East Africa consumer market growth opportunities
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This document provides an overview of the consumer market in East Africa, particularly Kenya. It notes that the population is young and growing, with an expanding middle class that is driving increased spending. Urban areas are seeing the fastest changes in consumption patterns. The grocery retail sector is booming with the rise of supermarkets. Online shopping is also growing in popularity. Food consumption trends are shifting towards more convenience and packaged foods. There are opportunities for 'superfoods' and dietary supplements as health spending rises along with incomes.
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East Africa consumer market growth opportunities
- 2. 08/09/201 4 2 © Finpro •http://www.zana.international/zana-films/film/
- 3. 12 Countries, 332 milpeople, 6,5 milkm2 08/09/201 4 3 © Finpro
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- 8. Featuresof theMarket 08/09/201 4 8 © Finpro
- 9. GDP per capita: East Africa 08/09/201 4 9 © Finpro 0200400600800100012001400160019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012Ethiopia - GDP per capita, PPP (constant 2005 international $)Kenya - GDP per capita, PPP (constant 2005 international $) Rwanda - GDP per capita, PPP (constant 2005 international $)Tanzania - GDP per capita, PPP (constant 2005 international $) Uganda - GDP per capita, PPP (constant 2005 international $)
- 10. GDP per capita: East Africa + China 08/09/201 4 10 © Finpro 010002000300040005000600070008000900019901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012China - GDP per capita, PPP (constant 2005 international $)Ethiopia - GDP per capita, PPP (constant 2005 international $) Kenya - GDP per capita, PPP (constant 2005 international $)Rwanda - GDP per capita, PPP (constant 2005 international $) Tanzania - GDP per capita, PPP (constant 2005 international $)Uganda - GDP per capita, PPP (constant 2005 international $)
- 11. China Brazil EU Japan ShareofWorldRealGDP(%) AfricaisexpectedtohavethefastestgrowingpopulationandGDP intheworld,alongwithstrongGDPperCapitagrowth Increasingrelevanceintheglobaleconomy DiversifiedGrowth=overthepastdecade,theservicessectorhas contributedover50%ofAfrica’sGDPgrowth LargeUrbanCenters=52citieswithpopulationsof1millionormore,comparabletoWesternEurope RapidUrbanization=proportionofpeoplelivingincitiesishigherthaninIndiaandwillbeof50%by2030 ExpandingMiddleClass=biggerthanIndia,50%ofAfricawillhavediscretionaryspendingpowerby2020 AgriculturalPotential=60%oftheworld'suncultivatedarableland EnhancedRegionalCooperation=Intra-Africantraderepresentsc.11%oftotalAfricantrade,withsignificantroomforgrowth Aafricagiant UK 2010 Africa4% 2050 Africa12% Africa represents a frontier market with an attractive growth profile supported by healthy demographics and macro dynamics India Source:CIRA. | Sources:HarvardBusinessReview,CIRA. La
- 12. Source:RenaissanceCapital. Source:RenaissanceCapital. MobilePhoneExplosion VehicleSalesGrowth AviationBoom Source:GSMA. MobilesBroadbandConnectionsinAfrica AirPassengerTrafficinAfricaasImpliedbypercapitaGDPCorrelations MotorvehiclestockandannualsalesasimpliedbypercapitaGDPcorrelations Mobilepenetrationisexploding–creatinga “technologyleapfrogging”inbankinginAfrica BoomingConsumerSpending ConsumerspendinginAfrica($bn) Source:BP. Source:AME. Source:McKinsey. AccelerationofOilProduction OilProductioninAfrica(MT) ForecastedMiningBoom IronOreProduction(mntons) 1,000 900 800 700 600 500 400 300 200 100 0 '00'01'02'03'04'05'06'07'08'09'10''11'12E'13E'14E'15E 35 30 25 20 15 10 5 0 45 40 300 200 100 0 400 700 600 500 2010 2020E2030E2040E 2050E StockofVehiclesinAfrica(mn) AnnualCarSales(mn) 0 500 1,000 1,500 2,000 20102020E2030E2040E AirTransportPassengers(mn) 2050E 100 150 250 200 350 300 400 450 500 1966 1989 2012 0 50 100 150 200 250 20062008201020122014E2016E2018E2020E 860 1,400 2008 2020E
