Retail therapy aids Africa

With growing middle-class demand for goods, the continent’s consumer landscape is developing rapidly. It may prove the key to new growth.

As economies rise across the continent, a definitive shopping culture is emerging in Africa. Above, an electronics store in Fourways, Johannesburg. Nadine Hutton / Bloomberg

Shopping, rather than charity, may be the driver Africa needs to work its way out of poverty, as a rising middle class demands world-class goods and services.

On any given day the border post at Beit Bridge, which straddles Zimbabwe and South Africa, is choked with lorries and private vehicles straining under the weight of goods as diverse as clothes, baby food and bicycles.

Often these are private traders, ferrying items they hope to sell at the thousands of informal markets situated in villages and cities across the continent.

Increasingly though, it is shopping centres with brand-name goods that are drawing middle-class African consumers. From Cape Town to Cairo, shopping has arrived in a big way. Dubai’s Majid Al Futtaim, which operates malls and Carrefour hypermarkets in the Arabian Gulf, is expanding operations in Egypt.

“Egypt has all the right ingredients for future success and is a potential gateway for further expansion into the African continent,” the retail firm says.

“The company’s five-year investment plan in Egypt worth 22.5 billion Egyptian pounds [Dh10.54bn], includes new developments as well as the expansion of existing projects throughout the country.

“It is expected to create over 144,000 direct and indirect job opportunities.”

Other retailers are also piling in; the US conglomerate Walmart now has a presence in South Africa, from where it plans to expand further. South African brands such as Shoprite which serves the mass consumer, and Woolworths, an upmarket chain, are also on the move. Smaller chains, such as Botswana’s Choppies, are spreading into Kenya and other countries as their home markets become saturated.

The global consulting firm AT Kearney’s 2015 African Development Retail Index, which evaluated 48 countries in the region, has ranked the top countries in terms of investment attractiveness. A surprising entrant at the number one spot is Gabon, which earned its place thanks to a large middle class population. Like many of the 54 countries that make up Africa, Gabon is seldom in the news – simply due to its own success and stability.

Almost 80 per cent of its population is urbanised, with a per capita income twice that of South Africa.

This trend is becoming entrenched across the continent.

“Africa’s consumer landscape is changing, economies rise and a shopping culture is emerging,” says Mirko Warschun, an AT Kearney partner and the leader of the firm’s consumer industries and retail practice for Europe, Middle East, and Africa.

“With growth rates mostly outperforming global trends, consumer spendings are rising also by the masses … with the emergence and penetration of modern retail channels – newly designed stores, shopping centres and even online sales in some geographies.”

It is always a risk assigning a single theme to a landmass of about 1 billion people combining hundreds of different languages and cultures.

However, a few trends that should be noted by retailers interested in this market are becoming apparent.

Mr Warschun notes that Angola, for instance, a country with a wealthy upper class, is better able to support luxury brands but with much of its population still in poverty, it is less attractive to mass consumer goods ­retailers.

Ethiopia, on the other hand,is one of the least unequal societies worldwide, as measured by the international yardstick the Gini coefficient, which measures a country’s distribution of wealth.

As a result, Ethiopia is perhaps better suited to general consumer retailers.

New entrants may also have to compete with robust domestic chains. Kenya has four large chains – Nakumatt, Tuskys, Uchumi and Naivas – which enjoy a loyal homeland following. Nakumatt, the largest, earned US$450 million last year from its more than 50 stores.

Even the extremist attack on Westgate Mall in the capital Nairobi two years ago in which dozens of shoppers were killed and Nakumatt’s flagship branch was destroyed, has not held the chain back with plans to expand across Kenya and beyond.

One approach to entering crowded markets is through acquisitions and partnerships. Spain’s discount clothing chain Zara has expanded into Kenya through a local enterprise called Deacons.

South Africa, by far the largest formal retail market, had managed to hold off foreign competitors until 2010 when Walmart bought Massmart, the third-largest retailer of general merchandise in the country.

The deal was fiercely contested by the country’s militant unions, who wanted the American company banned because of its alleged history of anti-labour practices in the United States.

The deal eventually went through, but for a time it was touch-and-go.

Since then Walmart has struggled to find its footing, as more nimble local chains such as Shoprite have continued to expand both at home and further north. For instance, Walmart – through Massmart – was rebuffed after it tried to buy Botswana’s biggest grocer Choppies a couple of years ago. Choppies has, meanwhile, entered Kenya and set a store expansion target of 200 outlets across at least six African countries by the end of 2016.

In Kenya Walmart fared little better; it was unable to complete a deal with the private retailer Naivas because of a family dispute over its ownership.

Others have also stumbled in African markets. Tiger Brands, South Africa’s largest food manufacturer, was lured a few years ago into Nigeria, the grand prize of African retail.

It bought flour mills that it intended to use as the basis for a local food processing business. The plants turned out to be woefully inefficient and, together with Nigeria’s economic post-oil crash slowdown, helped to put a dent in Tiger’s first half results for this year. Operating profit before charges declined by 3 per cent to R1.7bn rand (Dh466.7m) on the same period last year.

“This was after accounting for a foreign exchange loss of R134m in Dangote Flour Mills relating to the [Nigerian currency] Naira devaluation,” the firm says.

In spite of the difficulties though, retail will continue to grow as a component of African economic development. Shoprite, a budget general goods chain in South Africa, now has almost 190 stores in the rest of the continent and has no intention of slowing down.

“The group intends continuing its strong expansion drive in Africa with 35 new stores planned for countries across sub-Saharan Africa by June 2016,” says the Shoprite chief executive Whitey Basson. He notes that the ebola outbreak, a fall in commodity prices and other factors has slowed expansion, but only ­marginally.

“Our growth sustained job creation, with the addition of 9,842 new jobs during the year [so far] to bring our total staff complement to 132 942 of whom 114,984 are employed within South Africa and 17,958 outside its borders,” he says.