The Dynamic African Consumer Market: Exploring Growth Opportunities in Sub-Saharan Africa Grant Hatch, Pieter Becker and Michelle van Zyl Contents

Introduction 4

Why is the African consumer an attractive 7 proposition?

Where should companies focus? 15

1 Basic Survivors 19 2 Working Families 21 3 Rising Strivers 23 4 Cosmopolitan Professionals 25 5 The Affluent 27

How can companies unlock the potential in 31 Sub-Saharan Africa?

Conclusion 41

Appendix 42

2 Africa consumer key facts

• Africa is a diverse continent, • Consumer expenditure in SSA with an estimated 1,500 languages equaled nearly $600 billion in grouped into six linguistic families. 2010, accounting for almost eight percent of all emerging-market • In 2010, sub-Saharan Africa spending, and is expected to reach (SSA) was populated by more nearly $1 trillion by 2020. than 856 million consumers. The region will have more than 1.3 • Consumer spending in South billion consumers by 2030. Africa and Nigeria accounts for 51 percent of SSA's total expenditure. • The most populous country in SSA is Nigeria, with a population • Poverty in SSA is decreasing of 151 million, while the smallest, rapidly—from 40 percent in 1980 to Seychelles, has just 100,000 people. less than 30 percent in 2008—and is expected to fall to 20 percent by 2020. • While the global economy is predicted to grow by two percent to • By 2050, almost 60 percent of three percent between 2011 and 2020, people in SSA will live in cities, SSA is poised to grow by five percent compared with 40 percent in 2010. to six percent, making it one of the This means 800 million more people world’s fastest-growing regions. will live in urban environments.

• African countries received $72 • By 2012, over 50 percent of all billion in foreign direct investment Africans—or more than 500 million in 2008, which is five times the people—will own a mobile phone. amount received in 2000. While lower By 2014, this portion is expected to than China’s investments ($92.4 increase to 56 percent (more than 600 billion), this amount exceeds that million people), giving Africa one of received by other emerging markets the world’s highest mobile usage rates. such as Brazil ($45.1 billion).

3 Introduction

For companies looking for growth via diverse nature of opportunities emerging markets, Sub-Saharan Africa in Africa can be challenging. As a looms large. The continent’s sheer size result, many executives planning on merits attention: Since 2000, Sub- entering Africa want to know why Saharan Africa has experienced rapid Africa’s consumers are an attractive growth in consumer spending of four proposition, which segments they percent Compound Annual Growth should focus on, and how they can Rate (CAGR), reaching nearly $600 capture the market’s potential most billion in 2010. Consumer spending is effectively. expected to rise to nearly $1 trillion by 2020. Accompanying the growth In the pages that follow, Accenture are rapid improvements in income presents an in-depth analysis and levels, infrastructure and the business segmentation of the Sub-Saharan environment that promise continued African consumer market that can growth as a consumer market. help guide companies as they consider how and where to enter the market. Companies will have to adjust their We also provide concrete steps and strategies and expectations when recommendations on how companies entering Africa. Logistics can be can tailor their strategies to the unreliable and infrastructure lags challenges and opportunities in Africa. much of the developed world. Furthermore, understanding the

4 FigureMajor 1:African Sub-Saharan Cities Africa: A Large and Compelling Opportunity

Addis Ababa

Dakar Kampala Accra Lagos Nairobi Douala Dar es Salaam Kinshasa

Luanda

Maputo Windhoek Johannesburg

Cape Town

5 6 Why is the African consumer an attractive proposition?

The new African consumer While mineral resources will undoubtedly continue to be important, is a force to contend the most significant contributors to with and represents an growth are changing, with less reliance on exports and more reliance on opportunity no company domestic demand (consumer spending can afford to ignore. and imports). Despite current low per capita incomes in Africa, average Since 2000, consumer spending in income is growing, giving rise to Sub-Saharan Africa has grown at a an emerging middle class that will steady four percent per year, reaching become more demanding as income nearly $600 billion in 2010. The levels and spending increase. market is expected to be worth $1 trillion by 2020.1

Figure 2: Sub-Saharan Africa Consumer Expenditure* ($ Billions)

1,000 1990 – 2000 2001 – 2010 2011 – 2020 900 4.3 % CAGR 800

700

600 3.9% CAGR

500 $ Billions 400 3.2% CAGR

300

200

100

0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Eastern Hub Southern Hub Western/Central Hub

*Historic / Forecast - US$ mn - Constant 2010 Prices - Fixed 2010 Exchange Rates’ Source: Euromonitor 2011

7 Figure 3: Structure of Demand (% of GDP)

80%

70%

60%

50%

40%

30% Percentage of GDP

20%

10%

0% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Consumer Spending Imports Government Spending Exports Business Investment

Source: EIU 2010 (An average of % GDP figures were taken for the following countries: Algeria, Angola, Egypt, Kenya, Libya, Morocco, Nigeria, South Africa and Tunisia)

8 “At JD Group, we look for two predominant characteristics before considering entry into any market, inclusive of the African market. Firstly, we look at current and projected potential in terms of demand forecast in the short, medium and long term, assessing the sustainability of the underpinning drivers for demand carefully. Secondly, we closely evaluate the capacity and capability of the market to enable core business processes such as logistics, infrastructure, regulatory and legal policies, financial systems and political stability to ensure effective service delivery to the envisaged client base.” Dr. Henk Greeff, Director: Strategy and Human Resources, JD Group