- 13. 489 569 677 892 671 819 64 77 90 119 103 123 11.5% 11.9% 11.7% 11.8% 13.4% 13.1% 200520062007200820092010 IntraAfricaTradeOtherAfricanTrade IntraAfr.Tradein%oftotalAfr.Trade Source:EconomicCommissionforAfrica. Mineral products Precious Stones Base metals VegetableOther products Chemicals Textiles NorthAm. LatinAm. Europe Africa ME Asia 1.1% 0.8% 1.3% 2.2% 4.5% 7.2% 24.5% 2003200420052006 2007200820092010 2011 FDIfromEmergingmarkets(US$bn) FDIintoEconomicActivity–ShareofAnnualTotalProjectsandCumulativeCapitalValue(2003–2011) Manufacturing29.9% Extraction27.6% BusinessServices Retail Sales,marketing&support Construction ElectricityICT&internetinfra. Logistics,distr.&transp. 99 72 127 185 129 338 257 250 319 240 211 342 291 292 563 480 425 538 FDIfromDevelopedmarkets(US$bn) GrowthSupportedbyGrowingForeignInvestmentsandTrade 12 ProjectInvestmentsintoAfrica,SplitbetweenDevelopedandEmergingMarkets Source:InternationalTradeCenter. Africa’sCurrent TradeStructure FDIFlowIntoAfricahasGrownStrongly ChinaisamajorinvestorinAfrica,withFDIfromChinajumpingfrom$56mnin1996to$15bnin2011 Infrastructure38.4% FDIIncreasinglyFocusedonInfrastructure Sources:fDiIntelligence,Ernst&Young. Sources:fDiIntelligence,Ernst&Young. ExportsDestinations StrongGrowthin AfricanTrade…withSignificantIntra-AfricanTradePotential AfricanTrade($bn)Africa’sActiveTradeBlocs GrowingShareofWorldTrade 2010 Africa3% 2030 Africa5% 2050 Africa7% ExportsComposition Africa’sShareof theWorldTrade Source:CIRA. SADC COMESA ECOWAS ECCAS EAC
- 14. •populationis 43,8 millionpeople, 1/3 of themlivingin urbanareas •population is optimistic: 52% of Kenyans believe their household to be much better off in two years •shopping population is young: 66% of them are between the ages of 25 and 40 •Expanding middle class is spending its way to comfort: in the home, in health and fitness, in state-of-the-art schools and in communication services •For the middleclassshopping malls are the place to be –Shoppingmallsareexpandingin main cities –GardenCity, a new 130, 000 m2 shoppingspaceis openingin mid2014 and willbethe largestin East Africa The growingMiddleClass 08/09/201 4 14 © Finpro 610,000Kenyansspendmorethan$5,000 a year-the levelat whichhouseholdsbeginto spendmorethana halfof theirincomeon itemsotherthanfood Sizeof the middleclass(% of population) 4,36% 2,11% Rateof urbanization Populationgrowth Kenya’s Source: Afdb 44,9 21,5 18,7 12,1 7,7 5,3 Kenya Ethiopia Uganda Tanzania Rwanda Burundi
- 15. Consumer profile Profile of average consumer is changing rapidly •Wealthier, better educated and increasingly conscious of price Urbanitesleadthe way •In Kenya consumption per capita per year is $1,526 while in Nairobi it is $2,827 •People are influenced by social media, their travel experiences, premium pay -TV and Internet •East Africans prefer luxurious, strong and visible brands –they want to show what they can afford •There are no clear preferences for foreign or local brands •Challenge: consumers’ reluctance to change brands –Flipside: instinctive brand loyalty once you get it •Some products tailored to suit local conditions –E.g. Samsung –Built for Africa products are designed for blackouts. 08/09/201 4 15 © Finpro Prime drivers for purchasing decisions: •Recommendation •Affordability •Availability •Familiarity
