The African Retail Market

According to the United Nations Economic Commission for Africa (UNECA), the African retail market is characterised by approximately 90% of transactions occurring through informal channels. This points to the existence of an opportunity for the increased establishment of formal retail presence to capture larger portions of this market share. Tapping into markets that are dominated by the informal economy presents formal retailers with a key to unlocking the potential of the African market in as far as leveraging the customer base presented by the population therein. However, hurdles such as the diverse consumer mix, low levels of established distribution networks, infrastructure constraints and political and economic uncertainties are some of the challenges that big formal retail chains have to contend with when setting up in-country operations.

(Source: https://thisisafrica.me)

The “African Powers Of Retailing Report 2015” published by Deloitte tracks the progress of the top African retail performers on the continent. While the top 25 retailers have a limited operational presence in Africa, operating in 21 out of 54 countries on the continent, other countries, such as Algeria, Sudan and Ethiopia, are among the top 10 countries by retail market size but have no listed African Retailer present. Nigeria is the largest retail market in Africa with a retail size of US$122.9 billion as of 2013. However, East Africa – particularly Kenya – is still being identified as the next market for major South African players. Apart from Kenya’s attractive GDP of US$56.1 billion at the time this report was published, it has 25-30% formal retail compared to 60% in South Africa.

It is worthy to note that Nigeria’s retail market is largely fragmented, with the top 6 retailers accounting for barely 2% of sales and 98% of Nigerians shopping in small, local and informal outlets. The importance of the informal economy in Africa cannot be overlooked considering the fact that small, local and informal retail transactions account for 96% in Ghana and 98% in Nigeria and Cameroon. Even in Kenya, the vast consumer base in rural areas still shops at informal outlets, which accounts for approximately 70% of retail shopping. Zimbabwe also has a fragmented retail market and is seeing a recent upsurge in small “tuck shops”.

It further states that as the African economy continues to improve and expand, it is likely that groceries will be a key driver of industry growth across the continent’s retailing industry. The approach that retail multinationals in search of developing their presence in Africa have used in a quest to set up operations in the African retail market is that of acquisitions of local companies or directly establishing their retail stores in-country. How increased access to the informal sector will play out as retailers compete for share of wallet beyond the main urban centres remains to be seen.

Given the above statistics, an avenue which would be worth considering for formal retail multinationals is that of incorporating an informal market operational strategy into their business models. Developing deliberate linkages with this sector of the economy will be a huge game changer and bolster business for both sides of the equation.

litualex@gmail.com

Informal Economy Analyst

 

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