Posts Tagged ‘Africa’

Questioning Convention: Comparison Metrics for Competitive African Markets

Taking the question of appropriate and relevant metrics by which to assess competitiveness (rather, attractiveness) of the emerging African consumer markets further, I decided to dig up some analytical infographics to compare and contrast their approaches.

Urbanization is a current favourite, and here are two similar looking visuals from two different perspectives. The first is Knight Frank’s report on real estate opportunities on the continent, while the second is from PwC’s African section of the WEF Global Competitiveness report.

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Knight Frank 2015

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PwC 2015

Leaving aside the question of whether Dar es Salaam will show greater than or less than 120% growth in the next 15 years, here’s a clear indication of how choice of metrics impact outcomes. Granted, PwC selected countries on which to focus, thus the cities they list differ from Knight Frank’s, and each report has a different emphasis. Otoh, should there be a difference of ~ 10% in growth estimates for Nairobi, for instance, or Ibadan? No wonder these reports lead many to decry the quality of statistics and data from Africa.

Anyway, the point isn’t to debate whose method was better or if Dar will be the fastest growing capital on the continent or not. Until the dust settles down in the current scramble for African reportage, its best to take multiple sources of data into consideration and triangulate on the most reasonable estimate.

Questioning Convention and Convenience

The point is to ask if the conventional way we approach assessing the size and value of a market opportunity might itself need to be questioned when it comes to the African market?

For decades, South Africa was the closest thing to a developed economy south of the Sahara and until last year, the largest and strongest of all. This led to it becoming the de facto frame of reference through which to evaluate the others. PwC’s report shows this heritage in these analytical charts which compare regional (and continental) economic powerhouses of Nigeria and Kenya against South Africa.

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kenya pwcIn today’s world, you’re highly likely to be looking at Nigeria in West Africa and Kenya in East, if you’re looking at Africa at all. What you’d want is a means to compare the two, or more, rather than compare each against a third country whose operating environment you may not be familiar with.

PwC countries

This choice of metric – the lens by which they assess competitiveness – seems to make sense at first glance. But is it helpful in any way, shape or form to any organization without experience of the South African context by which to judge the relative rankings of the others?  South Africa’s historical economic development lends itself to favourable rankings on the conventional metrics used for a globe spanning index while much of the others fall behind in contrast.

Yet they are distinguishing themselves in unique ways, contradicting what the metrics seem to imply – we saw the same challenge, in different form, with the E-commerce readiness index proposed by UNCTAD. South Africa’s current economic trajectory as compared to projections for either Kenya or Nigeria (or quite a few of the others) is quite dismal and the outlook gloomy, quite unlike the healthy exuberance of these two – compare SA’s 2.1% with Kenya’s 6.2% or Nigeria’s 7.3% – like I said, I’d be wanting to compare these two against each other, and maybe Ghana or Ivory Coast or Rwanda etc .

Is it time to think about developing metrics that better reflect the complexity and potential of the African operating environment?

African E-Commerce: Successfully Leapfrogging The Metrics of Fail

Postal networks are critical elements of the e-commerce chain, a UN report said, including home postal delivery as an indicator in a new global index to measure countries’ readiness to carry out business-to-consumer (B2C) e-commerce. ~ source

By these metrics, countries on the African continent such as Nigeria rank 101st on the global index, far below South Africa at 67th place, and Cote d’Ivoire isn’t even on the readiness list.  Why should this matter?

Jumia, one of the rising giants of pan African e-commerce, just opened 6 new hubs across the Cote d’Ivoire, and happens to be headquartered in Nigeria. On the other hand, South Africa has been struggling to get its e-commerce industry off the ground to meet its full potential.

While the reports such as these may  indeed be organized collections of tastefully analyzed data and well presented charts and graphs, are they able to offer any meaningful insight? This report presents The UNCTAD B2C E-commerce Index as a means for countries to assess their readiness for e-commerce and identify the areas that need further development and investment.

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Konga Warehouse, Lagos, Nigeria

Yet, on the ground, the “least ready” countries seem to be leaping forward, building brands and developing ecosystems for the emergence of supporting services, employment opportunities and even, niche platforms.  How does all the hard work that may have gone into the creation of such reports help them?

Metrics – the attributes by which to rank or measure – may not always be universally appropriate, nor will they always represent the real world operating environment. As African economies emerge onto the global platform – both real and virtual – they may require new ways to measure opportunity and success.

Metrics that can realistically reflect their unconventional characteristics of cutting edge communications commingled with undeveloped infrastructure. Else the growth opportunities such as those in Cote d’Ivoire, which isn’t even listed in the UNCTAD B2C E-commerce Index may pass under the nose of international players.

