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When it comes to expansion into Africa, FMCG companies must do a strategic assessment of ‘Where to Play’ - which country, region and city to go into - and a solid ‘How to Win’ approach of selecting the winning route-to-market.
Deciding on ‘where to play’ in Africa is highly complex
as it is a diverse and fragmented market: Africa’s population is just over 1
billion people spread over 53 countries with 2110 different languages over 3315
different ethnic and religious groups.
Evaluating ‘where to play’ usually follows a macro level
methodology where companies assess markets based on size of market, economic
and regulatory environment, GDP growth, population, demographics, political
stability, infrastructure etc. This information is usually readily available
and reliable.
However, after the initial selection has been made FMCG
companies need to dig down and better understand the market complexities and
categories in the selected markets.This is where FMCG companies fall short,
often due to a lack of accurate and reliable information.
Understanding where this information is available and
piecing it together in Africa is challenging and complex. There is a distinct
need for FMCG companies to work with talent who have experience with developing
these strategies in Africa.
In-market Intelligence is Critical
Companies must be able to piece together an accurate
picture of the market through intelligence gained by visiting the country and
exploring the market. This includes an assessment of the category, products,
pricing, market shares, category progression, competition, retail environment,
route to market, as well as business complexities, legal and fiscal
environment, potential entry strategies and so on.
Where to play decisions often follow three similar
strategic patterns
1. Lead markets
Most companies select a roll out process across priority markets, typically
these are the largest lead markets: South Africa, Angola, Nigeria, Ghana, Kenya
and Ethiopia. Selection can also depend on the level of category development,
cultural differences or ties, competition and ease or difficulty of entry, or a
particular opportunity that might be present in a market - therefore it is not
always the biggest markets that might determine a lead market.
2. City Approach
The top 50 cities account for only 13% of Africa’s population but contribute
disproportionately to GDP and GDP growth, accounting for 40% of GDP growth over
next 12 years. There are over 50 cities in Africa with a population of +1
Million. This approach is often used for higher value consumer goods i.e.
premium liquor where targeting larger cities with a certain level of affluence
make sense. One potential danger of this
approach is that the highest rate of urbanisation is expected to be in the
smaller African towns, which this strategy could potentially miss out on.
3. Cluster
Clustering markets is an effective way to group markets together with a lead
market or anchor market. The point of clustering is for several reasons:
markets that have similar or common consumer needs enabling product development
and marketing campaigns that could be regional (adapted/translated to each
market); if trade blocs exist (which they do in several regions); or using the
lead market as the base to develop and export to other neighbouring markets.
Examples of how companies might cluster markets would be
East Africa with Kenya as the lead market; West Africa with Nigeria or Ghana as
the lead market; French Speaking West Africa with Ivory Coast or Senegal as a
lead market and Southern Africa with South Africa and Angola as lead markets.
This approach is popular with FMCG companies because of regional similarities
in consumer habits in their categories.
Route-to-Market
When considering a route-to-market strategy, the retail
environment in Africa is highly fragmented: modern retail in most markets is
only just beginning, for example in Nigeria it accounts for less than 2% of the
total retail market.
African retail consists of high numbers of small stores,
grocery stores, kiosks, street vendors, and open markets. These outlets in a
market number the 100s of thousands; they are usually serviced via a network of
wholesalers and sub wholesalers. Wholesale often accounts for 70-80% of any
given FMCG product sales in most African markets.
Very few companies have developed strong capabilities to
reach their desired route to market in a controlled manner.
Having the ability to reach and manage retail and
wholesale is a critical component of success in Africa, those companies that
have developed a strong route to market capability have a very large and
distinct competitive advantage.
Companies that make route to market critical in their
strategy usually are successful in Africa, take the Cowbell brand in Nigeria
from Promasidor, a successful business built in the last 20 years based on;
strong route to market capability and execution, affordability and strong
branding at point of sale. They changed the way milk powder is consumed in
Nigeria (milk powder is the way Nigerians consume milk).Promasidor launched
Cowbell in small single serve sachets selling at key critical price points.
They focused on building a route to market capability which drove their
distribution down the line to smaller outlets and regions, beyond anything
their competition had and they ensured strong branding and distribution in
these outlets.
Understand Complexities
Africa has major issues related to the lack of poor
infrastructure, an often-crippling bureaucracy and corruption that plagues the
continent. This can translate into a higher cost of doing business and a
corporate fear of doing business in Africa due to a perceived or real high
level of risk, making gaining commitment from senior management a problem and
even more problematic, getting support for the many ups and downs business
experiences in Africa.
This is acerbated by a lack of skills, know-how and
experience at a mid-manager or senior manager level in many FMCG companies,
which makes developing and then executing Africa strategies a challenge.
Companies like Nestle, Unilever, Coke, Procter &
Gamble have established large, successful, growing pan-Africa businesses
proving that despite business complexities opportunities exist.
Navigating around Africa successfully is complex and
challenging at times, however following a simple strategy based on delivering
fundamentals and ensuring expert help has meant that many FMCG companies have
established large, successful and growing businesses in Africa.
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Michael Wood is co-founder and Director of Aperio, a business consulting company focused on the FMCG space in South and Sub Saharan Africa. Michael has many years international experience where he held the positions of Marketing Director, Sales Director & Managing Director with the Gillette company and Procter & Gamble.... VIEW MY PROFILE |
