Marketers’ dilemma: The changing face of  the EA consumer

East Africa’s businesses are having to contend with the fast-changing profile of the average consumer — wealthier, better educated but increasingly conscious of price.

While consumer trends in Kenya, Uganda and Tanzania are following almost similar lines, distinct attributes of consumers in individual countries remain a big determinant of buying trends, according to the latest data by Nielsen, the global information and measurement company.

This means companies doing business across borders, especially those dealing in fast moving consumer goods, are facing a tricky balancing act in marketing their goods.

Businesses have to tweak their strategies for the specific market if they are to succeed: One size does not fit all.

The Nielsen data across Africa shows that Nigerians spend the most on consumer packaged goods whereas Ethiopians, Ugandans and Kenyans spend the least.

Household purchases

In East Africa, Kenyans are the biggest spenders on consumer goods, followed by Ugandans and then Tanzanians.

The Nielsen data, gathered in key towns, shows that Tanzanians, like Ugandans, make the majority of household purchases from family-owned kiosks. Most consumers visit these kiosks almost daily, although supermarkets are becoming more popular, particularly with urban consumers.

But Kenya is ahead of the pack in formal trade. More Kenyans than the African average visit modern trade outlets such as supermarkets and grocery stores, making distribution easier for firms dealing in fast moving consumer goods.

The changing consumer trends are already prompting retailers to change their strategies.

The five top supermarket chains in Kenya – Nakumatt, Uchumi, Naivas, Tuskys and Ukwala – are packaging and branding their own products more aggressively as competition forces firms to come up with more innovative ways to lock in consumers and increase earnings.

READ: Retail chains bet on own packaged products

But by selling more of their own branded commodities, they are edging out their traditional suppliers who have had to scramble for customers in kiosks and low-end retail shops.

Early this year, Nakumatt Supermarkets launched a Ksh200 million ($2.3 million) “Blue Label” own brand that includes everything from beans and home baking flour to bleach and window cleaners.

Increasing formalisation of the economy in the region means that more packaged, branded goods are consumed, an opportunity that firms will be keen to cash in on.
Rising incomes and increasing urbanisation across the region are also creating new income streams for firms, boosting sales.

Middle class consumers

“Robust economic growth is producing middle class consumers in the EAC and this is already creating vibrancy in consumer goods,” said Charles Ireland, CEO of East African Breweries Ltd.

“In the EAC, only 25 per cent of the population lives in urban areas compared with double that figure in some developing countries. Urbanisation is good for business because urban dwellers spend twice as much on consumer goods, compared with the rural dwellers.”

An expanding middle class with higher disposable incomes is also attracting global luxury brands, especially in clothing and foodstuffs. Spanish clothing retailer Zara, for example, set up shop in Kenya last month in a deal with local retailer Deacons.

READ: Africa’s consumer business is the sector to watch in coming years

South Africa-based retailer Foschini and Edgars is also set to come to Nairobi next year as is British shoe retailer, Clarks.

Some of the fastest growing consumer sectors are beverages, clothing, cars and information technology services and products and financial services, with the products either imported or produced locally.

A 2011 report by the African Development Bank (AfDB) estimates the size of the middle class — those spending between $2 and $20 a day — at 29.3 million, representing an average of 22.6 per cent of the population; 44.9 per cent of Kenya’s population, 18.7 per cent in Uganda, 12.1 per cent in Tanzania, 7.7 per cent in Rwanda, and 5.3 per cent in Burundi.

With a rise in discretionary incomes, consumers are buying high-order goods such as deodorants and energy drinks and not just the basics, the Nielsen data shows. Kenya, in particular, presents a unique opportunity.

“More expensive and value-adding products may fare better with the larger base of affluent consumers in Kenya than in other African nations,” Nielsen said.

Data shows that over the past few years, East African firms are drawing their profits largely from domestic consumers rather than international markets, forcing them to invest more in growing the local base.

But business executives say companies will be forced to seek growth externally to shield their revenues from increased competition in the market.

Tanzanian consumers, Nielsen said, spend one-fifth of their income on consumer-packaged products, largely food and beverages. For an ordinary Tanzanian shopper, the prime drivers of purchase decisions are recommendation, affordability, availability and familiarity.

Popular goods

In Uganda, consumer packaged goods account for 27 per cent of monthly household spend. Beverages and personal care products are the popular goods. Compared with the African average, Ugandans are more inclined to consume beverages, dairy products and snacks.

In Kenya, consumer packaged goods account for the largest portion (30 per cent) of monthly household spend. Like in most African countries studied, affordability remains a key determinant for Kenyans.

The region’s young population is also a big lure for businesses.

“The EAC is very young. In Kenya, 43 per cent of population is under 15 and in the EAC about two million people become adults every year. Having young populations is good for consumer goods, as young people tend to spend more and go out more, unlike the older people, so the demographics are good for our business,” said Mr Ireland.

In general, East Africans are loyal to brands, with the majority of the respondents expressing reluctance to change brands. Brand loyalty is particularly fierce in Kenya, which means that new, unknown brands will find it difficult to penetrate the market.

“Brand loyalty is instinctive; people are reassured by familiarity and don’t like taking risks,” said Ndirangu wa Maina, the managing director at Consumer Insight.

“But this market is very sensitive to pricing. As a new brand, if you price your product competitively and still maintain quality, you can make inroads into the market.”

A classic example is Kenyan brand Bouncy baby diapers manufactured by Interconsumer Products Ltd, the makers of Nice & Lovely beauty products. Diapers are a higher-order product; parents opt for them as opposed to cloth nappies once they can afford them.

Consumer Insight’s recent REJA study revealed that Bouncy diapers, launched just six years ago, now command a solid 18 per cent of the diaper market, the second after Pampers’ 32 per cent market share.

“You could call Bouncy’s strategy guerrilla marketing; they focused aggressively on price and distribution — you can find Bouncy diapers in the smallest neighbourhood supermarket in the smallest town in Kenya,” said Mr Maina.

“They even started retailing single units. You can buy just one diaper instead of a whole pack. The strategy worked very well for them.”

But the Nielsen data shows that a market like Tanzania presents a unique opportunity for new brands. The country does not have long-established brands in many sectors, which means that first entrants into the market have an opportunity to build a loyal customer base for the future.

“In evolving sectors, brands do have the chance to capture the market, if they have the right strategy,” said Mr Maina.

But, even as attention is focused on the urban, upwardly-mobile middle class consumer, the surveys by Nielsen stress that businesses cannot afford to ignore the rural, conservative consumer.

In Tanzania, for example, the marginalised sections that make up the bulk of society — rural consumers educated only as far as secondary school, engaged in agriculture or some form of menial work — cannot be ignored due to their sheer size.

In Uganda, too, more than half of consumers are rural, conservative and without higher education. But these consumers have an unmet need, as they express a greater desire to buy products that are higher up in the value chain.

“Companies that introduce these segments to cost-effective products [and] identify innovative avenues of distribution will be in a position to succeed,” the Nielsen analysts say.