- 16. Consumers •The number of dollar millionaires in Nairobi is the fifth largest in Africa, and is expected to exceed 8,000 in 2020 •The highincomeclasscreatesthe demandfor luxuryproducts: Bentleys, Aston Martinis, Porschesand Jaguarscanbeseenin the streetsof Nairobi. 08/09/201 4 16 © Finpro •In East Africaabout2 millionpeoplebecomeadultseveryyear •Young people increase the demand for consumer goods as they are more eager to consume and try new products than the elderly •Especially young consumers are adopting a Western lifestyle as well as Western style consumer behavior By 2040, Africawillbehome to onein fiveof the planet’syoungpeopleand and the world’s largest. In two generations it will have half of the worlds population under 25. Young Consumers China Kenya 6.3% 4% The HighIncomeClass The share of highest income people in Kenya is projected to grow by 6,3% annually from 2011 to 2020, one of the highest rates in the world (4% in China)
- 17. Uchumi Tuskys Nakumatt $670m $300m $180m Supermarkets •Nakumatthas46 branchesin East Africa, mostlyin Kenya, and it’svaluationhasrisen2,5 timesin fouryearsto $400 million •ChandaranaFood Plus hasa 2,5% national marketsharein Kenya, buttheytargetthe highincomenichein Nairobi with 8 branches •South AfricanMassmartenteringthe marketbefore12/2014 •The top 5 Supermarketsarebrandingtheirownlabelsaggressively 08/09/201 4 17 © Finpro Largestretailers (revenuein 2013, USD) •Shareof populationthatshop in supermarkets/ otherformalretailersweekly: •55% of Kenyans •45% of Ugandans •45% of Tanzanians •The consumption patterns are changing fastest in cities making a ready market for consumer goods. Retailers look beyond purely national markets concentrating in cities in the region.
- 18. OnlineShopping •New onlineshoppingsitesarebeinglaunchedcontinually –BidorBuy, OLX, Nation Media Group’sN- soko, Jumia, Cheki, Rupushops, Closet49 and MamaMikes. –E.g. Jumia attracts13,000-20,000 Kenyansdaily to itswebsiteand hasa common ownerbasewith GermanZalando •The mostpreferredand common paymentmethodis cashon delivery, butM-Pesaand creditcardsarealsoan option for payment 08/09/201 4 18 © Finpro •Thereare16,2 millionInternet usersin Kenya. •In urban Kenya, Internet penetration stands at 78%, propelled by affordable mobile broadband and high penetration (95%) of Internet-capable mobile devices. •47% of people in Nairobi connect to the Internet daily
- 19. Food •The consumptionpatternsof food arechangingrapidly •New foodswillbedemandedbymiddleclassurbanitesas peoplechangetheireatinghabits: The demandfor pasta, energydrinks, cheese, wines, bakeryproducts is increasing •Fastfoodshavepickedupin popularityas city life becomesfaster, e.g. KFC and Subwayhaveopenedshops. Localfastfood chainssuchas Kenchicand Pizza Inn haveexpandedin recentyears •Concernsabouthealthyeatingarestartingto show in the offeringof products and the consumptionof lowfat, lowsugarand functionalfood products •Sweetsarenotas popularas in Finland, butthereareglobalbrandslikeWerther’sand ChupaChups •Panda licoriceis soldin supermarketsand healthfoodstoresin Kenya 08/09/201 4 19 © Finpro The first ever Nairobi Kitchen & Food Festival, held in July 2014, advertises itself as a “a huge celebration of all things culinary”.
