for determining where to play and how to win in these markets.

Michael Wood APERIO Director


Table of Contents

Africa Rising .................................................................................................................................................... 4

Economic Growth .................................................................................................................................... 5

Population Growth .................................................................................................................................. 6

FMCG Consumption Growth .................................................................................................................. 7

Where To Play ........................................................................................................................................... 8

Connecting With Consumers ............................................................................................................... 10

Route To Market ..................................................................................................................................... 12

Business Complexity ............................................................................................................................... 13

Conclusion .................................................................................................................................................... 14

About Aperio ................................................................................................................................................ 15


Africa Rising With growth in Europe or North America

showing low single digits the key challenge for global FMCG companies is how to fuel growth and remain an attractive

investment prospective for institutional investors. In the last 20 years growth was fueled by entering and growing their

business in developing markets: the BRIC markets being those markets with the most impressive growth. Most of these companies have fought bitterly to gain

market share and most of the successful companies were `early in’ these markets.

Anyone who has closely followed these markets as they have developed will be able to give many examples of how companies or brands have been successful by being “early in” and establishing

their businesses and brands before their competitors even started. In fact most of the successful companies were “early in” these markets, otherwise they would have had to heavily invest via acquiring existing companies or disproportionately spending on brand building to carve out a share from tough competition.

As growth begins to slow down and entry becomes more and more expensive in these BRIC

markets, global FMCG companies are turning to other developing markets to fuel their growth and many are looking to where a similar entry strategy of being “early in” to capitalize on the opportunity would work, or where there are still opportunities to carve out market share, the truth is

today there are very few developing markets left. That’s why Africa is currently generating so much interest and offers opportunities to be the next BRIC markets for many companies.

In reality the concept of being “early in” in many African markets should not exist as these markets have been open for many years and multinationals like Unilever, Nestle and Coke have been there

for decades. The truth is that in many African markets, in many categories, the business is still under developed and offers brand builders the same or similar opportunities to those they had in other developing markets like the BRIC markets 20 years ago. Africa therefore offers FMCG companies’ real opportunities for growth.

This paper discusses why now is the right time to enter Africa, the challenges facing FMCG companies and how they can successfully capitalize on those opportunities.


Economic Growth

Since 2000 Africa GDP growth has been impressive, ahead of world growth and is now almost on a par with developing Asia markets last year. Some markets like Angola grew in double digits and markets like Nigeria, Ghana, and Tanzania all grew at over 6%. This growth is accelerating and is

fueled by investment into Africa - FDI (foreign Direct Investment) in Africa has consistently grown over the last 10 years from a level of under USD20 billion pa to nearly USD60 billion pa.

Africa growth set to outpaces Asia High growth markets in Africa


Population Growth

Africa has a fast growing, young, increasingly urban and growing middle class population which means demographics are fuelling African growth. Africa’s population today sits at 1 Billion, with 40% below 20 years old, and it is expected to grow to 1.4 Billion by 2025. Nigeria is expected to grow to

the 3rd largest country in 40 years’ time, with a population of over 450 Million, Ethiopia too will make the top 10 countries globally in the same time period growing from 84 Million today to over 278 Million by 2050.

What’s interesting about Africa’s population growth is that GDP growth and population growth are

more balanced, resulting in strong GDP growth per capita. This has resulted in the emergence and growth of a middle class on the Africa continent. This is also seen in high urbanization rates, currently at 40% across the continent, expected to grow to 50% by 2025. Nigeria alone has 74.2 Million people living in urban areas.

Africa Middle Class


FMCG Consumption Growth

There is a strong consumption drive in the African economy driven by the growing emergence of a middle class. With over 300 Million people today expected to grow to 560 million by 2050, this has grown private consumption growth since 2000 massively. FMCG food and beverages and non-

food consumer products will account for 50% of household consumption by 2020. Urban African consumption of consumer goods is at a much higher level than most other developing markets - 45% of GDP growth from 2000 has come from the consumer goods sector.

The African continent presents high growth opportunities for FMCG companies, however Africa is complicated, challenging, difficult to enter and success is never guaranteed. So what should

FMCG companies focus on to succeed in Africa?


Where To Play

Africa’s population is just over 1 billion people spread over 53 countries with 2110 different languages over 3315 different ethnic and religious groups. Africa is a diverse and fragmented market and a universal one size fits all approach will not work.

FMCG companies must start by deciding where to play in Africa. Evaluation of where to play usually follows the same methodology; on a macro level companies assess markets based on size of market,

economic and regulatory environment, GDP growth, population, demographics, political stability, infrastructure etc. This information is usually readily available and reliable.

Once an initial selection has been made FMCG companies need to dig down and better understand the FMCG market complexities and categories in the selected markets. This is often where there is a lack of data and information and the issue of reliability is called into question.