Yes, Africa is starting from a very low base, but early investors like Rocket Internet’s Jumia know that its only here that one can show results like 900% growth in sales in as many months.

 

Beer as a symbol of aspirational consumption and upward mobility

sab labour to consumerI came across SABMiller’s recent presentation on their consumer market strategy and some of their infographics caught my attention. This one, for instance, not only shows the relative proportion of formal to informal alcoholic beverages prevalent in the market but also informs us that it costs 4 hours to buy a beer in Africa, compared to minutes elsewhere. A caveat here is to wonder where they are pricing the European beer as anyone who has been to the Nordic knows that beer is ridiculously expensive up here.

localization sabI like the way they’ve dived deep into understanding their target audience’s needs and aspirations as they seek to localize their offering. While we tend to feel superior to such discretionary vices as alcohol when considering lower income markets (the erstwhile “Bottom of the Pyramid”) there’s a lot to be gleaned from their marketing strategy as they have to work harder to reach their customers. Social enterprises could do worse than to take a leaf from their book.

consumer aspirationsIt was this aspirational upward mobility that offered food for thought when I tweeted it. Teddy Kinyanjui of Cookswell Jikos, Kenya observed that this consumer behaviour of seeking premium products by the emerging middle class was also responsible for his own product sales. He makes designer BBQs based on the traditional jiko – the humble charcoal stove used for cooking. He called this aspirational shift the upmarket version of the age old favourites nyama choma (roast meat) and pombe (homebrew).

chibuku31-e1400842601488Talking about homebrew, this was the most interesting part of the SABMiller presentation. They’ve formalized the informal. Home made sorghum beer is a regional favourite, what the company calls opaque beer. Its cheap and ubiquitous. The trouble starts when all kinds of additives and contaminants are used to boost its potency, leading to death, blindness and other such devastating side effects. Their version, naturally, is pasteurized, hygienic and safe.

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Yet, how to reach the vast informal market accustomed to no name local brews? This is where their packaging/price point strategy gets interesting, as it seeks to wean folks away from illicit liquor into branded quality even while creating an entirely new product category, with its own supply chain ecosystem.

I had always thought that it was innovations in the payment plan or business model that offered the flexibility to bridge the formal and informal, not the actual product category itself. This is a concept I’ll be exploring further with an indepth article on Cookswell Jikos.

Navigating the African Informal Retail Sector

Nigeria’s consumer market has captured global attention. A significant proportion of this emerging market opportunity is in the FMCG category. Due to historical reasons, 87% of this retail trade happens in the “unorganized” or “informal sector”.  The market is highly fragmented and inefficient.

Yet due to the nature of the informal economy, most of this economic activity has been overlooked or not captured by conventional market analysis and research.

CPG companies wishing to enter this market need a map of the landscape in order to navigate the opportunity successfully or to design the most appropriate and relevant business model for their needs.

Situation Analysis

Nigeria’s informal retail trade can be segmented into three major categories – Tier 1 (approx 5%), Tier 2 (approx 30~35%) and Tier 3 (approx 60~65%) of which Tier 1 is the most formalized with some amount of business processes in place.

The real challenge in addressing the market commercially is the unorganized nature of the bulk of the trade – Tier 3 – who tend to be market women buying and selling goods in open air markets and street corners without any business infrastructure. There is no feedback loop in place for manufacturers and distributors who have little idea on how to plan and estimate their product pipeline.

Yet, the methods and tools available in the formal economy with its information, communication and financial services infrastructure cannot be directly implemented either due to the informal, flexible, unstructured nature of the sector.

There is a gap in knowledge and in understanding of the business practices in the cash based informal economy. In order to bridge this gap, we need to begin by understanding the informal retail business from the ground up. Then we need to figure out how to use smartphone technology to map retail locations and keep a finger on the pulse of consumer demand and product sales flow.

Framework required for optimizing informal retail market research for CPG distribution

  1. Landscape of informal retail in FMCG
    1. Market survey of FMCG  retail distribution space – trends in etail, ecommerce, business models, distribution models, startups and apps.
    2. Insights on demand creation, market development, consumer behaviour – loyalty, relationships, purchasing patterns, choice of location.
  2. Identifying touchpoints for intervention – with and without technology – to improve efficiency of system with respect to: Data gathering, inventory management and forecasting
    1. Identifying attributes by which to segment and cluster retailers – Volume and/or Frequency, location, density, product categories, profitability

The basis of the optimal solution for maximizing distribution of consumer products across the vast, undocumented and fragmented informal retail sector, such as in Nigeria, would be using Pareto’s Law to cluster and identify the retail outlets to be reached for a particular product category’s target audience and thus, crafting the most cost efficient reach strategy.