- 20. Superfoods, DietaryNutrition, DietarySupplements •Health spending increases as people become wealthier and life-stylediseasesbecomemorecommon •Newspapersand magazineshavelifestyleand healthsections •Organicfood products aregainingpopularity. Theyaremarketedas the healthyoption. •Health blogshavelotsof followersand offere.g. cookingcourses •Therearesmallhealthstoresconnectedto gymsand healthcenters, as wellas healthsectionsin grocerystoresin Kenya •HealthyU healthstoreshaveoutletsin the biggestmallsin Nairobi, and an onlinestore. Theyalsooffernutritionalconsultationonline. 08/09/201 4 20 © Finpro Opportunities: superfoodssuchas fiber, northernsuperberries, oat products
- 21. Case: Eatout •EatOutis changingnotonlyeatinghabitsin the region, butthe restaurantsthemselves, e.g. bypartneringwith –WaziWifiand Google to encouragerestaurantsto set upwifihotspots –Safaricomand KopoKopoto encourageacceptanceof mobile payments 08/09/201 4 21 © Finpro •EatOutis an online restaurant guide and reservations service based in Kenya. •Itwasfoundedin 2009 and by2014 ithadexpandedto Uganda, Tanzania, Rwanda, Burundi and Ethiopia. Itis planningto enterlargermarketssuchas South Africaand Egypt. •It provides menus, reviews, virtual tours, offers, and event information for consumers •Itis availableas a mobile application •EatOutalsocooperateswith the printpress: Ithasitsownrestaurant reviewcolumnin Business Daily YummybyEatOutis a food and lifestyleblogthatprovidesfood relatednews, reviewsrestaurantsand barsand advertizesevents. Italsohasrecipesand a wineand drinksguide. YummyClub membersgetdiscountsin specified restaurants.
- 22. DairyProducts •Kenya’s milk consumption levels are among the highest in the developing world. –4.2 billion litresannually, growing at around 2% per year –Milk soldin supermarketsin Kenyais mostlypasteurizedand homogenizedfreshmilk, butUHT milkis alsoavailable –Mostof milkis consumedwith otherbeveragessuchas tea •Dairyproducts comemostlyfromlocalcompanies, butthereis a growingmarketfor importeddairyproducts, e.g. cheeses 08/09/201 4 22 © Finpro Premiumisationand healthyindulgence: there has been an emergence of products targeting the middle class: yoghurts, low fat products, cheese Convenience: Dairy industry has the opportunity to expand the formats of its products to the eat-as-you-go market; small packs of ready-for-consumption products and snacks Affordability: lower priced packaging formats such as plastic pouches, longer shelf life products, smaller pack sizes Trendsand opportunities
- 23. Case: Heineken •DutchbrewerHeinekenopeneda regionalheadquartersin Nairobi in 2011 to drivegrowthof itsbrandsin the East Africanbeermarketsparkinga marketsharewarwith East AfricaBreweriesLtd. and SABMiller •Aimedat the emergingmiddleincomeconsumerbaseof Kenya, ithaseateninto EABL’sTuskerMalt’smarketsegment. Ithasalsobroughtaboutstrategicshiftsand rebrandingeffortsbythe brewinggiant •HeinekenimportsbeerfromEurope and usesa localpartnerMaxamLtd. for distribution. •Improvingdistributionis itskeyfocusin increasingitsmarketsharein the fastgrowingpremiumbeermarket. Itrecentlyannouncedplansto investin infrastructureto meetthe evergrowingdemandin East Africa. •In early2014 itannouncedbuildinga 127 millioneuroprocessingplant in Ethiopia. 08/09/201 4 23 © Finpro •Heineken is targeting the middle class market with savvy marketing campaigns and events and has gained a reputation for throwing excellent parties •MostrecentlyitlaunchedDesperados, a tequila flavoredbeer, whichitmarketsas the ”ultimate party beer for young energetic adults”. HeinekenGold Bar at Carnivore, a highendrestaurant and concertvenue, is saidto haveraisedthe barfor Nairobi nightlife -as the marketingslogangoes.