Informed companies can piece together an accurate picture of the market via market

intelligence gained by visiting the country and exploring the market: each piece of information completes a jigsaw puzzle to form an accurate picture of the market. The typical information covered by this research would include category, products, pricing, market shares, category

progression, competition, retail environment, route to market, business complexities, legal and fiscal environment, potential entry strategies and so on.

Understanding where this information is available and piecing it together in Africa is challenging and complex and there is a distinct need for FMCG companies to work with talent who have experience of developing where to play and how to win strategies in Africa.

Usually companies will flesh out their where to play strategies but often we see similarities in approaches to FMCG where to play decisions;

Lead Markets With the complexity of entering Africa en-bloc

most companies select a roll-out process across priority markets, typically these are the largest lead markets: South Africa, Angola, Nigeria,

Ghana, Kenya, Ethiopia. Selection can depend on the level of category

development, cultural differences or ties, competition, ease or difficulty of entry, or a particular opportunity that might be present in a market, therefore it is not always the biggest markets that might determine a lead market.


City Approach The top 50 cities account for only 13% of Africa’s population but contribute

disproportionately to GDP and GDP growth, accounting for 40% of GDP growth over next 12 years.

There are over 50 cities in Africa with a population of +1 million. This approach is often

used for higher value consumer goods i.e. premium liquor where targeted larger cities with a certain level of affluence can make sense. One potential danger of this approach

is that the highest rate of urbanization is expected to be in the smaller African towns, which this strategy could potentially miss out on.

Cluster Clustering markets is an effective way to try

and group markets together with a lead market or anchor market. The point of clustering is usually several fold: markets that

have similar or common consumer needs enabling product development and marketing campaigns that could be regional

(adapted / translated to each market); if trade blocs exist (which they do in several regions); use the lead market as the base to develop and export to other neighboring

markets. Examples of how companies might cluster

markets would be East Africa with Kenya as the lead market, West Africa with Nigeria or Ghana as the lead market, French Speaking

West Africa with Ivory Coast or Senegal as a lead market and Southern Africa with South Africa and Angola as lead markets. This approach is popular with FMCG companies

who because of regional similarities in consumer habits can in their categories take a cluster approach.


Connecting With Consumers

The one size fits all approach does not work with African consumers. African consumers are looking for locally relevant brands that they can connect with. Below are some of the critical areas for FMCG companies to consider.

Brands African consumers are looking for locally relevant brands they can connect with and FMCG

companies need to understand consumer sentiment and behavior to avoid failing in their chosen regions.

An African strategy means being relevant at a

regional, country or grass roots level to African consumers. FMCG brands that succeed are considered brands of the people, brands they

can trust. One company that understands this well is P&G, who recognises that Nigerians want Nigerian brands and products and Kenyans want Kenyan brands and products, and so on. This is not just changing a voice over on TV copy: P&G often re-shoots the same TV advertising using

exactly the same copy but for different markets, so Nigerian copy has Nigerian actors and feel, Kenyan copy has Kenyan actors and feel - it is important for consumers to identify with the brand as their own

Trust is critical in African consumer’s eyes and is often built by word of mouth. Endorsements by

friends, relatives or “normal” people often carry more weight than celebrity endorsements that can be perceived with skepticism. In consumer interviews in South Africa, low-income consumers identified Omo washing powder as a brand they trust and were willing to pay a significant premium over cheaper washing powder brands.

Winning FMCG brands that are successful in Africa have a commonality in terms of their presence; they usually own retail inside and out and are highly visible in all outlets but most importantly in the mass market - in Africa this often means open market, kiosks and small neighbourhood grocery stores. These brands have a presence, on the street and in-store that shares a proximity to consumers, perceived as leaders or power brands by African consumers.

Appealing to the youth segment is also important, with such a large and growing young population, brands and products that target the youth market have a better chance of long-term success. These youths are increasingly urban, brand focused and surprisingly connected with the explosion of Internet on mobile phones, the highest usage being social networking sites.


Products

Appealing to African consumers is even more important when it comes to your product offering, locally relevant products that recognise regional or cultural differences are crucial. For example beer companies like SAB Miller or Diageo have developed regional brews based on regional tastes,

making brews based on maize, sorghum, and cassava dependent on the consumer in each market.

Trial is important in an environment where there is a high degree of mistrust about new brands and products. Ensuring your market strategy and execution plans focus on trial for new brands or products is essential.

Value and affordability are key. This doesn’t mean your products need to be cheap.

