Consumer opportunities in Africa

Posted on May 15, 2015 12:52 am

Africa’s growing consumption fueled by a rapidly growing consumer class, rising incomes and urbanization will generate US$100 billion in new consumer spending in the African region over the next decade, according to a new report.This is creating tremendous new business potential for companies in countries like Kenya, Nigeria and South Africa where they are tapping into burgeoning consumer demand by applying digitally driven strategies to reach the increasingly connected consumers, especially those in South Africa.As the second-largest economy in Africa, supported by strong manufacturing and tourism sectors, the report estimates that South Africa is set to become a $400-billion economy in the next five years, with a solid projected compound annual growth rate of 3 per cent. Consumer spending in South Africa is also expected to almost double to reach $200 billion by 2020.According to the report, rising disposable income across Africa will propel an additional 20 million people into higher income tiers by 2020, enabling them to trade up to premium products.The African economy, one of the fastest-growing in the world, is expected to reach well over $29 trillion by 2050. The report forecasts that over the next five years, 40 million people will become part of the Africa’s consuming class, with the means to purchase goods beyond subsistence for the first time.

In Kenya, the consuming class will grow by 4 million to reach 10 million and will generate $7.3 billion in new money by 2020. Growth in the consumer packaged goods sector is also expected to be driven by Kenya’s trading up to premium, luxury, or foreign brands, as well as their desire for healthier lifestyles, improved image well known as conspicuous consumption, and new experiences through their consumption habits.The report further notes that the consumer packaged goods industry’s growth in the region, forecast to increase by 11 per cent annually to $20 billion in 2018, will be enhanced by the formation of the gigantic regional economic bloc bringing together East Africa Community, South Africa Development Cooperation and Common Market for Eastern and Southern Africa which is scheduled to take effect soon as all issues are harmonized. One of the expected benefits is to enhance the region’s appeal as one of the world’s most attractive consumer markets by making it easier for companies to do business across national borders within the region.Winning consumer loyalty demands fast execution of a clear plan for the three regional economic blocs while having the flexibility to contend with their region’s enormous diversity, fragmented geography, and rapidly changing consumer behavior.

The spectacular growth of the African economy represents one of the biggest opportunities on the planet for companies today and all that growth, however, means that markets are changing very quickly while digital technologies lift expectations for more tailored and engaging consumer experiences. Companies that hope to compete for new consumers must be bold and move fast if they are to take advantage. The best advice for companies entering or expanding into Africa is to be aggressive.According to the report, while companies have a singular opportunity to turn millions of African consumers into loyal customers over the coming years, these business face distinct challenges, from delivering products across a physically fragmented landscape, to winning the loyalty of rapidly changing consumers.Africa’s highly fragmented market consisting of big countries and growing cities with wealthier consumers, newly urbanizing areas, diverse cultures and multi-layered distribution networks with minimal reliable market data makes it very challenging for consumer packaged goods companies to reach consumers efficiently.Additionally, African countries heavy dependence on road transport and limited rail development often necessitate the use of several modes of transport to move goods, which creates additional business challenges and greater cost.

The report reveals that Kenya’s highly connected consumers have a growing tendency to switch brands and products as well as relying on digital technologies for all stages of the purchasing process. According to the survey findings, in Nigeria, 54 per cent of consumers use mobile devices to learn about products and services while 78 per cent read online reviews and comments from other consumers before making their purchases. The report also states that in rural and regional locations in Kenya, the mobile phone is the preferred platform for communication, given the lag in fixed-line telecommunications infrastructure. Companies thus need to go beyond traditional media channels to engage consumers and sustain their interest by providing a more personal customer experience.The findings also indicate that only 33 per cent of Uganda consumers are loyal to specific brands, an indicator that half of consumers are potentially up for grabs and vulnerable to switching to competitor products.In order for companies venturing African market to overcome the hurdles to achieving success in maintaining and expanding customer loyalty in the region, they need to take the steps right now that will help them lock in consumer demand, ensure that their products are within easy reach of the markets they serve and build an operating model that balances regional efficiency with local agility and data-driven insight.Both multinational corporations and local companies need invest continually in the right strategies and capabilities to expand their presence and increase consumer engagement.

Contador Harrison