The African retail market is poised for a remarkable transformation over the next decade, driven by several points that promise to redefine the sector. From the immediate expansion of the middle class to the ever-increasing adoption of technology and the operationalization of the African Continental Free Trade Area. (AfCFTA), the level is set for significant growth. According to Euromonitor International, retail sales in Africa exceeded $500 billion in 2018, and this figure is expected to grow exponentially, especially under the AfCFTA, with a giant market of more than $1. 2 billion. other people and a GDP of $2. 5 trillion.
However, it is imperative to approach this expansion with a nuanced understanding of Africa’s varied retail landscape. The continent’s 55 independent states each have their own retail markets, economies, and customer behaviors that differ particularly from one another. In this article, we’ll delve into the complexity of Africa’s retail sector and explore the emerging trends that are poised to shape its future.
Traditional Retail Domain
In the global context, higher GDP correlates with higher market penetration of fashion retail. However, in Africa, classic and informal retail still dominates the market. According to a recent report by Boston Consulting Group (BCG), African consumers continue to purchase more than 70% of their food, beverages and personal care products from the continent’s 2. 5 million small independent stores, on average.
The term “traditional retailer” varies from country to country. In Morocco, it’s called “hanout”. In Egypt, it’s a “bakkal. “In Kenya, it’s a “duka. ” In South Africa it is called “spaza”. The diversity of nomenclature reflects diversification across the continent. For example, in Nigeria, more than 600,000 small shops account for 97% of national sales. By contrast, only 30% of sales come from spazas in South Africa. Despite the construction of hypermarkets and supermarket chains, Morocco, Kenya and Egypt rely heavily on traditional stores for 82%, 77% and 75% of all retail sales, respectively.
Brick-and-mortar stores continue to resist for a number of reasons. They offer proximity, flexibility, and convenient business hours that meet the desires of their communities. In addition, they provide more credit to consumers with limited incomes, making it less difficult to buy. in small quantities. For example, in Morocco, a significant proportion of consumers prefer to shop at “hanouts”, where credit is offered in nine out of ten stores.
Despite its resilience, classic retail in Africa faces many challenges. These come accompanied by the expansion of fashion retail, the expansion of e-commerce, and adjustments in customer habits accelerated by the COVID-19 pandemic. To address those challenges, a developing country’s number of traditional retail outlets are adopting virtual retail services. In Kenya, for example, the percentage of stores offering remote ordering increased from 27% at the beginning of 2019 to 39% at the end of 2021. This has been noticed in Egypt, where around a third of brick-and-mortar stores offer remote ordering, delivery, and services. Bill payment services.
Startups Are Bridging the Virtual Divide
As the transition to virtual becomes inevitable, a wave of startups is emerging offering classic stores cutting-edge virtual solutions. These startups are solving bottlenecks and accelerating the transformation of traditional retail outlets. Many of them aim to address inefficiencies. in distribution systems, preventing traditional outlets from getting enough inventory.
For example, Nigeria’s B2B virtual marketplace Alerzo allows more than 100,000 users to acquire shares directly from manufacturers, make cashless payments, and efficiently track their earnings. Another popular strategy is to adopt small large advertising warehouses as agents for giant e-commerce startups. In Kenya, Copia Global leverages consumer acceptance by merchants to convince them to buy products on its e-commerce site. Once the order is confirmed, Copia delivers the products to the agent within 48 hours, allowing even less sophisticated consumers to place orders. online, while small traders generate profits through commissions.
The Rise of Modern Retail
Despite the dominance of classic retail in many African countries, fashion retail has enormous untapped potential. In countries such as South Africa, fashion retail is well established, with supermarket chains such as Shoprite, Pick ‘n’ Pay and Spar accounting for more than 70%. of retail sales. However, in other African countries such as Morocco, Egypt, and Nigeria, the reach of fashion retail is below its potential.
For example, fashion retail in Morocco accounts for only 18% of total trade, despite the presence of well-established stores such as Marjane, Carrefour, and BIM. In Egypt, the market is opening up to fashion stores, especially locally founded ones. which recorded a very broad annual expansion between 2015 and 2020. Kazyon discount supermarkets have grown in Egypt, while other successful Egyptian supermarket chains include Awlad Ragab and Seoudi.
Kenya presents a similar case to Egypt, with the local Naivas logo leading the expansion of fashion retail. The logo of French supermarket Carrefour, operated through UAE-based Majid Al Futtaim, has also expanded its store network in Kenya. In 2023, Carrefour Kenya achieved a turnover of KES 40 billion (US$290 million). Kenya has more than 20 major supermarket chains, accounting for more than 25% of all retail sales in the country.
Investment Growth, Mergers & Acquisitions
In recent years, the fashion retail segment in Africa has noticed an increase in investment by retail chain owners. LabelVie, which operates the Carrefour logo in Morocco, has made really significant investments in the growth of the supermarket chain. In Egypt, Carrefour Egypt, owned and operated through Majid Al-Futtaim (MAF) Retail, has announced plans to invest further in the Egyptian market.
Private equity has played a huge role in the expansion of fashion retail in Kenya. In 2020, Naivas Limited raised 6 billion KES ($49. 8 million) from a consortium of investors, allowing the supermarket chain to especially expand its network. Quick Mart, a close competitor of Naivas, also won from personal justice firm Adenia Partners.
South Africa, on the other hand, presents both opportunities and challenges. Shoprite, the country’s largest retailer, has closed its operations in several African countries but has embarked on an expansion crusade in South Africa. Walmart Inc has made a really big bet to win the remaining 47% of South African Massmart store that it didn’t already own. Choppies, the largest store in southern Africa outside of South Africa, struggled financially and had to refocus its efforts on its home market.
Lessons learned from various markets
Choppies and Shoprite’s struggles to reflect their good fortune highlight the diversity of the African retail landscape. Success in one market does not guarantee good luck in another. Majid Al Futtaim, owner of a Carrefour franchise, has discovered effective formulas that meet the unique desires of other African markets. Their achievements in Kenya and Uganda are examples of cases where Shoprite and Massmart have struggled to turn a profit.
A Modern Retail Future
BCG analysts foresee a long term in which retail in Africa will become increasingly fashionable as the middle class grows in many countries. Morocco has already set a precedent with a developing middle class that prefers the fashion industry because of emerging incomes. As fashion stores expand their presence, we can expect a similar trend to occur across the continent. However, it is imperative to emphasize that fashion stores will have to be local to be successful. They want to adopt formats, giant or small, that respond to expressed wishes. of their communities. Despite the prospect of a fashion retailer, brick-and-mortar stores are expected to continue to play a dominant role in the industry due to the pricing proposition they will offer to customers. Classic long-term stores are most likely to have more complex business models that leverage virtual responses to offer new facilities tailored to the long-term supply and desires of African consumers.