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Growing with Africa's consumers

Africa’s fragmented markets require that global players screen them for rare opportunities and be agile when they arise.

글 Matthew Meacham, Andrew Tymms, Tiaan Moolman and Joëlle de Montgolfier

First published on 4월 05, 2012
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When Africa proved resilient to the 2009 global downturn, companies without a presence in Africa started taking another look, and those already selling there realized it was time to boost their presence and increase their footprint. A host of factors contributes to a rosier picture of Africa. The continent’s total GDP of $1.5 trillion is similar to that of Brazil, India or Russia, and it’s expected to grow faster than most non-BRIC emerging markets. While instability still plagues some nations, overall, political risk has diminished over the past 20 years. If Africa remains fragmented with more than 50 countries, the emergence of trading blocs have significantly improved the business environment. And a new consumer class is emerging so quickly that total consumer spending is expected to double by 2020. According to Euromonitor and the African Development Bank, the continent’s middle class already accounts for one-third of the population. In eight years, five major countries alone will have 56 million middle-class households with disposable incomes totaling more than $680 billion. Consumption spending per capita matches India or China. Growth opportunities are massive for companies that can tackle such challenges as poor infrastructure and a talent shortage. The trouble is, the continent is therefore quickly attracting competitors. More than 70% of the top 50 global consumer packaged goods makers are already present. For 20% of this top 50, Africa already represents more than 5% of their global sales—as much as 14% for Diageo (see video below) and 10% for Parmalat— and most in that group also enjoy strong profitability. And global leaders face a new species of competitors in the form of emerging markets champions such as Singapore’s Olam, Saudi Arabia’s Savola Foods and India’s Marico or Godrej Consumer Products. Intensifying competition is narrowing the window of time for companies to successfully enter, expand or shape the landscape to their benefit. But before moving, it’s critical to understand a few characteristics of this unique continent to best frame how to successfully tap into it. Foremost among the considerations is where to enter and to expand. In most emerging markets, you can carefully plan your expansion by first establishing yourself in the biggest markets, then in the primary regions or cities, and finally moving on to the smaller regions or towns. But in Africa, following such a logical and disciplined sequence may prove difficult. You may choose to start in the 10 markets that, according to Euromonitor, account for 75% of Africa’s GDP (South Africa, Egypt, Nigeria, Algeria, Morocco, Angola, Libya, Sudan, Tunisia and Kenya). Depending on your category, you may also need to prioritize other markets from the next tier. But what’s often critical for success is the flexibility to quickly jump on opportunities, even if they arise in an unexpected order. Africa’s fragmented markets, quickly changing political and regulatory environment and shortage of local incumbents with scale mean global players need to act swiftly to acquire promising companies that become available or jump on opportunities opened up by privatization. For example, Ethiopia was not the top priority market for Heineken. Even so, the company recently snapped up two Ethiopian breweries when they became available. The lesson: prioritize markets, screen them for rare opportunities, and be agile when they arise. Partnering for position and profits A second important consideration is how independent you can afford to be in Africa. Few—if any—consumer packaged goods companies have succeeded on their own. Partnerships and acquisitions are an inevitable fact of life. Winning companies look for opportunities: brands with strong competitive positions or robust equity with local consumers, companies with route-to-market capabilities, or players that offer production capacity or access to supply. Winners also understand that the availability of acquisition targets often varies among markets and categories. The average size of an acquisition is usually smaller than elsewhere and with higher risks. To minimize those risks, many players start by holding the majority position in joint ventures, with an out-clause in case the venture fails. As they learn more about the target company, they can opt to increase control or move to a full-blown acquisition. Given the lack of reliable market data as well as financial and business transparency, they’ll need to apply more practical—and-basic– due diligence, including tapping local contacts and running primary consumer research. What to sell? A final consideration: which categories, products or brands should you sell in Africa. As in many other developing markets, instead of entering local categories to gain ground, you can push your existing core categories and brands. Even if your category is currently underpenetrated, there’s room for rapid growth. To launch consumption in underpenetrated categories, leaders can invest in consumer education. Unilever, for example, grew the market for its toothbrushes and toothpaste in Nigeria with its “Brush Day and Night” campaign. The company educated the public about oral hygiene with easy-to-remember visuals in the backs of vans or rural area schools, building robust toothpaste volume growth over the past decade. Entering or expanding in Africa may appear daunting because of the continent’s undeniable complexity. No company can depend on a simple plug-and-play strategy to enter or on a single operating model to quickly expand. But our research shows that Africa is not significantly more challenging than many other emerging markets. As growth slows in developed markets and categories in other emerging markets quickly consolidate, Africa may be the next best place on Earth to look for a new growth engine. Matthew Meacham, a Bain & Company partner based in Madrid, leads the firm’s Consumer Products practice in Europe, the Middle East and Africa. Andrew Tymms and Tiaan Moolman are Bain partners in Johannesburg and leading members of Bain’s Global Consumer Products practice. Joëlle de Montgolfier, based in Paris, is senior director of Bain’s Consumer Products practice in Europe, the Middle East and Africa.

