In the last decade we have seen big retail players from South Africa and Europe start the expansion into Africa and in the case of South Africa, into the rest of Africa.
South to North Retail Expansion
We have seen a South to North expansion by South African retail players. Shoprite, Africa’s biggest retailer by value and number of outlets as well as Pick n Pay, South Africa’s No. 2 have all aggressively explored new opportunities to the north of South African borders. Zambia has one of Shoprite’s highest number of outlets outside of South Africa. Shoprite believes that Nigeria has the potential for 800 outlets but currently have only 24 stores in Nigeria across 13 cities. Prime land is hard to come by in Africa’s most populous nation and when it does, it is quite costly, limiting the rate of expansion somewhat. Legislation governing imports and foreign currency control has also toned down Shoprite’s appetite for expansion. Angola has 32 Shoprite-owned shops, under different Shoprite retail brands.
According to the latest Deloitte’s Global Top 250 Retail Report, Shoprite operates in 15 countries, and generated revenues in excess of $11 billion last year, representing growth of 25%, and a five year compounded annual growth rate (CAGR) of more than 9%. Shoprite South Africa is also the only South African retailer among the 100 largest retailers in the world, placing in 86th position. Shoprite was followed by Spar Group in South Africa, which generated revenues of just over $7 billion over the last year, representing a growth of more than 17%.
Spar’s CAGR of just under 17.5%, on the other hand, is higher than any other South African retailer’s, although it placed in 140th place worldwide. The firm operates in 12 countries, which is five more than the geographical scope of the next biggest firm in South Africa – Pick n Pay. The latter generated revenues in excess of $6 billion for the last year, growing by 14.5%.
Pick n Pay placed 160th worldwide, followed by Woolworths at 179th. Woolworths operates in 14 countries and generates revenues in excess of $5 billion. Nevertheless, the retailer has demonstrated tremendous growth in recent years, including a growth rate of 18% and a CAGR of more than 14%.
Pick n Pay, which has more than 1000 in South Africa, has 144 stores outside the borders of South Africa, including Zimbabwe, where they are in partnership with TM Supermarkets, one of the key retail players in that market, and they have increased their shareholding in that business in the last decade. Pin n Pay also has stores in neighboring Botswana, Namibia, Lesotho and Swaziland.
North to South Retail Expansion
Carrefour, the second largest retailer in the world, has gone into partnership with CFAO Retail, and they have been expanding into French-speaking Africa since 2013, a logical development based on the historical and colonial ties of that part of the continent. CFAO is a leading player in distribution in Africa. According to a CFAO report, they are targeting to have more than 80 commercial sites in eight African countries by 2020, namely Cameroon, Congo, Côte d’Ivoire, Gabon, Ghana, Nigeria, DRC and Senegal. The partnership plans to open six stores in Cote D’Ivoire. According to a recent article, in 2018 Carrefour opened a store in the working class part of Abidjan called Yopougon, showing their confidence in the growing market.
Leveraging Sense of Community
BearingsPoint Institute for me is one of the best reports that I have read on the current and future state of African retail. They point out that African retail can leverage the African sense of community to create the African retail of the future. Having run my own diaper distribution business, I totally believe in and agree with this view. The thinking is that, faced with a fragile but growing middle class, numerous infrastructure challenges and a low density of physical stores, Sub-Saharan African retail has demonstrated creativity by ‘leapfrogging’ from traditional commerce to m-commerce and social commerce. Infrastructure challenges such as lack of transport, banking infrastructure, and inadequate logistics services have inspired sub-Saharan retailers to develop alternative approaches leveraging the platform economy. They are leveraging communities of consumers to conduct some retail functions.
Any major European airport departure point has enough examples of Sub-Saharan Africans flying out, each with huge luggage and many parcels, bearing gifts to loved ones and strangers alike, displaying a deep rooted sense of community. Out of this, digital platforms such as KakoExpress, a Cameroonian start up, are connecting travellers with parcel senders. This model leverages this deeply rooted sense of community replicating return trips from Europe to transport parcels for others. This example illustrates how African culture and technologies can be smartly combined.
Beyond parcel delivery, numerous African countries are using digitalization and a sense of community to get a fresh perspective on retail. They are seeing a rise in purchasing power in a world becoming more and more digital, thus leapfrogging to new business models without being bound by numerous bricks & mortar stores. BearingPoint Institute argues that Africa is a promising continent for retailers, with a middle-class of 350 million people. In 2040, this number could increase to 900 million people, more than the middle-classes of China and India combined. Although shopping malls are burgeoning, smartphones and e-commerce are the backbone of retail development.
Logistics is the main hurdle for digital and bricks & mortar retailers in Africa, which can be broken into three main themes: the low quality and or lack of transport infrastructures, the lack of postal addresses, and the cumbersome frontier management. They cannot rely on strong and competitive logistics & delivery specialists. To overcome this challenge, Alternative logistics models have emerged to overcome this challenge while at the same time avoiding colossal investments. One such example is Jumia, the pan-African e-commerce player has built its own logistics marketplace to leverage third party companies and self-entrepreneurs for city-to-city and last-mile deliveries. This platform also offers its services to other retailers as a white label. M-pesa and Konga are other examples of e-commerce on the African continent.