9 Figure 4: Africa Population Size (Millions)

2,000 1,800 1,600 1,400 1,200 1,000 800 600

Population Size (Millions) 400 200 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Age (Years)

Age 2010 2050 0-14 416m 40% 546m 27%

15-65 582m 56% 1,320m 66%

65+ 35m 4% 142m 7% Total 1,033m 100% 1,999m 100%

Source: UN Population Division, 2010

Figure 5: Sub-Saharan Africa (SSA) Poverty 1980 - 2009

50% 3000

45% 2500 40%

35% GDP Per Capita (Dollars) 2000 30%

25% 1500

20% 1000 15%

10% 500

Poverty Rating (Share of population below $1 a day) Poverty Rating (Share of population 5%

0% 0

1980 1987 1994 2001 2008

Poverty Rating GDP Per Capita (PPP)

Source: Maxim Pinkovskiy, Massachusetts Institute of Technology Xavier Sala-i-Martin, Columbia University and NBER, 2010

10 Figure 6: Africa Urbanisation Rate (Percentage)

100%

90%

80% 38%

70%

60%

50%

Urbanisation 40%

30% 62%

20%

10%

0% 2000 2005 2009 2010 2015 2020 2025 2030 2035 2040 2045 2050 Years Urban Rural

Source: UN Population Division, 2010

The rapid and sustained rise in • Significant decrease in poverty.4 more goods and services, and will consumer spending is being fueled by By 2020, Accenture estimates that make it easier for companies to reach three key forces: poverty levels in Africa will fall to 20 consumers with products, services, and communications. Rapid growth • A population forecast to reach percent from nearly 45 percent in the in population and urbanization almost 2 billion by 2050.2 In 2005, 1980s. Poverty fell for both landlocked will place additional constraints Africa had an estimated population as well as coastal countries; for on the infrastructure requirements of more than 920 million, which mineral‐rich as well as mineral‐poor of Africa. This will require greater increased to an estimated 1 billion countries; for countries with favourable planning and urban investment in 2010. By 2050 the population is or with unfavourable agricultural which will require both public and expected to increase to almost 2 resources; for countries regardless of private sector participation. billion. Furthermore, between 2010 colonial origin. GDP in Africa is growing and 2050, Africa’s economically active even faster than the continent’s population will grow from 56 percent meteoric rise in population.5 of the continent to 66 percent—a • Rapid urbanization. Africa’s striking contrast to more mature growing, increasingly wealthy continents whose populations are population is becoming more aging and moving into the dependent urbanised. By 2050 almost two- category (i.e., 65 years or older).3 thirds of the population will live in Expansion of the economically active cities, compared with 40 percent population will lead to increased in 2010.6 Urbanisation, in turn, will demand for goods and services. lead African consumers to purchase

11 Figure 7: Trade Zones

UEMOA CEMAC ($1,917 Exports 2007) ($304 Exports 2007)

Benin Cameroon ECCAS Burkina Faso Central African Republic ($385m Exports 2007) Coted’voire Chad Guinea- Congo Bissau Equatorial Guinea Djibouti Mali Gabon Eritrea Niger Ethiopia Senegal Angola Sudan Togo Dem. Rep of Congo

Cape Verde Burundi Liberia Tanzania Rwanda EAC Gambia Kenya ($1,587m 2007) Ghana Uganda Guinea Nigeria Mauritius Comoros Reunion Sierra Leone Madagascar Seychelles

Malawi Zambia ECOWAS Zimbabwe IOC ($7,341m Exports 2007) Swaziland ($204m 2007) Botswana Lesotho Namibia South Africa Comesa Mozambique ($4,587m Exports 2007)

SADC ($11,952m Exports 2007)

Source: Unctad, Econonomic Development In Africa, 2009; Worldbank Africa Development Indicators 2010

Three key trends will further enable has created a booming industry that regional and international trade is consumer to buy more and allow employs and provides income for forcing African countries to open up companies to reach these consumers: large numbers of people. Witness their borders for imports. Africa has the significant drive in Kenya to fostered a number of formalized trade • Improving access to consumers open new business call centres. blocs that have been the catalyst for via mobile technologies. Consumers loosening trade restrictions between in Africa are getting easier to reach • A healthier and more stable member states and the global due to a remarkable uptake of business environment. Fewer economy in general. mobile services. By 2012 almost 50 conflicts, more democratic elections, percent of Africans (more than 500 higher economic growth rates and As African consumers accumulate million people) will own a mobile improved business regulation make wealth and steadily gain access to phone, compared with 30 percent Africa more business-friendly every global products and services, they in 2008.7 This significant mobile year. This fact has been recognized by will form lasting allegiances with adoption by consumers has made the World Bank’s 2009 Ease of Doing companies offering these products it easier for companies to reach Business report, which highlighted and services. For companies that consumers through mobile marketing, Africa as a continent that is making want to benefit from the size and competitions and promotions strides toward becoming a business- growth inherent in the African (for example, M-Pesa for mobile friendly regulatory environment. opportunity, the time to act is now. money). Consumers are more savvy • A loosening of trade restrictions. because they are now linked to the Trade among African countries in the rest of the world through their cell past has been slowed by the hefty phones and no longer isolated. In tariff barriers that countries imposed addition to improving access to on imports. However, the global consumers, the mobile revolution drive for rapid opening of borders to

12 13 14 Where should companies focus?

