Africa moves towards Omni Retailing
If there was a map of super markets in sub-Sahara Africa the vast majority of the area would show no large retailer present. The retail trade in these areas remains firmly in the hands of what are called in South Africa “spazas” or ‘tuck shops” – family owned, small & with a limited stock, and sometimes with a van or small bus which moves around from village to village. But a slow revolution is taking place – super market chains, retail banks and e-commerce driven by mobile phones are establishing, starting in the main cities & moving out to the smaller cities or towns.
Much of this movement has been spearheaded by mobile phone commerce. For most Africans the mobile is the main (often the only) means of modern communication – the mobile also doubles as the radio. Rapid growth has brought major infrastructure challenges, and in some countries, like Nigeria & Kenya, the mobile telecos had to become electricity generating companies in order to bring their mobile phone systems to the people, however, the rewards have included mobile banking. In Kenya, for example, the mobile banking system, EMPESA, is estimated to carry over 25% of the country’s GDP. Kenyans can shop, pay bills, or send money to family via EMPESA.
Retail banks (other than the national bank) and insurance companies are also spreading out over the continent. Much depends of course on the openness of the country. Looking at the pattern of banks opened in Africa there is a link between each the country and its past colonial contacts – French and Belgian banks in French speaking countries; UK banks in English speaking countries; or Portuguese (and Brazilian) banks in the Portuguese speaking countries. But at the same time there has been a clear trend towards African banks moving outside their own countries. This has been due mainly to a handful of South African banks – ABSA (owned by Barclays), Standard, FNB, Nedbank which started to follow South African business into neighbouring countries & then moved to the main countries in East & West Africa. Standard Bank, for example, has established in 17 countries.
The next development has been the (again) slow spread of retailers, spearheaded by the largest South African chains (Mr Price, Shoprite, Pick ‘n’ Pay, Edgars, Foschini….) establishing in the English-speaking neighbouring countries and then moving out further afield to the largest cities. In the French speaking countries we see plans by the big French stores, such as Carrefour. The logistics problems have been often very challenging. The story goes that when Pick ‘n’ Pay built its first outlet in Maputo, Mozambique, the lorries sent to stock the shop collapsed a number of bridges on the way costing the retailer more than it had bargained for. But that outlet, the vast new shopping mall in Angola, and similar developments in Tanzania, Kenya, Nigeria, Ghana, Gabon, Rwanda (where Kenya’s Kaknmatt chain has opened up) provide ample proof that the middle class is growing at a very healthy rate in many African countries. More disposable income leads inevitably to the sale of more luxury goods, cars, clothes, foods & liquor (exports of champagne & whisky to Africa has grown faster than to other markets over the last year). Middle class disposable income has increased by around 5% per year over the last couple of years on average in the Sub-Sahara.
An issue which needs to be addressed throughout Sub-Saharan Africa is the use of CRM data. Even in South Africa, with its sophisticated retailing structure CRM data is not greatly exploited(although there are a range of loyalty cards). In most other African countries CRM, & the benefits of CRM-generated data, is almost non-existent. Although, interestingly, North Africa is one of the fastest growing markets for CRM solutions, much of which seems to be driven by the off-shoring of call centres for the French & Arabic markets (Egypt is a major centre for Arabic call centres; Algeria & Morocco provide the French speaking world with opportunities for off-shoring ).
According to Google research the 3 largest countries in the Sub-Sahara are Nigeria, South Africa & Kenya, but there is an interesting second tier of much smaller but very dynamic countries – Botswana, Namibia, Tanzania, Ghana, Mauritius, Cabo Verdi, Rwanda & Burundi. Google research has also shown that omni-channel retail is popular & growing fast. Mobile underpins this omni-channel approach, as a preferred way to buy services, and (as in Europe & the USA) the way for consumers to find out what is available, at which price, and where.
e-Commerce for goods, however, is still in its infancy, but growing steadily. 1.3% of total retail trade is online. According to Amazon, the major issue is delivery. Although some national postal operators provide a good service, the SA Postal service has fallen apart over the last couple of years. Courier services are now appearing but due to the ‘last mile’ rules cost more than they should, and in SA at least, many houses are difficult/impossible to deliver to. This has lead to delivery at retailers which is proving a success.
Other issues, in addition to delivery, which continue to put off investment in retail/e-commerce throughout Africa are – regulations, tariffs, fraud/corruption, foreign exchange controls and lack of bandwidth.
In response to these issues, it is fair to say that in many countries of Africa regulations are based on European models, the problem is not, I believe, so much the laws as the somewhat erratic application of them. Data protection laws, existing in 14 Africa states, but actually applied in only a few, is a case in point.
Tariffs are also often erratically applied, and, for American & European businessmen used to GATS-driven rules, can be blatantly used as barriers to protect national industry. Tariffs also attract corruption, which for years has been the media’s major criticism of Africa. Corruption exists without a doubt, but observers of the global surveys on corruption will have noticed that many African states have become far less prone than they were 20 years ago. There is not much one can say about exchange controls. As regards telecoms bandwidth, 2 new sea-lines have arrived in Africa over the last couple of years and more are planned. Internet access does remain low, even in SA where it is estimated to reach about 12% of the population, but the ever increasing coverage of mobile phones is slowly bringing the markets to the people.
Omni Retailing is certainly a concept well recognised and practiced in South Africa in the urban areas. The challenge is to introduce it to most of the other African markets. For the investor, as for the observer, the most important factor to bear in mind is that no African country is like another, and in the largest countries that’s true for regions too. Language, traditions, infrastructure, geography all create an enormously rich tapestry of the Sub-Saharan African countries. The steady increase of a stable middle class with disposable income in many countries invites Omni retailing.
Alastair Tempest
Director
IORMA Africa
March 2015
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