Digitization as a Solution
BearingPoint’s report goes on to look at how Africa’s retail landscape is characterized by lack of store density, a developing consumer market, a large population and poorly developed infrastructure. This requires specific solutions for the shopping experience in Africa. Add to it mobile phone pervasiveness, a strong social media usage and a sense of community and you end up with a unique African flavor of the platform economy. Africa is deliberately making its low store density an asset through digitalization. Successively, but quickly, m-payment, e-commerce and m-commerce have changed the retail landscape on the continent, giving rise to major players like M-Pesa for m-payment, or Jumia and Konga for e-commerce.
The first phase of the leapfrog in Africa’s retail was m-payment. According to the BearingPoint Institute report, “At the end of 2015, 16 countries in the world, 15 of which were sub-Saharan, had more mobile bank accounts than traditional bank accounts, up from only six countries in 2013.” This development was ground-breaking. “Before this, people had to walk very long distances to find a bank or a payment agency where they could make a payment. Today, customers can open their account directly on their mobile phone.” M-Pesa, the mobile payment service developed by Kenya’s Safaricom in 2007, is the most well-known example with over 30 million customers in 2017 in 150 countries. Paying for goods and services takes as long as it takes to send a text. Other m-commerce brands include the Wizzit mobile bank in South Africa, provided by a third party (neither a bank nor a mobile operator).
The BearingPoint Institute report continues to point out that the second leapfrog is currently underway. M-commerce is developing very fast in the Africa region, mainly driven by the fact that sub-Saharan countries have a very low density of stores, 150 times lower than the U.S. (one store for 60,000 people in Africa compared to one for 389 people in the U.S.). Also, the lack of landline connectivity impacts the ability to adequately answer the needs of the emerging middle class. E-commerce provides the capability to answer the needs of the emerging middle class, giving them access to a vast variety of goods and services, even from remote areas. Despite its high prominence in the media, e-commerce is still very small compared to brick and mortar retail. However, it could reach 10% of retail sales in 2025 in the largest African economies such as Nigeria, South Africa and Kenya, which are the markets it has made the biggest impact so far.
Internet access in Africa is mostly via mobile and has developed dramatically over the last few years. This has resulted in a focus on m-commerce first in Africa. “According to a BearingPoint/ IPSOS study for CFAO on Morocco, Ivory Coast, Cameroon, Nigeria and Kenya, only 42% of middle class households are equipped with fixed broadband Internet access, while 85% own at least one smartphone - with an average of 2.4 per household. As a result, e-commerce in Africa is predominantly m-commerce.” Other observations are that, “In 2017, 88% of Nigerian Millennials and 71% of South African Millennials paid with an app on their mobile. Beyond m-commerce, the mobile phone is also extremely influential in the overall shopping experience: respectively 88% and 71% of Nigerian and South African Millennials used mobile in store to look up price or product info.”
By collecting data on mothers in exchange for their mobile numbers in store, you are able to build a database of mothers in a particular area. You will know that they are mothers by simply looking at whether they have diapers in their trolley or basket. And because they are physically there in person you are able to get the correct diaper size for their child. You can even have the right exchange about what matters to them in a diaper or even why they like your competitor brand that is in their basket. You are able to sell your own brand to them at a highly discounted launch price, or even for free if your budget allows. This is the advantage of having small packs in your SKU offering. They are very handy not only for these launch occasions, but also going forward in low income markets. Next time you have a promotion in these areas, you can send a WhatsApp message to these same mothers, and your messages would be 100% targeted to mothers.
The Third Leapfrog, Social Commerce
Sharing is very much part and parcel of African customs and cultural practices. ‘Stokvels,’ called by other names in the various parts of the region, is a concept, dating as far back as the 1930s of informal group saving plans based on mutual trust. It was important to belong to one because in a situation where you have a death in the family, which apart from being traumatic is obviously a costly event for a family. Being part of a “stokvel” helped. Technology has been a great enabler to further develop these concepts. The online boutique “WeShopUp” from Cameroon, was launched in 2014. WeShopUp is an e-business marketplace where people do crowd purchasing (buy in group) to get quality products at best prices. It combines crowdfunding, e-commerce and mobile payment as an innovative way to enable people with different levels of income to afford quality products at the best possible prices. Social media platforms like WhatsApp help to alleviate the distrust that the African consumer generally has for online purchases because retailers are able to engage the potential consumer with pictures, price and delivery before the actual purchase. WhatsApp is also used to police good service as nonconformities can be highlighted on WhatsApp platforms and groups with the dis-satisfied customer sharing the actual order and the delivered non-conforming goods, making it part of the CRM.
In terms of social commerce, Instagram is an important part of fashion retail in South Africa and Nigeria, where local celebrities are used by SMEs to drive sales of fashion items. Numerically, Instagram is the second biggest social media network in Nigeria and third in South Africa. Instagram can also enhance a retail experience by allowing people to share their purchase and excitement with friends and family. This presents brilliant opportunities for launches of diaper brands. Local celebrities who have recently become mothers can be perfect ambassadors to push brand awareness of your new or existing product.