The key to success in The size and diversity of the are Kenya, Ethiopia and Uganda in continent's population makes it the eastern part of the continent; Sub-Saharan Africa is the difficult for companies to use the Angola, Zambia, and South Africa ability to focus on specific strategies they have successfully in the south; and Senegal, Ghana, applied in other parts of the world. and Nigeria in the west. opportunity areas and develop differentiated, The first step is determining where Within these attractive consumer in Sub-Saharan Africa the greatest markets there are a wide range of relevant offers that opportunities lie. Our analysis shows consumers for which companies must address substantial, that nine countries will account tailor attractive, differentiated offers. for nearly three-quarters of total unmet needs. consumer spending in Sub-Saharan Africa by 2020. These countries

Figure 8: SSA Estimated Consumer Spend 2020 ($ Billions)

Southern Hub (SADC) Eastern Hub (EAC & COMESA) Western Hub (ECCOWAS) 1,000 91 938 900 9 7 29 16 12 800 167

700 29 18 600 30 38 44 500 47

$ Billions 15 15 400 18 16 315 23 300

200

100

0 South Angola Mozambique Other Kenya Tanzania Nigeria Senegal Mali Other Africa Zambia Congo Namibia Ethiopia Uganda Other Ghana Burkina Niger Total Dem Faso

Regional Champions

Source: Euromonitor Africa Consumer Spending 2010

15 Figure 9: Africa Consumer Markets

ECOWAS EAC & COMESA*

Senegal Ethiopia

Ghana Nigeria Uganda Kenya

Angola Zambia

SADC South Africa

Focus Countries Population 2009 2010 Spend 2020 Estimated Spend

EAC & COMESA Kenya 40m $23bn $37bn Ethiopia 83m $20bn $43bn Uganda 33m $15bn $30bn

ECOWAS Nigeria 151m $115bn $167bn Ghana 24m $15bn $29bn Senegal 13m $10bn $16bn

SADC South Africa 49m $215bn $315bn Angola 19m $14bn $18bn Zambia 13m $10bn $23bn

*Eastern Hub includes COMESA countries that are not covered in the Southern Hub Source: Euromonitor Africa Consumer Spending 2010

16 We have constructed a broad segmentation of Sub-Saharan African consumers to understand the consumer segments and demand in greater detail. While this segmentation is focused on high- level groupings rather than granular, detailed analysis of consumer types, our analysis reveals the specific challenges, preferences, behaviors and needs of the largest consumer groups on the continent (Figure 10).

While the majority of Sub-Saharan African consumers are currently in lower-income, more price-sensitive groups, many will move up into more affluent segments as they urbanize and their incomes increase. Such movement will create a large, growing, and increasingly profitable opportunity for companies. We detail the needs, preferences, and behaviors of each of these segments below.

Figure 10: Five Key Sub-Saharan African Consumer Segments

1 2 3 4 5 Basic Survivors Working Families Rising Strivers Cosmopolitan The Affluent Professionals

Basic Survivors are the Working families are Rising Strivers are Cosmopolitan The affluent of Africa largest consumer the second largest emerging from the Professionals are have disproportionately group in Africa and are consumer group. They first two segments, typically located in high purchasing power, characteristically low focus their spending having built their urban areas. They are and are considered income consumers. on their children’s purchasing power busy with work but wealthy regardless of They tend to live in needs and they value through access to often have active where they travel urban slum areas or stability and routine credit or other social lives. As a result, across the globe. This rural areas and make in their lives. resources. They value these consumers value group is extremely day-to-day decisions upward mobility and pragmatic products but small and very fickle. based on basic needs. buy based on are also brand conscious convenience, quality, and influenced by the or even more media. “expressive” factors.

Source: Accenture Analysis

17 18 1 Basic Survivors

Whilst Sub-Saharan African While the challenges of reaching Basic Survivor Profile consumers’ upward mobility is what these Basic Survivors and profitably attracts attention, at present Africa’s doing business with them are many, Luis is a single, 32-year-old largest segment is also its poorest. the size of the opportunity makes Basic Survivors, which we estimate to this segment worth the effort. In man living in the Angolan comprise 50% to 60% of Sub-Saharan addition, as the African economy slum of Cambamba outside Africa’s population, earn less than continues to grow, some Basic Luanda, where he splits a $100 each month on average and buy Survivors will become more affluent one-room shack with his basic goods with cash from open-air and their purchasing power will markets and street stalls. Living in increase, by which time their brand two brothers. Luis is a street rural areas and urban settlements, allegiances will have been formed. vendor who sells trinkets to Basic Survivors pay cash for essentials: tourists. When he does well, food, shelter, and clothing. Basic To exploit the opportunity at the he might frequent the local Survivors also spend money on alcohol bottom of the pyramid, numerous and tobacco, telecom products and companies have managed to adapt pub and have Cuca beer with services, and public transportation. their products to Basic Survivors’ his friends. On slow days he low incomes by reducing pack sizes, will buy a cup of rice as his Basic Survivors’ cash flow are for example, selling smaller tubes only meal. Luis’ most prized unpredictable; they might visit of toothpaste or packets of washing markets several times each week powder. In addition, foodstuffs such as possession is his knock-off when they have enough cash on hand milk and sugar often are sold to Basic Barcelona FC jersey, which to purchase the essentials. Basic Survivors in single-use packs that can took him almost two months Survivors generally avoid formal retail be bought when needed. to save for. stores and believe they get better deals from local, well-known, informal vendors even where formal retail is available. Local vendors are also more convenient to Basic Survivors, who typically lack reliable access to public or private transportation.

