The potential of Africa’s consumer markets is massive. Sub-Saharan Africa alone comprised more than 856 million consumers in 2010 and that number is expected to grow to 1.5 billion by 2030. Consumer spending reached nearly 600 billion USD in 2010 and is estimated to reach 1 trillion USD in 2020. Needless to say, identifying the African consumer patterns can mean a world of difference for the success of every company.
Reports by KPMG, McKinsey’s Africa Consumer Insights Center and Accenture all identify three main drivers behind the sustained increase of consumer spending in Africa: population growth, economic growth and urbanization. The advantage of population growth is self-evident: a bigger consumer market. Africa has the fastest growth rate of the world, with the population exceeding 1.5 billion in 2030. Moreover, demographic characteristics provide a further boon. The growth of the working-age population will outstrip that of the population as a whole. Africa already has the world’s youngest population, with more than half its inhabitants under the age of 20. This group is more likely to display brand awareness, are more proficient online, and show more willingness to try new things. As they age and accumulate more income, they will determine the face of the consumer market. Africa shows a steady trend towards urbanization, with 40 percent of its population already living in cities. With a higher income per capita and purchasing power, better infrastructure and more densely populated areas, consumers in urban areas are attractive for companies. Urban consumers attach value to fashion and have a propensity to follow the latest trends. With a high level of internet frequency on personal devices and a desire for a formal shopping environment (malls, retail stores), they do not differ much from other urban consumers worldwide. Finally, sustained economic growth creates a middle class that spends more on consumer products. GDP per capita, both in real terms and adjusted for purchasing power parity (PPP), has seen explosive growth in the previous decade. McKinsey expects more than half of African households to have discretionary income by 2020. As expenditure on food will proportionally decline, people will look to spend their additional money on more quality goods.
Nigeria is but one example of a promising market. It has a growing population of more than 160 million inhabitants, a solid growth rate in urban areas and shows some of the strongest economic growth of the entire continent. In Nigeria retail is still in the early stages of development. People primarily spend their money on food in neighbourhood shops and on local markets, and in general show loyalty to local products. However, recent developments have created a substantial middle class, one that continues to grow and is willing to spend on clothing and personal care products.
The market share of the six leading retailers in apparel in Nigeria is less than 2 percent, meaning the market is still very much up for grabs. McKinsey’s report indicates that brand loyalty is strong in Sub-Saharan Africa, with people usually sticking to one brand. That is the reason that first movers on the market can seize a deciding advantage on the competition, as they can utilize the belief that brands offer higher quality. With a high rate of penetration by media outlets, like TV and internet, consumers can be easily reached.
Another country full of potential is Tanzania, which already had a population of 46.2 million in 2011 and is expected to have the second largest population of Africa by 2050. Though its economic growth is significant, structural impediments mean GDP per capita is low. Tanzanians, like Nigerians, show strong brand loyalty, giving first movers the opportunity to establish a sustainable consumer base. As spending power is more limited than in Nigeria, opportunities mostly lie in products that can be offered more cheaply, like personal care products as toothpaste and washing powder.
Another popular industry is beverages. Energy drinks, for instance, can count on steady demand from all income classes. With supermarkets becoming more popular as well, these drinks have a convenient outlet to raise their availability and sales. Another characteristic that influences the behaviour of Tanzanian consumers is the influence of recommendation. This is an aspect that not only benefits first movers, but also indicates that the marketing international companies deploy, needs to be adapted to the particulars of the country of operations.
The countries and industries mentioned are only a fraction of the huge consumer markets that the African continent has to offer. With the aforementioned developments underpinning the further growth of these markets, consumer spending in Africa will be tantalising for any company. As indicated, first movers have a lot of advantages. Fairly high rates of brand awareness and loyalty, as well as fragmented markets, create an opportune environment to establish significant market shares. If companies can take the characteristics of a country into account and create a solid business plan on how to reach their target groups, the sky is seemingly limitless.