Fast-moving consumer goods (FMCG) products that are quick to package, move and sell such as toiletries, processed food stuffs and alcohol – are usually a low profit margin, high volume industry. Given their fast-paced, traceable nature, they are an excellent litmus test for assessing the state of many other variable in the markets including transport, trade and consumer sentiment. FMCG trends allow economists to track the rise of the emerging consumer class on the African continent, and the consumer price index (CPI) – a measure of price changes in an average basket of FMCG staples – is a largely accepted statistical gauge of inflation.
Globally FMCG – with a few exceptions have been largely negatively affected by the economic downturn. Recent years have seen some very interesting trend u-turns, including the slowing of consumption of soda-type drinks in the US and other developed markets.
Astounding African Potential
Given these pressures and various push factors, multinationals are increasingly looking to emerging markets and Africa in particular as sources of growth in FMCG. PepsiCo stated in their 2013 annual report that they are looking to make major investments into emerging markets as a means to promote growth in carbonated beverages and snack sales. In 2011 already, African and Asian markets combined made up 20 percent of Colgate-Palmolive’s sales. A 2013 SABMiller trend report, entitled “Global Beer Market Trends” also calls the developing markets “the engine of volume growth for the global beer industry”, writing: “Per capita alcohol consumption continues to rise as disposable incomes increase and consumers trade up from informal alcohol (often spirits) to professionally brewed beer. The result is strong volume growth in Africa, Asia and Latin America. In contrast, consumption in Western Europe continues to slide.” According to “The Rise of the African Consumer”, a well-received 2012 report
by McKinsey Africa’s Consumer Insights Center, Africa’s consumer-facing industries are expected to grow by more than $400 million by 2020. “Africa’s economic growth accelerated in the years following 2000, making it the world’s second fastest growing region after emerging Asia and equal to the Middle East. It comes as a surprise to many that resources contributed less than a third of total GDP growth in the 2000s (before the onset of the financial crisis in 2008), while 45 percent of growth came from consumer-facing or partially consumer-facing sectors. The African market opportunity is concentrated, with 10 of 53 countries – Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Sudan and Tunisia – accounting for 81 percent of Africa’s private consumption in 2011,” the report stated.
The bottom line here is that the perception of Africa as a locale of raw resources only is rapidly changing. Global firms are taking part in what the Wall Street Journal terms a “new gold rush” to cash in on the African consumer. It includes
the US-based big-box-store Wal-Mart’s $2.5-billion dollar purchase of a 51-percent stake in South African retailer Massmart as a prime example.
Analysts believe that FMCG companies would be silly to ignore this opportunity. EY’s 2011 report, entitled, “Growing in Africa: Opportunities for consumer product businesses” states: “GDP per household across the continent has more than doubled in the last 15 years. Investment increased sixfold between 2000-09 and today around 85 million households earn at least
$5,000 a year, the income point at which packaged goods become affordable. By 2015 it is estimated that individuals earning more that £1000 ($1,660) will grow by 16 percent.”
A lot of this growth potential lies not just in the broadening middle class but also in Africa’s overall population growth. Africa’s collective population is estimated at around 1 billion people today, and it is expected to grow rapidly – to 1.4 billion by 2025, where China is today. According to data from the Population Reference Bureau, Africa is a young continent with around 41 percent of the total population under the age of 15 years. In addition, Africa is becoming increasingly urbanised. According to an Africa Progress report 2010) by consulting group Frost & Sullivan, African city populations will increase by 25 percent by 2025, while by 2050, 60 percent of Africa’s population will reside in urban areas. Urbanisation is linked to an increased demand for FMCG.
A New Elite with New Methods
Not only are Africans as a general group experiencing an increased status in the global mix of consumers, but women too are recognised as increasingly important in the buying decision process. According to data from Flux TRENDs, women in South Africa make more than 80 percent of all consumer buying decisions. The ways in which consumers are accessing FMCGs is also changing. Analysis from brand consultancy, Yellowwood, predicts that online shopping is expected to grow by 30 percent – off a base of R2 billion ($200,000,000) in 2010 – compared to 7 percent for traditional retail, increasingly driven by the massive uptake of smart phones locally.
A Challenging Reality
While the potential of the African market is very real, there remain many challenges or concerns for FMCGs and trade in general on the continent. Chiefly it is mainly incoming multinationals that stand to win from accessing African markets. African countries and companies are arguably not doing enough regional trade, and as such could miss out on benefitting from the consumer boom on their doorsteps. According to some eye-opening UN statistics published in the report “Economic Development in Africa Report 2013 – Intra-African Trade: Unlocking Private Sector Dynamism”, the average African country exports just over 10 percent of its total merchandise within the continent. “Over the period from 2007 to 2011, the average share of intra-African exports in total merchandise exports in Africa was 11 percent compared with 50 percent in developing Asia, 21 percent in Latin America and the Caribbean and 70 percent in Europe,” the report stated.
Information from the World Trade Organisation (WTO) shows that this problem is compounded by regulation imposed that actually inhibits regional trade. In a speech at Wits University in Johannesburg in 2012, WTO Deputy Director- General Valentine Rugwabiza stated “Sub-Saharan African countries impose more non-tariff barriers on trade between themselves than on trade with third countries.” Non-tariff barriers limit volumes of goods, as opposed to taxes or duties to an uncapped amount of product.
Another major concern for both local and international companies – is the lack of transport infrastructure. Goods move primarily by road because rail infrastructure is lacking or poorly maintained. Border posts are notoriously inefficient and some countries still struggle with rampant corruption.
Several analysts have compared the African potential for FMCG favourably to the Indian potential. Both are huge, emerging consumer markets, but unlike India, Africa has 55 countries, and that means around 55 different rules, regulations and border controls to consider when moving FMCGs. This is one of the biggest barriers FMCGs firms will need to overcome
to collect their consumer “gold” in Africa. Despite these issues, the future looks bright for FMCG on the continent as the number of consumers and their expendable income continues to rise in the coming decades. Not only that, but companies that can crack the illusive product intersection of useful and aspirational will have a young, innovation hungry market banging on their doors.
New Products, New Routes:
• South African health food company, Futurelife started as a niche producer of “functional food” or high nutrient food. They have established a successful mid-LSM point product, grown to a R200 million-a-year business, and in 2014 announced plans to launch in the United Arab Emirates.
• Imperial Logistics group company, Imperial Health Sciences, recently announced a partnership with global ocean freight specialist, Yusen Logistics, to establish a dedicated temperature-controlled pharmaceuticals sea freight service to Southern Africa from Europe, with east and west African routes expected later in 2014. This will link local markets to Europe and specifically Antwerp.
• Unilever is also investing in Africa, breaking ground in recently on an ice-cream factory in Midrand, Johannesburg, expected to begin production in 2015. “With investments planned across South Africa, Nigeria, Ghana, Cote D’Ivoire, Kenya and Zimbabwe, this is just another example of our multi-year, multi-million investment plan to cater for our growth in South Africa,” said Peter Cowan, Unilever South Africa chairman, in a statement. These investments also include a R1-billion home-care facility in Boksburg and a R670-million investment into a savoury foods factory in Durban. Unilever products include Rama, Omo, Dawn, Shield, Vaseline, Sunlight, Handy Andy, Dove and Lux.
By Kate Ferreira
EDITOR’S NOTE: This article was first featured on Ventures Africa Magazine, Volume 9.
