Consumer Goods in Africa and Nigeria


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Consumer Goods in Africa and Nigeria

  1. 1. Consumer Goods in Africa and Nigeria: The Accenture Perspective
  2. 2. SSA has 12% of the world’s population and only 2% of world GDP: a glass half-empty or half-full? Africa Growth Takes Root Sample African Country GDP Growth (2010 used as base year) $1.7 Trillion Africa Collective Gross domestic product 12% Africa population as percentage of world population 2% Africa GDP as percentage of world GDP 399 Million Number of people between the ages of 15 and 24 ~50 Number of African cities with 1 million+ consumers Copyright © 2013 Accenture All rights reserved. *Source: Africa Development Bank (Low Case Scenario) 2
  3. 3. Images of starving children created a reputation of famine that does injustice to the continent’s potential Africa as the World’s Pantry Arable Land Available (Million Hectares) Africa holds... 60% …of the world’s arable land Others …of the world’s platinum metals 90% Latin America 300 Sub-Saharan Africa 95% 80 590 8% 31% …of the world’s chromite ore 50% 60% …of the world’s cobalt reserves Africa has the potential to not only feed itself, but also to become a major supplier for the rest of the world Copyright © 2013 Accenture All rights reserved. *Source: Standard Bank. The five trends powering Africa’s enduring allure 3
  4. 4. Alongside its resource potential, Africa is becoming an important consumer market… Africa in the Future Before (2010) US$1.7 trillion Future (2030) Collective GDP in 2010 US$3.9 trillion Collective GDP in 2030 1.03 billion 1.4 billion # consumers in 2010 # consumers in 2030 399 Million 736 Million # people 15 – 24 in 2010 # people 15 – 24 in 2030 40% 50% Urbanisation rate in 2010 Urbanisation rate in 2030 Copyright © 2013 Accenture All rights reserved. *Source: Africa Development Bank (Low Case Scenario) 4
  5. 5. But the opportunity is far from straight forward; Africa takes risk to the next level Africa Risks Political Stability Supply Constraints High levels of corruption and a flourishing illicit trade will pose unique challenges to businesses It is estimated that the cost of transporting goods is 6070 percent higher than developed markets 1 4 Foreign Competition Competition from foreign consumer companies is increasing margin pressure. Shifting Landscapes Africa Risks 2 3 5 6 Factors such as urbanisation create a situation where RTM are continuously shifting Skills Shortages Infrastructure Africa as whole faces dire challenges in terms of skills availability One of the greatest single problems businesses face in Africa is electricity supply and road infrastructure 5 Copyright © 2013 Accenture All rights reserved.
  6. 6. These challenges severely impact the cost of business. Indirect costs erode profitability. Indirect Costs as Percentage of Total Sales India Nigeria 11.5% Brazil 10.5% China 5.5% 4.9% Russia 4% South Africa 2.2% 12 12 12 12 12 12 10 10 10 10 10 10 8 8 8 8 8 8 6 6 6 6 6 6 4 4 4 4 4 4 2 2 2 2 2 2 0 0 0 0 0 0 Indirect Costs Legend: Copyright © 2013 Accenture All rights reserved. Electricity Bribes Transport Disruptions Theft and Robbery Source: World Bank – Nigeria Investment Climate 2011 6
  7. 7. Among the four sub regions, West Africa has recorded the highest growth, followed by the East Regional Differences Real GDP Growth (%) 8 West Africa 7 East Africa SSA Central Africa Southern Africa 6 5 4 3 South Africa 2 1 West Africa 7% expected GDP growth in 2013 East Africa 6% expected GDP growth in 2013 Central Africa 5.3% expected GDP growth in 2013 0 2008 2009 2010 2011 -1 -2 Copyright © 2013 Accenture All rights reserved. 2012 2013 Southern Africa 3.8% expected GDP growth in 2013 Source: IMF Database 7
  8. 8. Within each of these regions, 9 key markets show the largest potential for future consumer goods growth Key Markets Focus Countries Kenya Ethiopia Uganda EAC & COMESA ECOWAS EAC Senegal Uganda Ghana Nigeria SADC Angola Ethiopia Kenya Zambia South Africa *Eastern Hub includes COMESA countries that are not covered in the Southern Hub EAC: East African Community; COMESA: Common Market for Eastern and Southern Africa ECOWAS : Economic Community of West African States SADC: Southern African Development Community Copyright © 2013 Accenture All rights reserved. Nigeria Ghana Senegal ECOWAS South Africa Angola Zambia SADC Population 2010 40m 83m 33m GDP Growth 2015 6.4% 5.5% 7.9% 2020 Consumer Spend $ 37bn $ 43bn $ 30bn 151m 24m 13m 7.4% 13.2% 4.6% $ 167bn $ 29bn $16bn 49m 19m 13m 4.1% 8.1% 7.1% $ 315bn $18bn $ 23bn Our analysis shows that nine African countries will comprise nearly threequarters of total consumer spending in sub-Saharan Africa by 2020 *Source: Euromonitor 8
