Africa now firmly on the radar of giant Western retail chains
What you need to know:
ADB said the middle class — those spending between $2 and $20 a day — are about 313 million people, a sharp rise from the 111 million two decades ago.
“All these five top African targets have fast growing economies, young and growing populations and fragmented retail sectors.
Although traditional forms of retailing are still dominant, a growing middle class is increasingly demanding branded products and the opportunity to shop in modern retail format,” said researchers at Deloitte
Kenya is expected to attract millions of dollars in new investments in the coming five years as it increasingly gets onto the radar screen of Western retailers attracted by bustling activity in the country’s retail market.
The country has been identified by advisory firm Deloitte as the next growth frontier for huge Western retailers as well as some of Africa’s biggest retailers keen to cash in on a growing middle-class and rising consumer demand.
The study, The Hidden Heroes: The Next Generation of Retail Markets says that these emerging African retailer chains have ambitious expansion plans influencing global investments into their respective markets.
Other countries identified include Algeria, Nigeria, Morocco and South Africa. Deloitte argues western retailers are looking outwards to defend their margins as their sales come under threat at home due to the ongoing US debt concerns and the Eurozone crises, which have hurt consumer demand.
“Each of these markets is set to experience rapid retail development in the coming years aided by the growing presence of global retailers and a handful of strong local players,” reads the report.
Deloitte said the focus of global retailers is quickly shifting to these markets and they could soon come knocking into the region for possible mergers.
Such mergers are said to enhance faster growth as opposed to own expansion; the parent company can ensure a branch in another country outgrows all its competitors.
The largest retail chain in the East African region, said it was not ready for such mergers at the moment.
Nakumatt this year borrowed $400 million from four commercial banks to cater for its current needs including regional expansion.
Despite expressed interests from local and international investors, Nakumatt turned to banks because there was no strategic investor to suit the chain’s needs. “They wanted a short term investment then pull out.
We are looking for long term investments, not people who will walk in for a year make money and go,” said Nakumatt MD Atul Shah.
Other local retailers too could turn away mergers with global retailers.
“We are not seeking for a loan or outside investments, we are reinvesting for self growth driven by the market,” explained Willy Kimani, Naivas Ltd marketing and business development manager.
The thinking is that the big retailers are willing to set up operations in lucrative new markets backed by strong parent companies that are ready to invest and are able to absorb losses on a level smaller local rivals cannot sustain.
Companies targeting the middle class consumer have experienced a boom in recent years, particularly in consumer goods, retail banking, telecomms and housing.
This trend is emphasised by an aggressive intra-regional retail expansion by South African and East African supermarkets.
SA’s Shoprite has been raising its game against East African retail chains, which focus on middle and upper income customers in Uganda and Tanzania.
Last month, Shoprite announced its acquisition of two supermarkets in Mauritius. Shoprite has 169 corporate and 43 franchise stores in 15 countries in Africa including Uganda and Tanzania.
“With the growth potential of the African continent, major international companies will also in time establish themselves here,” said Christo Wiese, Shoprite’s chairman.
Bring it on
In Uganda, fierce competition in the retail market, triggered by large Kenyan and South African retail operators, has sent local outlets expanding along busy highways and into Kampala’s suburbs.
“We have now embarked on a feasibility study to facilitate our entry into other countries such as Burundi, Zambia, South Sudan, DRC, Nigeria, Botswana and Malawi,” said Mr Shah.
Nakumatt Holdings now features 34 fast growing retail stores, the latest launched two weeks ago in Rwanda. Its rival, Uchumi Supermarkets, is also eyeing the Tanzanian and South Sudan markets and expansions in Uganda.
Other competitors, Naivas and Tuskys, are also eyeing regional markets such as South Sudan, Ethiopia, Uganda and Tanzania.
As Nakumatt expands into other countries like Zambia it competitors will be global retailers like South Africa’s second-largest food retailer, Pick n Pay and Massmart and it might need stronger financial muscle to compete with its rivals.
Earlier this year, the world’s largest retailer, Wallmart, entered South Africa through the acquisition of Massmart. Pick n Pay, this month opened its first store in Mauritius, and is to open a second store there next year.
SPAR, the Dutch retail chain has entered the Nigerian market throwing the spotlight on Africa.
