Africa is where it's at for retail
Business Live - Apr 3rd 2012, 09:35
For global retailers looking to secure long term growth and diversify their source of income, setting up an African strategy is key.
The continent's gross domestic product (GDP) is forecast to grow above 5% annually over the next five years - that's 2% more than in developed markets.
GDP is one of the primary indicators that is used to gauge the health of a country's or continent's economy.
In 2011, sales growth for the Middle East and Africa reached 4%, making it the fastest growing region for retailing in the world, according to Euromonitor International.
"Africa's young urbanising population and underdeveloped retailing market means there's an unmet demand for consumer goods," Cedric Bra, retailing analyst at Euromonitor International said.
This, "Afro-optimism" has seen a deluge of retail players pour cash into expansion plans as far north as Ethiopia.
According to Bra, the fact that the world's largest retailer Wal-Mart decided to take a majority stake in the SA retailer Massmart (MSM) last year is proof that Africa now exists on the global retail map.
This supports the view of Natalie Berg, research director at Planet Retail, who recently said Wal-Mart would not be the last global heavyweight to enter SA.
"If I had to put money on it, I'd say Tesco will be the next ... but not anytime soon. If the opportunity presented itself, I'm sure they wouldn't turn their noses up," she said at a breakfast organised by the South African Council of Shopping Centres (SACSC).
Now, while rich-pickings are clearly there, risks do exist - Africa is a tough region to trade in for formal retail operations.
Lack of infrastructure and limited energy supply affects businesses, as does the volatile currency risk.
And significant competition can be felt from informal traders.
"Overwhelming bureaucracy and trade barriers disrupt supply chain and result in very high cost of operations and impact margins," Bra added.
In a report examining the barriers that stifle cross-border trade within Africa, the World Bank revealed that Africa's largest retailer Shoprite Holdings (SHP) spends US$20,000 a week in import permits to truck meat, milk and other goods to its stores in Zambia alone.
"For all countries it operates in, approximately 100 single entry import permits are applied for every week; this can rise up to 300 per week in peak periods.
"As a result of these and other requirements, there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region," the World Bank stated.
Shoprite has earned its stripes as "continent kingpin", with the largest footprint, trading in various African countries for well over 20 years.
Part of its success no doubt owing to its first mover status.
"Being the first in a country where most customers shop in small scale shops, open markets and informal settings is a real advantage because it can offer them a different shopping experience.
"The fact that they can shop in air-conditioned stores, have access to a larger array of branded products and better quality really makes a difference," Bra said.
Despite high trade barriers and supply challenges, Shoprite (SHP) will be adding twelve stores in countries like Nigeria and the Democratic Republic of Congo by the end of June, its CE Whitey Basson said.
Upmarket retailer Woolworths Holdings (WHL) is shifting its focus from Australia to Africa, swapping its franchise based model for a more involved joint venture strategy.
The group's African operations currently make up 3% of its total turnover, a number they're hoping to push to 10%.
"The opportunities in Africa are immense," Bra said.
"Countries such as Nigeria, Ethiopia and the Democratic Republic of Congo offer large potential for big scale retailers in the future.
"They have a total population of 300 million and a combined GDP that is expected to reach about US$380 billion in 2016 - that's almost as big as the United Arab Emirates," he added.
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