Africa offers growth for brands

22 June 2010

JOHANNESBURG: Substantial opportunities are available for brand owners in Africa, but a nuanced strategy is crucial to making progress in this region.

McKinsey, the consultancy, has predicted that African GDP will rise by 4.5% annually until 2015, during which period consumer spending will also improve by 35%.

This trend will be encouraged by population growth of 2% and a 3% increase in urbanisation, processes which will yield an extra 221 "basic needs" shoppers on the continent in five years time.

By this date, the number of nations with ten million potential customers and a GDP of at least $10bn (€8.1bn; £6.7bn) will also leap from 22 to 30.

However, the diverse nature of the 50-plus states in Africa, each of which is distinct in terms of affluence and cultural habits, means "a one-size-fits-all approach will not work".

Moreover, 95% of the local population who take 71% of wealth are located at the "bottom of the pyramid", while 85% of retail sales are attributable to traditional outlets and "mom-and-pop shops".

Many categories are also yet to achieve the scale observable in other emerging economies, with toothpaste, for example, not as widely used as is in Asia.

"Data about consumers' needs and behavior are scarce, making it harder to develop specific consumer insights," McKinsey added.

"In addition, the state of the communications media and education levels make it challenging to reach consumers with specific product messages. Competing in Africa therefore is not a share game."

One viable model is to divide the region into distinct tiers on criteria such as average salaries, existing infrastructure, pace of change and other similar factors.

Where a nation is facing financial obstacles, small pack sizes to encourage trial and purchase, a strong distribution network and "concentrated marketing expenditures at the point of sale" are key areas of focus.

In countries where conditions are more auspicious, companies can launch a diversified portfolio and attempt to build brands "through a broad range of advertising approaches."
In order to guide FMCG firms and retailers, McKinsey devised a "growth compass" to assess when they should enter individual markets, based on previous evidence from across the globe.

Overall, it suggested that GDP per capita is normally the central driver to boosting interest in consumer goods, having delivered 73% of growth in 60 sectors worldwide.

In these instances, there was typically a "warm-up zone" when per capita GDP improved slowly and penetration was limited as products were too expensive for most shoppers.

As economies expand they eventually moved into a "hot zone" when demand rose sharply, although the timing of this differed by segment, depending on the needs it fulfilled.

The next stage is a saturation point, followed by the "cool-down zone" where category penetration remains constant and a variety of other influences shape preferences.

"Successful entry typically occurs just before an industry enters the hot zone, when companies can act with speed and scale to take advantage of rapidly increasing consumer spending," McKinsey said.

One example of this is South Africa, where the dishwasher sector is now in the "middle of a hot zone" as the domestic middle class grows, cities get larger and credit lines start to open up.

Data sourced from McKinsey; additional content by Warc staff