  9. 9. Nigeria is a rising star among these countries and is expected by 2020 to be the largest economy in Africa Nigeria Deep Dive GDP Growth (Constant 2000 Prices) Nigeria Facts 166M Population in 2012 21% $268bn GDP in 2012 (Current US$) 16% 7.0% Forecasted 5 year compound annual GDP growth rate 11% 12.1% Asia Average estimated inflation for 2012 Nigeria 6% SSA MENA 17.6% Estimated lending rate in 2012 LATAM Advanced Economies 1% 2000 2002 2004 2006 2008 2010 2012 $11.2bn Estimated FDI in 2012 2014 24.2% -4% Copyright © 2013 Accenture All rights reserved. Estimated unemployment in 2012 9
  10. 10. Underlying the growth in these countries are key cities acting as hubs of commercial activity Key Cities Africa Biggest Cities Alexandria (4.6m) Cairo (11.4m) Addis Ababa (3.8m) Abidjan (4.5m) Lagos (11.7m) Kinshasa (9.9m) Nairobi (4.0m) Luanda (5.5m) Cape Town (3.5m) Copyright © 2013 Accenture All rights reserved. Johannesburg (3.8m) Lagos is a megacity within Africa boasting a population of over 11.7m Nairobi is arguably the best-connected city on the continent in terms of ICT Accra in Ghana was recently flagged by MasterCard as next growth hub of Africa Addis Ababa hosts the African, headquarters of almost every major multilateral organisation 10
  11. 11. Within these markets consumers are divided between numerous ethno-linguistic groups and religious lines Africa Diversity Africa has four main ethnic groups: Arab, Ashanti, Bantu and Swahili There are over 2100 and by some counts over 3000 languages spoken natively in Africa In Africa, there are 3 major religions: Traditional, Christian and Islam Copyright © 2013 Accenture All rights reserved. 11
  12. 12. Despite these differences, our research reveals five broad key consumer groups Key Consumer Segments Basic survivors are the majority group in Africa and tend to live in urban slums Basic Survivors Affluent Working Families Rising Strivers Cosmopolitan Professionals Copyright © 2013 Accenture All rights reserved. Working families focus their spending on their children’s needs Rising Strivers emerge from the first two segments and are highly aspirational Cosmopolitan Professionals value pragmatic products but are also brand conscious and influenced by media The affluent have disproportionately high income and are driving a new 12 luxury market in Africa
  13. 13. Rising Strivers and Working Families will be the primary drivers of consumption growth Segment Population Evolution 2010 Africa Population Evolution 100% 90% 80% 2015 3% 13% Working Families 3% 29% 31% 60% 31% 33% 13% 16% 3% 3% 2% 3% 16% 21% 70% 45% Rising Strivers 3% 12% 51% Cosmopolitan Professionals 2% 9% Basic Survivors 33% 50% 40% 30% 66% 54% 51% 20% 45% 10% 0% 2000 Affluent Rising Strivers Basic Survivors 2005 2010 2015 Cosmopoliton Professionals Working Families * Copyright © 2013 Accenture All rights reserved. Source: Canback 2010, Accenture Analysis Affluent 13
  14. 14. Growing economies and aspirational drive in Africa is creating a booming entrepreneurial culture Africa Entrepreneurship Percentage of Population Starting or Running a new Business in 2012 40% 35% 35% 30% Entrepreneurship is seen as a good career choice by 76% of people in SSA (vs.59% in the Asia Pacific) Furthermore, 70% of people in the region (as high as 82% in Nigeria) believe there are good opportunities for starting a new business 28% 25% 20% 15% As a result, the region has the highest percentage of new entrepreneurs in the world 15% 13% 10% 8% 8% 7% 5% 0% US EU MENA SSA Copyright © 2013 Accenture All rights reserved. Nigeria Ethopia South Africa However, most of the new ventures are still mostly low margin and survival entrepreneurship (e.g. small vendors) Source: Global entrepreneurship monitor 2012 survey 14
  15. 15. This entrepreneurial drive has resulted in a unique informal trade structure Nigeria FMCG Trade Structure Example Sales to distribution Sales to trade Wholesalers Sales to consumer Open Markets Manufacturer Consumer 55% 98% Corner Shops/ Kiosk Formal Retail 43% 2% Distribution Flow Copyright © 2013 Accenture All rights reserved. Returns and Funds Flow 15 Source: Gain, Euromonitor
  16. 16. You often hear about great African expansion growth stories … Africa Success Stories Indomie, an Indonesian brand of instant noodles, struggled to meet due to challenges associated with importing raw materials. The company integrated backward, developing local manufacturing capabilities for all raw materials. Due to its ability to respond quickly to local demand, Indomie has captured 70 percent of the Nigerian instant noodle market Shoprite is the largest food retailer on the African continent (operating upwards of 130 stores in 16 African countries) From its South African roots, it operates in 21 countries in Africa and the Middle East. To gain market share among low-income, rural Africans, MTN has made it easier for them to buy and use airtime, enabled its agents to reach remote areas, and created smaller airtime denominations. • Copyright © 2013 Accenture All rights reserved. 16