Developing a Logistics Ecosystem and Other Unique Solutions
About 70% of Africa’s roads do not have tarmac and in places like Nigeria, as much as 90% of the retail sector is still informal. Logistics is therefore a major challenge.
To develop its logistics capabilities cost effectively, Jumia, the pan-African e-commerce player with operations in 12 countries, has developed a logistics platform available on tablets or smartphones. Third party partners connect to it to take on city-to-city logistics (with six to 20 ton trucks), and a community of local entrepreneurs perform the last-mile delivery and payment collection (80% of e-commerce purchases in Africa are paid with cash on delivery). These partners are paid a commission after every successful delivery.
To maximize on that major asset, Jumia also offers its logistics services as a white label to other retailers. Apart from offering a high-quality service to Jumia consumers (next business day for deliveries of in-stock products, two to four business days for drop shipment), Jumia Services has strongly improved the structuring of local ecosystems of logistics companies.
Other related improvements and collaborations in the logistics space that tackle the lack of address and slowness of postal delivery include the app OkHi, created in Kenya in 2014, which provides the user with a web link address that leads to a GPS beacon. The GPS beacon is a rough guide while the photo of the door of the home provided by the user guides to the exact place of destination. Many courier companies are already using this app. Still on the point of addresses, Jumia is even looking at improving this even further by leveraging the mobile phones. Rather than ask for the delivery address, they request for authorization to use the phone’s GPS to enable deliveries at home or at work, and an SMS is sent to the consumer an hour before the delivery.
Imagine as a diaper brand owner, having this type of delivery for your brand repeated on a weekly or a monthly service. Owing to the nature of the diaper category, the sheer level of repetitive purchase over a fairly long stretch of time over a few years, this offers you an opportunity to lock in the consumer for the long haul. As a way to encourage a repeat and constant delivery, you may even decide that if the customer commits to a weekly delivery, or a monthly delivery, you can throw in a pack of wipes, thereby adding value to your customer while extending your offering. The perfect win-win arrangement that allows you to lock in the customer. Perhaps have a system that allows the consumer to advise the change of size with the next delivery as the child grows. And we haven’t even started on the word of mouth benefit that follows. The sheer convenience!
Africa’s challenges are quite unique and so are the solutions. In that vein, another solution leverages travels from the African diaspora to achieve cost-effective cross-border commerce. Several platforms have emerged, that allow these people to send parcels at a relatively cheap price, such as Jwebi, a crowd-sourced shipping service created in 2014 that initially focused on trips between France, Cameroon, Tunisia, Senegal and Madagascar. Once the service seeker and the traveller are connected, they negotiate the nature and terms of exchange and define the starting point and the destination, the conditions of transaction and price. Financially efficient, the service is also environmentally friendly as is reduces the number of trips and packaging. Could this be an opportunity to export your diaper brand to new markets? Advertise on local TV that it indicates that the Mega Box will arrive on next week’s flight? It is a well-known fact that Chinese tourists used to buy premium Japanese diapers on their return trips. Can one borrow a leaf from the Chinese market here? M-pesa and Western Union have recently gone into partnership. M-Pesa Global allows M-Pesa’s millions of users to send funds to over 550,000 Western Union agents globally. What opportunities does that present in terms of Jwebi?
E-commerce and improvements of logistics services, and digitalization have filtered right through to the informal retail space. A Nigerian start-up called TradeDepot hosts a platform enabling millions of kiosks to access real-time prices and discounts and thereby enabling them to order these products and have them delivered very quickly. The order is transferred to the TradeDepot warehouse. TradeDepot ensures visibility and traceability to manufacturers and brands, which can optimize their deliveries to retailers, improve their product pricing and benefit from a direct communication channel with small retailers. Again, a great opportunity for a diaper brand-owner to access via a single point, a highly fragmented channel. The options and possibilities are endless!
The Customer as a Partner
With modern retail penetration at 10% in sub-Saharan Africa, and with small independent businesses being the bulk of your customers, monitoring, controlling and evaluation of promotions and price compliance can be a challenge.
“Optimetriks is a crowdsourcing start-up that relies on an information collection app to help retailers or brands better manage their distribution in Africa.”
The manufacturer proposes assignments on the platform. Anyone can respond. “Assignments can be very diverse, from registering the address of a beauty shop in a dashboard as soon as it is seen on the street to identifying the brands sold in a shop, taking a picture of the display. This process allows the brands to collect relevant information such as pricing and availability quickly.” More than 15 key account customers, the likes of Nestlé, L’Oréal and Total are already using the start up. All these options and tools are available to a diaper manufacturer that has enough courage to brave Africa’s new and changing retail landscape. Technology is reducing the risks day by day.
Jumia uses local users and agents to upload hundreds of price checks daily onto their platform, enabling their marketplace merchants to adapt their prices when necessary. These teams can be mobilized for other tasks as well, such as pre-launch surveys for brands with very qualitative feedback within a few days.
The African retail space is changing and will continue to change. Technology is a clear driver of some of the changes. It will be interesting to see what changes technology has in store for us in African retail.