19 20 2 Working Families

Slightly wealthier than Basic Survivors, and footwear, toys and games, Working Family Profile Working Families make up between and educational products. Because 20% and 30% of the continent’s Working Families generally consist of The Biya family resides in population. They generally earn more than one salaried individual their between $100 and $250 per month. income is more stable than that of a small city called Mbouda Basic Survivors. However, the demands in Cameroon and has four What do Working Families spend of family and work make time precious children ages seven to 13. their money on? Compared with Basic and increase the value of processed Francis (the father) works Survivors, Working Families are also and conveniently packaged food for driven by basic needs, but they are themselves and their children. as a mechanic servicing focused on the needs of the family local farmers’ trucks, while rather than the individual, and are Overall, the family orientation of Calixthe (the mother) works strongly driven by African cultural this segment drives its purchasing as a housekeeping lady in a values involving the nuclear family. decisions, boosting the importance of The majority of families have three values such as security, convenience, hotel. Due to both parents’ or more children and may have elders consistency, personal trust and, of late working hours, they living with them. course, the survival and upward often make quick prepared mobility of the family. Living in urban outskirts, Working noodle dishes for dinner Families save their salaries until and give their children month end and then visit nearby small biscuit packets for open-air markets and street stalls. snacks. They spend extra They pay cash for groceries, clothing on laundry detergent for school uniforms.

21 22 3 Rising Strivers

Some Basic Survivors and Working bank accounts and use mobile phones, Rising Striver Profile Families manage to build purchasing they primarily transact using cash and power through access to credit and/ visit informal open-air markets preferred Udofia is a 27-year-old father or by developing in-demand skills and by less-affluent segments. They also become Rising Strivers. With survival occasionally visit supermarkets. of two living in Lagos, Nigeria. assured, Rising Strivers now value Though he comes from a upward mobility as well as intangible Most Rising Strivers have recent household of fishermen, he brand qualities. Comprising an estimated direct experience with a lower-income now works for a thriving taxi 10% to 16% percent of Sub-Saharan existence and, as such, value durable Africa’s population, Rising Strivers can products and transactions based on business. Udofia moved to earn more than double what Working personal trust. Members of this segment the city center in his early Families earn ($250 to $750 each strive to continue their upward mobility, 20s, purchasing a used car month), which often leaves them with and will invest in their children’s through family support and a surplus to spend on consumer goods education as a means to do so. such as cigarettes, clothing, and even microcredit. He started out the occasional bottle of perfume or living in a slum with no cologne. running water, but with hard work, connections, and his Typically either successful migrants to urban areas or rural workers who have good English skills, he found benefited from booming commodities a job with a dispatch service. industries (for example, mining), Rising And while Udofia’s family Strivers represent Africa’s emergence spends most of its income on from low-income to middle-income economies and are the primary drivers household needs, he also has behind Sub-Saharan Africa’s consumer some personal money left over growth. Rising Strivers also represent for a new smartphone and a a dichotomy between Africa’s past Guinness beer after work. and future as a consumer market. For example, while many Rising Strivers have

23 24 4 Cosmopolitan Professionals

Working and living in the city, Driven by the need for convenient, Cosmopolitan Cosmopolitan Professionals earn fashionable, high-quality products that between $700 and $1000 per complement their busy, work-driven Professional Profile month, which they spend (using lives, Cosmopolitan Professionals cash, credit cards and, increasingly, spend money on things that reinforce Abuya is a 35-year-old mobile services) at supermarkets and their professional image: business- married woman in Kenya with shopping malls. They also still frequent casual clothes (often purchased a degree in economics from traditional, informal stalls and markets abroad), hair care products and for small, low value items such as footwear. Cosmopolitan Professionals, the University of Nairobi. bread. Cosmopolitan Professionals often doing well in their careers, She works as a financial often reach these retail locations using support poorer family members controller for a multi-national their own cars and motorcycles. through cash remittances and corporation. Abuya and her occasional purchases. Representing between two and three husband recently moved into percent of Sub-Saharan Africans, a new apartment and have Cosmopolitan Professionals often bought several new household have worked or studied abroad and goods, including a vacuum have a high awareness of global brands. They access content and cleaner, a refrigerator and a entertainment via a wide variety television. When dining out of media, including print, radio, for business or leisure, she satellite TV, and the Internet might have an Amarula (a (including social media). Growing broadband penetration and falling liqueur) over ice and check access costs are fueling this trend. Facebook on her mobile phone while she waits for her colleagues or friends.

