Marc-Peter Zander, CEO of XCOM Africa GmbH
The increasing competition worldwide forces global Fast Moving Consumer Goods (FMCG) companies to search for new markets. Competition in Asia has increased significantly and the business environment in China and India is becoming more and more difficult. One solution is to address Africa with more than one billion potential consumers, a rising middle class with increasing disposable incomes, and the interest in foreign products.
“The richness of Africa is not oil. It is more than 900 million consumers, countless entrepreneurs and business man who will create a new Africa” (Vijay Mahajan, 2008)
Africa in a nutshell
According to the Economist, Africa is one of the fastest growing markets with an annual GDP growth of 4.9% since 2000. The population is set to double in the next 40 years from one billion to 2 billion people. With the increasing labor productivity of 2.7%, Africa has a great chance to position
itself on the global market. On average per year, trade between Africa and the world has increased by 200% in comparison to year 2000. The inflation was 22% in the 1990s, but fortunately has now sunk to 8%. This impact resulted in a growing middle class with increasing purchasing power, as stated the World Bank.
FMCG in Africa
Consumer goods companies benefit from good development on the continent, especially the projection that the number of destitute consumers will shrink by 20%, and the number of customers with disposable income (income over US$1 000) will grow by 16%. This is very helpful for successful business. Many international companies have already entered the African market successfully. By doing so at an early stage, companies like Unilever were able to shape the market, build brand loyalty and influence consumer preferences, according to Ciuci Consulting.
Country analysis for FMCG companies
African countries are gaining attractiveness and in many of them, new and improved regulations and developments are lowering the risk of investing. Taking several factors into consideration, it shows that risks will shrink and attractiveness for various countries will grow tremendously until 2020. Moreover, it is seen that Nigeria will be one of the key markets to address in future due to its huge consumer-base.
FMCG in Nigeria
“For all the challenges of the Nigerian market, if companies do not have a Nigeria strategy they do not really have an Africa strategy” (CEO, SAB Miller, 2009)
Nigeria has a significant future-success-story. As the largest consumer market, the country has a population of about 158 million people. This number is set to double by 2050 to 326 million. There are eight “anchor” cities in Nigeria
with populations above one million each. This development shows the huge potential for future investment and consumption activity. Also the numbers of the FMCG sector are formidable. The whole sector grew 10% from 2000 until 2010. The contribution from FMCG spending to GDP grew enormously over the ten years from 13% to 24.3%. Nigerians aged between 16 and 65 have $100-billion to spend (due to per capita income).
Even though there is huge potential, there are risks and weaknesses, which have to be taken into consideration. Nigeria ranks 133 out of 183 on World Bank’s ease of doing business index. This is a result of various issues like electricity, contracts, permits and tax. In addition, the challenge of corruption has to be understood before entering the market.
The most important aspect while thinking about doing business in Nigeria is “informal trade”. According to our own research, 87% of the trading in Nigeria happens in
informal markets, despite Shoprite, Spar and other supermarket chains entering the country. One of the biggest places for informal trade is the Onitsha market, consisting of 12 specialised markets with 50 000 shops, and an FMCG trade volume of $1.5-billion. Most of West Africa is served by this or other similar markets.Market entry strategies
There are several opportunities and possibilities to enter the African market: distribution model, joint ventures, acquisitions and the green field-strategy.
The most recommended model is distribution, because of its low overhead costs and wide product coverage. When choosing the distribution model, the company establishes relationships with local distributors, who sell the products in the defined region. The prices are normally pre-arranged. It is important to choose the right partner. The distributor should have sufficient storage capacity and a good distribution network, which covers the whole
- Africa is a future-market with significant growth potential for FMCG companies. However, the business environment is not easy and needs a designated African strategy.
- One of the key markets in future is Nigeria, with a rising middle class, growing importance of retail business and strategic markets.
- To have a smooth market entry into Nigeria, companies will have to adapt their strategy to cultural aspects.Marc-Peter Zander is partner and CEO of consulting firm, XCOM Africa. XCOM Africa GmbH is focused on Africa and helps companies develop their strategy for the continent. XCOM Africa’s services include market analysis, development of market entry strategies, coaching, selection of partner in Africa and “hands on” implementation of market entry