For brands eager to tap into the growing African markets and the region’s estimated 350-million middle class consumers, relying solely on macro-economic data such as GDP growth, population trends and regulatory governance data to identify opportunities and predict success can lead to costly missteps, according to a new report from Nielsen.
The findings, which are featured in Africa: How to navigate the retail distribution labyrinth – a new report released today – show it is the companies that combine retail data from both modern and traditional trade and consumer shopping behaviour with broader macro-environment indicators that are better positioned to identify the right markets, products, marketing and retail execution strategies that lead to sustainable growth and profitability in Africa.
“Conventional knowledge has held that where there is growth in population and GDP, and a stable business environment, a brand can succeed by being launched in the market. Those insights alone don’t provide a complete picture of Africa’s consumer opportunities,” says Allen Burch, Head of Africa for Nielsen. “We found that successful consumer brands in Africa understand three key pieces of retail information: who shops where and for what, which retail outlets are the best for the product to generate sales, and how to build demand among retailers and consumers.”
In 2013 Nielsen began conducting a quarterly analysis of consumer, retail and business outlook data, as well as macro-economic data across seven Sub-Saharan countries – Nigeria, Kenya, Ghana, South Africa, Tanzania, Uganda and Zambia – with plans to expand to additional countries over time. Historically, one complaint has been the lack of market data within Africa.
Without that insight, even companies with the right products for the right market can fail to get them in the right stores, leading to poor sales growth. By bringing together the standard macro-economic indicators with more granular consumer, retail and business data, it is possible to solve the distribution challenges that are so central to success in Africa.
Understanding the retail habits of Africa’s consumers
Companies that understand who shops where, for what, and when can use that knowledge to inform resourcing and distribution strategies.
For most of Africa, the percentage of sales through modern trade is still small. While international retailers are making investments in modern trade formats, traditional retail, like the kiosk and table top – a stall set up on the roadside or in a local market area to capture passing trade – is where the majority of consumer retail transactions occur.
Even in South Africa, which has the most modern trade within Sub-Saharan Africa, 40% of sales come from traditional retailers. And while the preferred traditional retail channel varies by country (i.e. table tops, kiosks, market stalls, grocer and so on), traditional retail outside South Africa accounts for roughly 90% of all consumer goods spending within the region.
What a given retailer stocks, in what quantity, the price, the supplier and how often stocks are replenished, varies by retail format. This also influences the purpose and frequency of consumer visits. Depending on the country or urban area, consumers may shop at grocers or supermarkets less frequently because of transportation challenges, but visit local table tops daily to stock up on day-to-day items.
Understanding the willingness of Africa’s consumers to try new products is also essential. There is a strong preference amongst consumers for brands and products they know, have tried before or that have been recommended by a trusted source, but the level of openness differs by country. Nielsen analysis shows that, for example, in Nigeria consumer willingness to try new products increased to 73% in Q3 2014, but decreased in Ghana to 53%.
Identifying the right retailers
Even with an understanding of consumer preferences and shopping behaviours in Africa, brands still have to identify the best retail outlets for a product. In fact, a small proportion of outlets can account for a disproportionate amount of sales.
For example, Nielsen’s research and analysis of distribution and turnover of particular goods and products shows that in Lagos, laundry detergents are available for sale in 100,000 outlets, but that 80% of all laundry detergent sales come from 35,000 of those outlets, and a full 50% come from just 10,000 retail outlets.
With this type of data, companies can not only identify the right channels, store clusters, outlets, product formats and sizes to meet the needs of Africa’s consumers, they can also optimize supply chains by improving route-to-market planning, availability, trimming waste and eliminating unnecessary costs to consumers, which can strengthen the whole market.
Creating retailer and consumer demand
Many brands have experience working with modern retailers to develop assortment, pricing and promotion strategies that can increase demand at a given location. But applying the same approach to traditional retail won’t produce the same results. Understanding the retailer’s environment – how often certain products are replenished, how new products are selected for stocking, use of wholesalers, refrigeration capabilities and so on – can help brands drive sales.
The vendor makes the ultimate decision on how and when products are introduced to consumers, as well as how an item is presented and priced. In some cases, if a branded package is too expensive, the retailer may open the pack and split it up; there may be no loss in revenue to the manufacturer, but the brand identity and intention is much weaker.
That’s why matching the flexibility of the vendor in product and pricing strategies is key to increasing demand and sales over time, such as providing branded cooler boxes to table top vendors for items that require refrigeration, or providing free samples appropriate to the time of day and the way a given outlet is used by the consumer.
“With six of the 10 fastest growing economies in the world located in Sub-Saharan Africa, and populations that are growing in size and spending power, there is tremendous promise and opportunity for consumer brands in Africa. Companies – be they global multinationals or the rapidly growing slate of home-grown African brands – that look beyond macro-environment data will be best positioned to meet the needs of consumers in this important region,” says Burch.
Nielsen will host a live Twitter Chat about Africa: How to navigate the retail distribution labyrinth on Thursday, 5 March at 8am ET/11am GMT with Allen Burch (@allenburch) by using the tag #NielsenAfrica. Questions can be submitted in advance by tweeting @Nielsen with #NielsenAfrica included.
A full copy of the report is available through Nielsen at http://www.nielsen.com/ssa/en/insights/reports/2015/africa-how-to-navigate-the-retail-distribution-labyrinth.html.