25 26 5 The Affluent

The Affluent have much in common Affluent Profile with Cosmopolitan Professionals: They mainly live in cities, have Osagi is a 45-year-old father studied or worked abroad, prefer malls and upscale retail stores, of two living in Lagos with access a wide variety of global his wife. His two children media, and use credit cards to a attend universities abroad. greater extent than other Africans. Osagi is a director of a Their income is substantially higher than the Cosmopolitan Professionals multinational oil company segment, typically more than $1,200 and oversees the company’s per month. They have a pronounced operations in Nigeria. He preference for luxury brands such as often travels abroad on BMW, Mercedes & Gucci. This group represents just one to two percent business trips as well as of Sub-Saharan Africa’s population. within Africa, and spends time in hotels and dining The Affluent travel often for both out for business meetings. work and pleasure, and may even own homes on other continents. Osagi owns a lavish five- Vacations, hotels and flights absorb bedroom house in Banana a large proportion of their spending. Island, an upmarket area of The Affluent also spend money Lagos, and employs several on clothing, cosmetics, cars, and household goods, seeking items that servants, including a driver are fashionable and prestigious. for his daily commute.

27 Figure 11: Segment Income Market Value (2000 to 2015 in $ Billions)

900

800 2015 700

600 2015 500 2015

400 2000 300 2015 Market Value ($Billions) 2000 2015 200 2000 2000 2000 100

0 0 200 400 600

Population Size (Millions)

Basic Survivors Working Families Rising Strivers Cosmopolitan Professionals Affluent

* Market values equal total segment income and not disposable income Source: Canback 2010, Accenture Analysis

28 What are the opportunities Figure 12: Consumer Segment Size Evolution by segment? 1.9% 2.2% 2.3% 2.8% 100% How do the opportunities within 2.1% 2.6% 2.7% 3.1% these segments compare with 90% 8.7% 12.3% 13.3% each other? 15.8% 80% While the spending power of Basic 21.2% Survivors will grow slightly, the potential 70% 29.2% for doing business with Rising Strivers 30.5% 33.3% and Working Families will increase 60% substantially as the segments grow and continue their upward trajectory. 50%

Accenture estimates that Working 40% 66.2% Families will represent 33% of the total Sub-Saharan African market opportunity 30% 53.8% 51.1% by 2015. The largest group will remain 44.9% Basic Survivors at 45%, followed by 20% Rising Strivers (16%), Cosmopolitan Professionals (3.1%), and the Affluent 10% (2.8%). Even though Cosmopolitan Professionals and the Affluent still will 0% constitute a relatively small portion 2000 2005 2010 2015 of the market, their spending power translates into a significant opportunity Basic Survivors Working Families for luxury products and services. As the Rising Strivers Cosmopoliton Professionals African economy continues to mature, Affluent these segments are likely to grow more rapidly. Source: Accenture analysis based on segment market value

29 30 How can companies unlock the potential in Sub-Saharan Africa?

Our consumer A company’s market entry plan must be Regardless of the markets or segments explicit about the role Africa will play in on which a company chooses to segmentation clearly its broader corporate strategy, on which focus, companies need to consider a illustrates the potential African countries it makes sense to simple framework that can help most enter, and in what sequence and with effectively execute an entry strategy. Africa holds for a variety what timing they should be entered. As shown in Figure 13, our framework of businesses looking to The market entry plan also should encompasses the full lifecycle of illuminate the company’s specific goals doing business in Sub-Saharan Africa, gain a foothold on the for market entry and the ways in which from gaining insights on the biggest continent. progress against those goals will be opportunities to deploying effective measured. marketing campaigns that support the company’s offers.

Figure 13: Seven key steps to build a business in Sub-Saharan Africa

Strategy Execution

1. Market 2. Value 3. Market 4. Sourcing 5. Manufacturing 6. Distribution 7. Marketing Research Proposition Entry Strategy and Promotion

Do we understand Do we have the How do we enter Do we source Do we use local How do we reach How do we ensure our target market? right product/ the market with locally or import? manufactures or our customers? that there is service to offer? minimal risk? do we do it demand for our alone? product/service?

Develop a deep Deliver a holistic/ A robust market Partner and build Develop close Last Mile Traditional routes understanding of innovative entry strategy is trusting partnerships with distribution is to market do not the market, offering which essential for relationships with local producers extremely costly. work, direct competitors and responds to the successful local producers or build own Look for existing personal selling consumer by needs of their operations in who can provide manufacturing innovative and visibility in using creative, target consumers Africa, based on intelligence into capacity close to mechanisms in the informal cutting-edge -encompassing your level of risk tastes and your markets the market to sector are key methods to tap product/ service, appetite and preferences of vertically leverage (e.g. into local price, promotion reward select local communities integrating when Using local networks and and place whether to go it and provide a necessary to women and men local knowledge alone, acquire or stable, less costly reinforce your to distribute to partner supply chain supply chain rural areas)

31 “MXit (Free online mobile chat service) has applied three key strategies in accessing lower income African consumers. Firstly, MXit has kept its product simple, minimizing customization. Secondly, MXit has improved reach through accessing early adopters in communities and ensuring that users are constantly educated about new services. And lastly, MXit ensures that it understands and appeals to its target consumers’ most basic needs, which can often be misunderstood if there is not sufficient research.” Herman Heunis (Founder and MD MXit)

