Every year, Africa witnesses the Serengeti Migration — the grand spectacle of over a million zebras, gazelles, and antelopes, who brave the preying eyes of leopards and lions and others to sprint across the 1,200 miles from Serengeti in Tanzania to Kenya’s Masai Mara Game Reserve in search of food and water. Much like the grand Serengeti Migration, global retail companies are galloping into Africa today, lured by growing business prospects on the continent.
South African retailers though seem to be leading the charge, and not without reason.
After all, the whole world is waking up to Africa’s promise. As a 2011 World Bank report states, “Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago.” The Economist says that the “lion” economies of Africa, like Ghana and Rwanda, have clocked faster growth than the “tiger” economies of East Asia in five of the past seven years. Thanks to rising incomes, Africa now has a new middle class. The African Development Bank estimates 34% of Africans (326 million people) belong to this class, up from 27% in 2000. And, according to the pan-Africa Standard Bank, the number of African households with annual incomes greater than $3,000 at market exchange rates may touch 100 million by 2015, nearly the same number India boasted just a year back.
With cash in its pockets, this consumer class is no longer happy shopping in the shabby, poorly stocked, shack-like convenience stores it has been used to until now. So, trendy new supermarkets are mushrooming all over Africa. In fact, Botswana in the dirt-poor Sub-Sahara region of Africa even features on the widely accepted A.T Kearney Global Retail Development Index of 30 most attractive markets for retailers in developing nations. Not surprisingly, therefore, several global retail chains are establishing their footprints on the African continent.
The trend started gaining momentum last year after Wal-Mart bought a 51% stake in South African supermarket firm Massmart for $2.4 billion to get a foothold in Africa. The firm has announced plans to launch 1,246 stores in Africa by 2016, with a particular emphasis on Nigeria. Other multinational supermarket chains such as Carrefour and SPAR International have also entered Africa.
But it is South African retailers that have been at the forefront of this boom. An August 2012 Financial Times report says that the South African food retailer Shoprite now has operations in 17 African countries and it runs more than a 100 supermarkets outside South Africa. The retailer even has a store in the conflict-ridden Democratic Republic of Congo. The same article says Cape Town-based retailer Woolworths plans to open at least 104 stores across Africa over the next 2-3 years. Other South African retail firms — such as grocery store chain Pick ‘n Pay as well as apparel retailers like Mr Price and Truworths — too have been opening stores regularly all over the continent in recent times.
It is easy to see why South African retailers have managed to be more aggressive than their substantially larger and stronger rivals in other parts of the world. As consulting firm A.T Kearney says in its 2012 Global Retail Development Index report, “expanding in Africa is challenging for retailers” due to various reasons. For one, Africa’s 1-billion-strong population is spread across 54 countries with diverse cultures, languages, and demographics. Secondly, very little market research is available on the ground in Africa. Both factors have made it difficult for international retail companies, which typically rely on detailed studies, to understand markets in Africa.
Poor logistics are another hurdle for global retailers. For instance, Malcolm Horne, CEO of a company that manages shopping centers in several African countries, commented in a howwemadeitinafrica.com article that to set up shop even in a country like Nigeria, retailers have to import fittings and customized plug-and-play sewerage systems. Finding skilled manpower to launch shops is difficult too. No wonder then that according to Horne, several global retailers may have come to Africa, but there are still many others who are adopting a wait-and-watch policy when it comes to the continent. In contrast, though, Africa-based retailers, the large majority of whom are headquartered in South Africa, are well-versed in local business conditions and comfortable expanding in their neighborhood.
Indeed, Africa has proved to be a mixed bag for non-African businesses. In the past, several international firms have found themselves stranded on the continent due to its multitude of social, economic, and political problems. But still many, like the ones that invested early in Africa’s mobile telecommunications sector, have gained from their presence in the region. So clearly, just as in the Serengeti Migration, South African retailers must now forge ahead amid the pitfalls in their path.
Postcards from Around the World
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