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- 25. Health Spending •Middle class is the key driver of healthcare expenditure in Kenya and the region •Spending on medical care and other healthcare products is growing rapidly •Private insurance provides access to health services for the growing the middle-class –In addition to several credible local providers, international health insurers (e.g. Bupa) have established themselves in the market 08/09/201 4 25 © Finpro 0,75 m 1,5 m Numberof privatemedicalinsurancecoversin Kenya 2009 2013 Privateexpenditureon healthas a shareof totalexpenditureon healthin Kenya(2012) 62% •Diversified insurance products are reaching ever more people •Linda Jamii, a medical insurance product by Safaricom, Britamand Changamkaallows their clients to purchase insurance through mobile phones •UAP Insurance coverscanbeboughtat Uchumisupermarkets. Customerspurchasea scratchcardand activatethe insurancepolicybysendingan SMS
- 26. Health and Wellbeing: Gyms •Kenyahaswitnesseda proliferationof gymsin recentyearsin tandem with the expansionof the middleclass •Changingbeauty normsas wellas increasingcasesof obesitycontributeto the trend •Gymsaremostoftensituatedin shoppingmalls •Theyofferan increasingvarietyof aerobicsand danceclasses •Zumbais extremelypopular •Yoga studiosarepoppingupas partof a wellbeingand lifestyleboom •Manystarttrainingbyhiringa personaltrainer •Instructorsarealsoavailablein mostgymsas methodicalexcercisingis a relativelynew phenomenon 08/09/201 4 26 © Finpro Racing SportsGymopenedin Westlands, Nairobi, in April2014. By Julyithadapprox. 72 visitorsper dayand andthe numberof memberswasexpectedto doublewithinthreemonths. In additionto regulargymequipmentitalsohasa cardioroomand a studio for aerobics, pure stretchand crosstraining.
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- 28. •Mostnew apartmentsareoptingfor a fittedkitchenand bathroom. The numberof companiesofferinghighqualityfittedkitchensolutionsin Kenyahasincreasedfrom3 to morethan10 in the past5 years •Prafulchandraand Brothers Ltd have supplied Italy’s leading kitchen design brands since 2011 (e.g. Scavolini) •Duravit, a supplierof bathroomceramicsand furniturehasopenedan outletin Nairobi •Boomin the realestatemarketshasled to increaseddemandfor goodqualitybathroomand kitchenfurniture. •Style of new apartmentsis Western and highqualitymaterialsareusedfor the surfaces •Woodenfloorsand especiallylaminatesarepopular •Thereis a growingmarketfor exclusivefurnitureand carpentry Household 08/09/201 4 28 © Finpro HotpointAppliancesLtd, Sarit Centre, Nairobi PanesarInteriorshasmanufacturedhighendfurnitureand interiorsin Kenyasince1948
- 29. •Popularityof decoratinghouseand qualityhouseholdtextilesis growing •Contemporaryfurniturestyle, likeItalian and Scandinavian, is gainingpopularity •An increasing amount of furniture is imported, and much of it is sold in supermarkets. •Davis and Shirtliffreports supplying more than 4000 saunas to private homes in Kenya Household 08/09/201 4 29 © Finpro Karibu Italy’sshowroomin IdealInteriorExpo, East Africa’sbiggestinteriordesign exposition, heldfor the 4th timein Nairobi in 2013. Karibu Italyimportsitalian brandsfor home furnishingto Kenyaand the widerEast Africaregion. •People areinvestingin betterappliancesand products suchas dishwashersand vacuumcleaners •Demandfor goodqualitykitchenwareincreasesas peopleareupgradingto bettertools –Rossettihouseholdtoolsarenowsoldin NakumattGlassware –BoConcept, a Danishfurnitureretailer, openeda storein Nairobi in 2013
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- 70. 70 9/8/2014 © Finpro Europe Africa Mobile phonesubscriptions In 2013 11.5mKenyanstransferred$22bn via mobile money with 732mtransactions •BRICS trade with Africa reached $340bn in 2012. •Intra-African foreign direct investments grew at 32.5% compound annual growth rate from 2007- 2011 •New projects by Kenya and Nigeria-based firms to the rest of the continent grew at record rates of 77.8% and 73.2% respectively Mobile phones have added 1% a year to Kenyan GDP growth since 2000 $1.3bn In Kenya, investment grew from virtually zero in 2009 to $1.3bn in 2010 China’sFDI into Africa hasrisen30-fold in the pastdecade 14.7bn 0.5bn
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