32 Understand the target that used to understand a developed mobile workforce to complement its market with large volumes of local banking branches, and further market quantifiable data. Together, such an mitigated risk by using “seed loans” The first step to entering the approach can help companies gain with “graduation plans,” which allowed African market is to develop a the market insights they need to craft the bank’s business with a given deep understanding of the market, differentiated, relevant offers for the customer to grow as the customer’s competitors and consumers. Due to African market. credibility was established.8 a large informal economy and the CfC Stanbic, a division of prevalence of cash transactions, Understanding the Target Johannesburg-based Standard Bank accurate and representative data on Market: CfC Stanbic Group, provides an example of how consumer spending is sparse. this is done. One of the key aspects • CfC Stanbic sought to build its How can companies bridge this gap? of doing business in Africa is the business with African entrepreneurs, They must get creative, tapping into predominance of individual, self- but little data was available on their local networks to gather insights, employed vendors, for instance, creditworthiness. partnering with academia and Nairobi alone has approximately • The bank conducted psychometric companies that possess usable 100,000 such businesses. For banks testing of potential loan recipients in customer data – for example, banks such as CfC Stanbic, the challenge is the field, thereby reducing its risk of and telcos - and designing market- loaning money to the most promising loan default. facing pilot “experiments” with risk of these entrepreneurs, many of mitigation mechanisms such as “seed whom have little or no credit history. • CfC Stanbic created a mobile loans” to test methods for accelerating To tap into this opportunity while workforce to address this market and future expansion. Company managers reducing its loan default risk, CfC reduced its risk through “seed loans” need to be prepared to walk the Stanbic used a tool that enabled to small businesses. markets and gain insights from portable psychometric testing of talking to street vendors, watching potential loan recipients, rapidly consumers and building a qualitative assessing their risk tolerance, ethics model of how the market operates. and honesty, intelligence, and business This approach is very different from skills. CfC Stanbic also deployed a

33 Develop the right value Consumer goods giants such as Unilever Develop the Value Proposition: and Procter & Gamble have excelled Unilever proposition in understanding and meeting the With a solid understanding of the unique needs of African consumers. • Unilever sought to reach Africa’s opportunity, companies seeking to Unilever, which aims to serve all poorest consumers profitably. African consumers (including the Basic do business in Africa must deliver • To do so it developed small packets a relevant, differentiated offering Survivors, those living on less than $1 each day), had to find a profitable of product at low prices, worked tailored to their target consumers, closely with local wholesalers, as they must do in any geography. way to make its products available and affordable for the poorest of Africans. and worked to become relevant to Africans. African consumers have unique To achieve this goal, Unilever created requirements that companies must the "small unit packs/low unit price" • The company has had double-digit take into account. For example, price concept: for example, selling small growth in the region during the past remains the key consideration for sachets of detergent or salt. This strategy decade. the majority of African consumers, has allowed Unilever to deliver the and all offerings should take this into volumes required to support expansion consideration. In addition, community whilst capturing the loyalty of lower- and family are strong elements of income customers. This strategy has also African culture, so companies need to prevented the margin-eroding resale of ensure that branding and promotional its bulk products in smaller portions. efforts resonate with these values— for example, through corporate Unilever collaborates closely with social responsibility and sustainable local wholesalers who not only assist development programs. As we showed Unilever to supply Africa’s informal in the previous section, distinct market but also provide the company segments of African consumers have with market insights and customer unique needs and preferences that feedback. Unilever has embedded companies must incorporate into their corporate social responsibility in its value propositions. strategy to further boost the brand’s relevance with Africans.9

34 Figure 14: Africa Market Entry Mode

Strengths Challenges

High degree of More risky due to lack High Greenfield control and no of local market (Go it alone) reward sharing knowledge

Accurate valuations in Gain ready-made Africa are challenging and Acquire local market position/ many contracts might be share and assets relationship/ or culture based Risk/ Reward

Less risky option, due to the ability to leverage High degree of dependence Partner partner presence and on partner, whose goals local market knowledge might not align

High degree of brand risk Least risky and low Low due to loss of control, and Licence cost option to expand less opportunity to exploit market reach market opportunities

Enter the market with Conversely, entering Africa via an Overcome the challenges of acquisition can be expensive and minimal risk time consuming, but can provide sourcing and procurement Although Sub-Saharan Africa has immediate access to existing networks Another key to success in Africa is shown tremendous improvement and distribution channels and the developing a stable, cost-effective as a consumer market in recent opportunity to gain deep market supply chain that enables a company years, many barriers to entry, insights that can be scaled. Partnering to meet local needs and overcome ranging from corruption, to a lack provides a faster way of gaining local challenges whilst maintaining of infrastructure and local talent, to access to local market knowledge and profitability. This is no small feat: bureaucracy remain. To choose the distribution channels, but selecting the Importing raw materials as well as right strategy for overcoming these right partner requires careful appraisal finished goods into Africa is hampered hurdles, companies must assess risk of ownership, control, pricing and by many of the same challenges that and then decide whether to establish local partner capabilities. Licensing make market entry difficult, including a stand-alone business, enter via offers the least risky and lowest cost corruption, complex regulations, high an acquisition, seek partnerships or option to expand market reach, but taxes and substantial import fees. joint ventures, or licence its products carries a high brand risk and limits the and services to another company. potential to exploit potential market Companies must choose sourcing opportunities. partners that have strong links with Each approach has its pros and cons: the community and a high level of Entering via a Greenfield (i.e. going Ultimately, the right strategy must intelligence on local preferences and it alone) investment can result in the reflect the company’s goals and challenges. Companies must invest in biggest payoff if entry is successful, priorities, the state of local market the capacity and capabilities of these but also is the riskiest choice for development and regulation, and the partners, establishing training and companies that lack local market specific nature of the entry barriers incentive programs that enable them knowledge, access to distribution to be overcome. to fulfill the company’s brand promise. channels or political connections.