  17. 17. But, what you don’t often hear about, is the business failures that have occurred … Africa Failures Prominent retailer abandoned 100 stores in Egypt. It is estimated it was losing over $50 million a year Large telecommunications acquisition ended up costing the company over $695m in losses Large telecoms operator sold its operations at a loss of $70m after its east African entry in 2008 Large global brewer exits Kenyan market after only year of entry due to stiff local competition Fast food chain closed its outlets in Kenya amidst stiff competition from local players Global media house, pulled the plug on its East Africa division because of low return on investment Copyright © 2013 Accenture All rights reserved. 17
  18. 18. Tapping into the hidden wealth offered by the African consumer markets requires a mind-set shift Innovation is Key • Ten, fifteen years ago, many multinationals could rely on stripped down products to earn revenue in Africa because scarcity of competition and novelty made the sale • Today, understanding Africa’s consumers' unique cultural requirements and adapting your products and operating models are key Key Success Factors for Breeding Innovation and Success in Africa Cost Advantage • • Build scale Practice lessons from frugal innovation Local Talent • • Leverage local talent R&D centres closer to your consumer markets Leveraged data • Analytics help your sales force, distributors and product development decisions Local Decision Making • • Copyright © 2013 Accenture All rights reserved. Empower local decision making Integrate local and corporate strategies 18
  19. 19. 10 Traits of Master Innovators – South African Research 60% 50% 40% 30% 20% 10% 0% High performers Copyright © 2013 Accenture All rights reserved. Organisational Ecology Integration Tangible Benefits Customer Value Foresight Resources Engagement Process of Innovation Overall index score Rest of SA market 19
  20. 20. Different strokes for different folks… Strategy 1 Execution 2 Market Focus Value Proposition Do we understand our target market? 3 Market Entry Strategy Do we have the right product/ service to offer? Copyright © 2013 Accenture All rights reserved. How do we enter the market with minimal risk? 4 Sourcing/ Manufact. Do we source locally or import? 5 6 Distribution How do we reach our customers? Marketing How do we ensure that there is demand for our product? 7 Trade & POS How do we manage the point of sale? 20
  21. 21. Selecting and entering African markets requires onthe ground knowledge and local partnerships Strategy – Levers for Breakthrough Challenge Market Focus Traditional market research is very limited and public data may be unreliable or outdated Insight Walk the markets and gain insights from talking to street vendors and observing consumers Value Significant cultural Proposition differences within and across markets creating distinct consumer needs Beware of your home country biases, ensure to adapt products to local tastes and cultures Significant entry barriers in terms of political, legal (e.g. ownership structures) and financial (e.g. repatriation) Copyright © 2013 Accenture All rights reserved. Assess your own capabilities and market requirements to determine if you should partner or go it alone Market Entry 21
  22. 22. Operating in Africa is challenging, but several companies are innovating to be successful Strategy – Levers for Breakthrough Challenge Insight Sourcing Ports are hopelessly congested. Imported materials can account for almost two thirds of final costs It is essential to develop local partnerships for local sourcing and production Distribution Informal trade dominate the retail landscape with narrow gravel roads where trucks can’t enter Use local networks and leverage the use of low cost pushcarts, trolleys and motorcycles to get close to the consumer Traditional print and media don’t always reach the masses. Community endorsement is a key driver for the purchase Copyright © 2013 Accenture All rights reserved. Marketing Direct personal selling in the informal sector are key. Promotions that are community based will gain more traction 22
  23. 23. Accenture’s Africa Desk can provide practical insight to help you craft these creative offerings and solutions Our Offering Assess Which growth market to enter? Growth Market Assessment Accenture Offering Market Entry & Due Diligence Strategize How will we create, deliver, and capture value? Structure What is the most effective way to structure and setup? Operating Model Design Business Model Design M&A Execution Implement & Run How will we control, direct and partner to execute? Capacity Services Managed Services Outsourcing Roadmap & Financial Case Development Copyright © 2013 Accenture All rights reserved. 23