Affordability is value within a framework of what consumers can actually afford but without compromising quality, in Africa this often translates into a strategy that focuses on:

» Sizing, packaging designed around single usage, Africa is full of smaller sized single use sachet packed products (everything from shampoo, to milk powder to vodka is sold in single use sachets);

» Coinage is critical and key price points for consumers and retailers need to be understood; » Tiering the offering ‘good – better – best’ or ‘value – performance – premium’ product offering

can also address the affordability challenge. » Quality – African consumers will often pay more for brands or products who offer

uncompromising quality and they trust. Often you will hear African consumers say “they cannot afford to buy cheap products”.

Given the nature of many urban African markets ‘on the go’ consumption is a concept that

connects with consumers, just look at the number of street hawkers or small convenience outlets you see in Africa: convenience and single serve products are not just a result of affordability but

meets a consumer need for on-the-go consumption

.


Route To Market

The retail environment in Africa is highly fragmented, modern retail in most markets is only just beginning, for example in Nigeria it accounts for less than 2% of the total retail.

African retail consists of a high number of small stores, grocery stores, kiosks, street vendors, and open markets. These outlets in a market number

the 100s of thousands and they are usually serviced via a network of wholesalers and sub wholesalers. Wholesale often accounts for 70-80% of any given FMCG product sales in most African markets.

Very few companies have developed strong capabilities to reach their desired route to market in a controlled manner.

Having the ability to reach and manage retail and wholesale is a critical component of being successful in Africa, those companies that have developed a strong route to market capability

have a very large and distinct competitive advantage.

Companies that make route to market critical in their strategy usually are successful in Africa, take the Cowbell brand in Nigeria from Promasidor, a

successful business built in the last 20 years based on; strong route to market capability and execution, affordability and strong branding at point of sale.

They changed the way milk powder is consumed in Nigeria (milk powder is the way Nigerians consume milk). Promasidor launched Cowbell in small single serve sachets selling at key critical price points. They focused on building a route to market capability, which drove their distribution down the line to smaller outlets and regions, beyond anything their competition, had and they ensured strong branding and distribution in these outlets.


Business Complexity

Africa has major issues related to the lack of poor infrastructure, an often-crippling bureaucracy and corruption that plagues the continent. For example in the World Bank assessment on ease of doing business, Africa is the worst region in the world and many companies can give real everyday examples of how this business complexity impacts their ability to do business.

This can translate into a higher cost of doing business and a corporate fear of doing business in Africa due to a perceived or real high level of risk, which makes gaining commitment from senior management a problem, even more problematic getting support for the many ups and downs business experiences in Africa.

This is further acerbated by a lack of skills, know-how and experience at a mid-manager or senior manager level in many FMCG companies, which makes developing and then executing Africa strategies a challenge. More and more FMCG companies are entering and competing in the same pool of talent, so acquiring and retaining good talent has to be high up on the priority list.

Companies like Nestle, Unilever, Coke, Procter & Gamble have established large, successful, growing pan-Africa businesses proving that despite business complexities opportunities exist.


Conclusion Navigating around Africa successfully is complex and challenging at times, however following a

simple strategy based on delivering fundamentals and ensuring expert help has meant that many FMCG companies have established large, successful and growing businesses in Africa.

If FMCG companies have the ambition for growth, the appetite for some risk and can get some expert help to define and develop their African business, the opportunities are endless.


About Aperio Aperio is a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa. We understand the challenges FMCG businesses have on a day-to-day basis and guide multi-national companies to achieve greater results in the region. Our

consulting ranges from developing and implementing business building strategies, advising on launch or expansion plans, conducting brand health interventions, rejuvenating orphan brands or implementing growth strategies for Africa.

Through a team of 30 highly capable, multi-functional consultants with significant multi-national FMCG experience, we partner with companies and brands to achieve significant growth in South Africa and Sub-Saharan Africa.

We understand the critical areas of your business from company strategy, brand building, commercial management, supply chain to shopper marketing and CRM. Our consultants have worked within major multi-nationals including P&G, Gillette, GlaxoSmithKline, Tiger Brands, Simba, Nestlé, SuperGroup and Coca Cola.

Aperio’s proven management model for brands of FMCG multinationals and our multi-functional experience allows us to guide you along all areas of your business, providing you with a total business solution.

Besides advising on your business strategy, we have expertise in commercial strategy development including route to market and aligning your commercial strategies to the company and brand

strategies to deliver results. We also translate these strategies into commercial policy, trade terms and customer initiative plans.

Our experience in marketing – both consumer and shopper marketing ensures that we can help you drive sales growth.

Aperio believes that the strategy is only as good as the implementation and therefore we can also lead the implementation if required.

For those companies seeking Africa expansion we create the entry strategy and lead the entry into Sub Saharan African countries. And for companies already present we enable you to accelerate your growth across the African continent.

www.aperio.co.za

[email protected] +27 11 367 4951

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