35 One company that has been able to Develop the right as is the provision of technical support overcome the challenges of sourcing and training to local manufacturers in Africa is SABMiller, which has set manufacturing strategy to ensure high standards for locally up cooperatives with local farmers to In addition to solving sourcing sourced raw materials. supply barley and cassava to suit the challenges, a company must develop DUFIL, the largest manufacturer of tastes of Basic Survivors and Rising a robust and relevant manufacturing instant noodles in Nigeria, provides an Strivers. SABMiller has signed long- strategy which should feature strong example of how foreign brands can be term contracts to buy crates from partnerships with local producers manufactured successfully in Africa. a local producer, as well as locally or the development of in-house Indomie, originally an Indonesian brand produced cans. By 2012, the company manufacturing capacity close to a of instant noodles, has been a runaway hopes to source from and work with company’s targeted markets. up to 45,000 African farmers.10 hit in Africa, and in Nigeria in particular. While the right manufacturing In 2008, the company introduced a Overcoming Sourcing strategy must be specific to each new flavor tailored to local tastes, Challenges: SABMiller company’s context, capabilities, and which was very popular among Nigerian goals, a few general guidelines can consumers. However, challenges • To address the challenges of be useful. For instance, companies related to importing key ingredients sourcing in Africa, SABMiller set out doing business in Africa should made it difficult for the company to on an aggressive strategy to build be sure to improve the stability of meet demand for this new product. key relationships with local suppliers. key resources via term contracts, To overcome these challenges, upstream acquisitions, and investment • The company is now working Indomie embarked upon a backward- in diversified geographical sources directly with local farmers and integration strategy. The company to minimize supply disruptions and producers to source key inputs. invested in world-class local improve the quality and availability of production facilities and tapped local materials. Trusting relationships with sources and its own manufacturing local producers are important as well, capabilities to source raw materials.

36 37 Today, the brand is being produced in Reach customers the Middle East (plus Afghanistan). nine ultra-modern factories in two To boost its market share among key locations in Nigeria, with plans to effectively rural, low-income Africans, MTN expand aggressively. Due to its ability Given that more than 60 percent of has created services tailored to to respond quickly to local demand, people in Africa live in rural areas and their needs through a network of Indomie has captured 70 percent of have limited access to transportation, local agents, established kiosks in the Nigerian instant noodle market.11 simply covering “the last mile” to rural areas, and has given agents reach the final consumer can be motorbikes to reach the most remote Developing Manufacturing extremely costly and difficult. Poor areas. MTN has also developed lower Strategy: DUFIL roads and limited infrastructure can denominations when selling airtime, make delivering products or services to reflecting the low and unpredictable • Indomie, an Indonesian brand of consumers a daunting task. Companies income of many African consumers. instant noodles, had become very must build strong sales and distribution popular in Nigeria. Through such innovative distribution networks by leveraging a mix of third- and promotional activities, MTN has • Due to challenges associated party, wholesale, and direct-distribution been able to capture a significant with importing raw materials, the models. The route to market, in our view, proportion of the Basic Survivors company struggled to meet demand. is the greatest obstacle that companies segment, which is a critical entry point must overcome to build a successful • Indomie integrated backward, to the African market.12 developing local manufacturing business in any African market. capabilities for all raw materials. This is especially the case with Basic Reaching Customers: MTN Survivors and Working Families, whom • To gain market share among companies can reach most effectively low-income, rural Africans, MTN by employing locals to act as agents, or has made it easier for them to buy by partnering with local organizations and use airtime, enabled its agents that have links into the rural market. to reach remote areas, and created smaller airtime denominations. Mobile operator, MTN is a seasoned veteran of doing business with • The company has established a rural consumers, with operations leading position within the Basic in 21 markets across Africa and Survivors segment.

38 Stimulate demand through mindful that TV, radio and print a reality show focused on regional campaigns will not have the same talent. To overcome limited access marketing and promotion impact as they would in developed to TVs, EABL sponsored “viewing Companies used to supporting demand markets. In particular, when bars” where the show was screened through Western-style marketing attempting to reach lower-income in conjunction with promotions on and promotional approaches must segments such as Basic Survivors and EABL drinks. Competitions were held adjust their strategies—and their Working Families, companies must to boost audience engagement. EABL expectations—for the African market. ensure their promotions and marketing provided training and branded material are focused on the community and are to retailers to ensure that the brand Traditional media, namely television and visible in the market through relevant was delivered successfully to target radio, does not always reach all market media such as radio and competitions. consumers and leveraged mobile and segments, particularly people living in Internet technology: the company rural areas or urban slums. In much East African Breweries Limited (EABL) generated more than one million SMS of Africa, weak infrastructure limits has tailored its marketing approach votes and Web traffic of approximately access to electricity, telephones and to become East Africa's leading 70,000 hits per week.13 the Internet, making access to media— branded alcohol beverage company. whether TV, websites, or social media— Tusker Lager, one of its beers and Effectively Marketing and the biggest brand in East Africa, was erratic. While tailoring messages and Promoting: Tusker Lager offerings to specific market segments is initially perceived as old-fashioned critical to success, most companies will by young adults. While EABL was • Tusker Lager was perceived as old- struggle to obtain useful market insights determined to rectify this perception, fashioned by East African Brewery on Africa’s largely informal markets. the company had a limited marketing Limited’s (EABL) target consumers. budget, and knew that the impact Companies must identify strong of traditional TV- or radio-based • EABL had limited marketing local partners through which they advertising would be limited within resources and advertising effectively can access informal markets and East Africa. To maximize the return in East Africa would be difficult. obtain information they can use to on its marketing resources, EABL refine their offerings and messages. focused on a single, high-impact • EABL focused its resources on Companies must also spend their platform that would resonate with a reality TV show and brought it marketing budget wisely, being young adults: Tusker Project Fame, to viewers without TVs via “viewing bars.”