When Africa proved resilient to the 2009 global downturn, companies without a presence in Africa started taking another look, and those already selling there realized it was time to boost their presence and increase their footprint.

A host of factors contributes to a rosier picture of Africa. The continent’s total GDP of $1.5 trillion is similar to that of Brazil, India or Russia, and it’s expected to grow faster than most non-BRIC emerging markets. While instability still plagues some nations, overall, political risk has diminished over the past 20 years. If Africa remains fragmented with more than 50 countries, the emergence of trading blocs have significantly improved the business environment. And a new consumer class is emerging so quickly that total consumer spending is expected to double by 2020.

According to Euromonitor and the African Development Bank, the continent’s middle class already accounts for one-third of the population. In eight years, five major countries alone will have 56 million middle-class households with disposable incomes totaling more than $680 billion. Consumption spending per capita matches India or China.

Growth opportunities are massive for companies that can tackle such challenges as poor infrastructure and a talent shortage. The trouble is, the continent is therefore quickly attracting competitors. More than 70% of the top 50 global consumer packaged goods makers are already present. For 20% of this top 50, Africa already represents more than 5% of their global sales—as much as 14% for Diageo (see video below) and 10% for Parmalat— and most in that group also enjoy strong profitability. And global leaders face a new species of competitors in the form of emerging markets champions such as Singapore’s Olam, Saudi Arabia’s Savola Foods and India’s Marico or Godrej Consumer Products.

Intensifying competition is narrowing the window of time for companies to successfully enter, expand or shape the landscape to their benefit. But before moving, it’s critical to understand a few characteristics of this unique continent to best frame how to successfully tap into it.

Foremost among the considerations is where to enter and to expand. In most emerging markets, you can carefully plan your expansion by first establishing yourself in the biggest markets, then in the primary regions or cities, and finally moving on to the smaller regions or towns. But in Africa, following such a logical and disciplined sequence may prove difficult.

You may choose to start in the 10 markets that, according to Euromonitor, account for 75% of Africa’s GDP (South Africa, Egypt, Nigeria, Algeria, Morocco, Angola, Libya, Sudan, Tunisia and Kenya). Depending on your category, you may also need to prioritize other markets from the next tier. But what’s often critical for success is the flexibility to quickly jump on opportunities, even if they arise in an unexpected order. Africa’s fragmented markets, quickly changing political and regulatory environment and shortage of local incumbents with scale mean global players need to act swiftly to acquire promising companies that become available or jump on opportunities opened up by privatization. For example, Ethiopia was not the top priority market for Heineken. Even so, the company recently snapped up two Ethiopian breweries when they became available. The lesson: prioritize markets, screen them for rare opportunities, and be agile when they arise.

Partnering for position and profits

A second important consideration is how independent you can afford to be in Africa. Few—if any—consumer packaged goods companies have succeeded on their own. Partnerships and acquisitions are an inevitable fact of life. Winning companies look for opportunities: brands with strong competitive positions or robust equity with local consumers, companies with route-to-market capabilities, or players that offer production capacity or access to supply.

Winners also understand that the availability of acquisition targets often varies among markets and categories. The average size of an acquisition is usually smaller than elsewhere and with higher risks. To minimize those risks, many players start by holding the majority position in joint ventures, with an out-clause in case the venture fails. As they learn more about the target company, they can opt to increase control or move to a full-blown acquisition. Given the lack of reliable market data as well as financial and business transparency, they’ll need to apply more practical—and-basic– due diligence, including tapping local contacts and running primary consumer research.

What to sell?

A final consideration: which categories, products or brands should you sell in Africa. As in many other developing markets, instead of entering local categories to gain ground, you can push your existing core categories and brands. Even if your category is currently underpenetrated, there’s room for rapid growth. To launch consumption in underpenetrated categories, leaders can invest in consumer education. Unilever, for example, grew the market for its toothbrushes and toothpaste in Nigeria with its “Brush Day and Night” campaign. The company educated the public about oral hygiene with easy-to-remember visuals in the backs of vans or rural area schools, building robust toothpaste volume growth over the past decade.

Entering or expanding in Africa may appear daunting because of the continent’s undeniable complexity. No company can depend on a simple plug-and-play strategy to enter or on a single operating model to quickly expand. But our research shows that Africa is not significantly more challenging than many other emerging markets. As growth slows in developed markets and categories in other emerging markets quickly consolidate, Africa may be the next best place on Earth to look for a new growth engine.

Matthew Meacham, a Bain & Company partner based in Madrid, leads the firm’s Consumer Products practice in Europe, the Middle East and Africa. Andrew Tymms and Tiaan Moolman are Bain partners in Johannesburg and leading members of Bain’s Global Consumer Products practice. Joëlle de Montgolfier, based in Paris, is senior director of Bain’s Consumer Products practice in Europe, the Middle East and Africa.