Distribution is the biggest challenge for companies trying to do business in Africa, says global management consulting company Accenture.
In a report on consumers in Africa, it says more than 60% of people in Africa live in rural areas and have limited access to transport. As a result, covering “the last mile” to reach the consumer can be extremely costly and difficult.
Africa is becoming more attractive to companies as its consumer market is growing, while more developed markets shrink or grow at slow rates.
“But just because a product has worked in a developed market, don’t assume it will work in Africa,” said Grant Hatch, executive director of strategy at Accenture.
Accenture is expecting consumer spending in sub-Saharan Africa to rise to nearly $1 trillion by 2020. It has grown 4% a year, reaching nearly $600 billion last year.
“We re-checked the numbers because they seemed too optimistic. But huge changes are likely to take place in the next 10 years,” said Hatch.
Accenture says nine countries will account for nearly three quarters of total consumer spending in sub-Saharan Africa by 2020: Kenya, Ethiopia, Uganda, Angola, Zambia, SA, Senegal, Ghana and Nigeria.
Accenture estimates SA will spend $315 billion in 2020, Nigeria $167 billion and Ethiopia $43 billion.
Companies need to change the way they do business. They need to change the way they access data, ensure products meet needs and work out how to minimise risk.
They need to decide whether to source locally or import, and figure out how to reach customers, many of whom live in rural areas.
The growing importance of consumer spending on the continent is fuelled by:
A growing population — forecast to reach almost two billion by 2050;
A reduction in poverty levels, and
Urbanisation of this growing and increasingly wealthy population.
The consulting firm forecasts that 50% to 60% of the population of sub-Saharan Africa earns less than $100 a month on average and buys basic goods with cash from open-air markets and street stalls.
These consumers generally avoid formal retail stores and believe they get better deals from local, well-kanown, informal sellers.
But they will become more affluent and their brand allegiances will have been formed by the time their purchasing power increases.
Working families earning between $100 and $250 a month and comprising 20% to 30% of the population will represent 33,3% of the sub-Saharan market by 2015.
People who are a notch higher, earning $250 to $750 each a month, have money to buy items like cigarettes, jeans, and the occasional bottle of perfume.
Professionals shop at supermarkets and upscale shopping malls and prefer luxury brands such as BMW, Mercedes and Gucci. This group represents 1% to 2% of sub-Saharan Africa’s people.
Accenture says companies must assess the risk and decide whether to set up a business, buy one, get into a partnership or license their products to another company.
Acquisitions can be expensive and time-consuming, but can provide immediate access to existing networks and distribution channels.