39 40 Conclusion

Companies are building emerging albeit slowly, and growing numbers wait until the African market is markets into growth strategies as of consumers are earning more and more mature, when allegiances have consumer demand in more mature purchasing products and services already been formed and competitive markets struggles to reach pre- that support their aspirations. As pressures are more intense. recession levels. Perhaps the most the African opportunity becomes promising emerging market is more attractive, companies are By focusing on the distinctive needs, also one of the least understood: devising creative ways to gather behaviors, and preferences of the Africa. The continent offers the important market insights in order consumer segments described in last frontier for consumer growth. to craft compelling consumer this point of view, and by applying Until recently, doing business on the propositions that meet the needs of a systematic approach to market continent has been hampered by African consumers whilst generating entry and ongoing success, an unstable political and economic robust revenue and profits. companies can tap into the African environment, a lack of infrastructure, opportunity in ways that protect and widespread poverty. At the same Focus and discipline are key to this their margins and grow their time, the predominance of informal goal. Companies must target the revenue—thereby accelerating the markets and cash transactions in right consumer segments, from pursuit of high performance. Africa has prevented companies Basic Survivors to Rising Strivers from uncovering the types of to the Affluent, and then apply a consumer insights that have helped structured approach to understanding companies penetrate other markets. consumers and how to do business with them. It is also critical to Clearly the African continent move quickly. Companies that enter is now open for business. The early, and even create new product business environment is improving, categories, stand to gain a significant infrastructure is being strengthened advantage over competitors that

41 Appendix

Acknowledgements Accenture, its logo, and High About this study Performance Delivered are trademarks The authors wish to thank the of Accenture. This document is produced This study was prepared from following people for their contribution: by consultants at Accenture as general sources and data which Accenture believes to be reliable but it makes no Wayne Borchardt, Roze Phillips, guidance. It is not intended to provide representation or warranty, express Clemence Grasset, Lindsay Smith, specific advice on your circumstances. or implied, as to their accuracy Joelle Kana, Tlangelani Mageza, Jon If you require advice or further details or completeness. Any figures and Jaaback, Rolf Moes, Tamara Parker and on any matters referred to, please statistics used in this study were up Henry Egan contact your Accenture representative. to date at time of writing and are Special thanks are owed to the subject to change without notice. The following company representatives views and opinions expressed in this who provided detailed market insights: publication are those of Accenture only and do not necessarily reflect • Stephen Van Coller (Absa Capital) those of any of the companies • John Gachora (Absa) researched or surveyed or any other third party referenced in the report. • Dr Dieter Kovar (ABSA or ABSA Such opinions should not be construed Capital) as providing professional advice, • Baker Magunda (EABL) recommendations or endorsements, or relied upon as such. Neither Accenture • Dr. Henk Greeff (JD Group) nor its employees accept responsibility • Noah Naidoo (Standard Bank) for any loss or damage arising from reliance on the information contained • Mike Conway (Tiger Brands) in this publication. • Herman Heunis (MXit)

42 References 9 No whitewash: Unilever's drive to dominate Africa, Jasson Nissa, April 1 Euromonitor 2011 2003 2 UN Population Division, 2010 10 African group brews new 3 UN Population Division, 2010 customers - http://www.ft.com/ cms/s/0/c55f7318-f957-11de-80dc- 4 Maxim Pinkovskiy, Massachusetts 00144feab49a.html#axzz1En8JK3ob Institute of Technology Xavier Sala‐i‐ Martin, Columbia University and NBER, 11 Noodles War: Indomie and the 2010 competitions, stocknewsline, December 2009 5 Maxim Pinkovskiy, Massachusetts Institute of Technology Xavier Sala‐i‐ 12 Distribution is the name of the Martin, Columbia University and NBER, game, Mats Thoren, Ericson Business 2010 Review, February 2007 6 UN Population Division, 2010 13 EABL Annual Report, 2010 7Africa Mobile Fact book, 2008 8 Standard Bank Group – Kenya SME Pilot. http://www.hks.harvard.edu/var/ ezp_site/storage/fckeditor/file/pdfs/ centers-programs/centers/cid/el/gem- 2010/presentations/Standard_Bank_ Group_SME_Pilot.pdf

43 For further information, please contact: Grant Hatch Accenture South Africa Strategy Lead [email protected] +27 21 408 1303

Wayne Borchardt Accenture Global Growth Strategy Lead [email protected] +60 3 2088 4110

Roze Phillips Accenture South Africa – Consumer Goods and Services Industry Lead [email protected] +27 11 208 3533

Copyright © 2011 Accenture About Accenture All rights reserved. Accenture is a global management Accenture, its logo, and consulting, technology services High Performance Delivered and outsourcing company, with are trademarks of Accenture. more than 223,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.

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