Using technology to optimize data collection

ITC in India has already implemented the use of GPS in a tablet based inventory management solution which sales officers use in the remotest areas to send real time data on inventory, demand and sales back to the company headquarters using ubiquitous mobile connectivity in the remotest rural area.

NeilsonMobileRetailACM2015With the right list of outlets and channel clusters, manufacturers are better able to offer the right product format and size to meet the particular needs of the consumers who visit those particular outlets.

Crucial details such as store location, type of store, trading days, opening hours, access to power and water, the presence of a storeroom, categories stocked, and a long, long list of other characteristics should be captured during the survey. Simply knowing which stores have refrigeration can transform the business of a Guinness distributor in Nigeria, for example.

Clustering retail outlets by volume of sales as one of the attributes.

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What’s missing?

While reasons for visiting different retail formats were documented what’s missing is the frequency of visits. Also required is a chart capturing purchasing patterns seen most commonly among the majority (the prepaid or kadogo economy) who manage on irregular incomes in informal markets where over 90% of all transactions are conducted in cash money.

Those need to be mapped against buyer behaviour for a true picture of the rhythms of the bazaar, without which the CPG firms will not have a finger on the pulse of the market, just reams of numbers without a contextual framework and foundation. One element, for instance, would be seasonality, the “high season” and “low” which are commonly seen in cash dependent markets.

Also, flexibility in this context does not simply mean variety in packaging and SKU sizes or branding the product container. Flexibility refers to the flow of cash – the time and money – that allows for the management of volatility between outgoing expenses and incoming cash flow. In the retailer’s context, this would be the interplay of credit and cash, inventory and demand and of course, “fast moving goods”.

Lets see how this research initiative proceeds to understand and grapple with that critical characteristic of the operating environment and retail ecosystem that distinguish the African consumer market.

Download the Neilsen Africa Retail Labyrinth report as a PDF. Contact me if you’re curious to know more about the original thinking behind the situation analysis and research plan.

Labour saving African kitchen appliances: Market opportunity for product design and social innovation

Mama making ugali (nsima) over a 3 stone fire in Kisii, Kenya (Photo Credit: Niti Bhan)

After watching their Mamas spending hours over an open fire, sweating over the daily dish of ugali or nsima or fufu – the African kitchen’s favourite carbohydrate – inventors and innovators across the continent are taking the initiative to ease her burden with nifty, new kitchen appliances.

While culinary details differ from region to region – West Africa’s fufu is cassava based, while East Africa’s ugali is made of maize – the essential element in common is the time and effort involved in cooking the stiff, sticky, starchy staple.

The latest is from a young man in Malawi, who, after 3 years of tinkering that’s reminiscent of Dyson’s obsessive iteration, has successfully prototyped an nsima (or ugali) cooker. It makes the perfect maize porridge of the type you see Mama stirring in the photograph in just 36 unsupervised minutes.

Opening-the-nsima-cooker-600x450And that’s where he’s at with the product, which can also be started remotely by the ubiquitous mobile phone.

On the other end of the continent, however, Togolese electronics engineer Logou Minsob has gone much further with his award winning invention, the FouFouMix. It converts pre-cooked cassava into fufu in less than 10 minutes.

Fufu or foufou is made from pounded yam also known as cassava. The tuber is cooked and then pounded into a particular sticky consistency. This article from Ghana, whose myths claim it as a food for the gods, describes the entire back-breaking process taking many hours and many hands to get just right.

youmomentumslideThis visualization of the process is his older model – there’s already a new model in production and the factory is in full swing. Why I find it interesting however is due to its similarity with this visual of yet another indigenous invention, the idli maker – the idli is a South Indian steamed rice cake.

2As you can see, those wheels are made of granite – considered the only way to grind the soaked and fermented rice into the right consistency to be steamed in specially designed pans.

There’s a pattern of arduous consistency being translated into convenient time saving mechanisms.  Backbreaking labour is inspiring invention.

vintage-ad-kenmore-washing-machine This is exactly how the giants of home appliances began their global brands, through the invention of washing machines and dishwashers and vacuum cleaners – all the things that made life easier for the industrial era’s housewives. Domestic appliances revolutionized daily life, minimized the need for servants and opened up a world of learning and leisure for women in the industrialized world.

Yet, neither of these appliances are commonly found in superstores anywhere in the world, nor are they products that any of the big name brands would think to develop. While the Indian product is certainly meant for a regional niche, unlike a pressure cooker, say, the African devices newly being invented are not. Each have potential across their entire regions.

Indigenous product innovation and opportunity

And this potential new market opportunity goes beyond product innovation or category creation. Just like the labour saving devices of the previous century, these have the potential to truly liberate women from the hours spent on the most basic household chore – cooking the daily meal.

Unlike the social enterprise attempts to focus on health benefits of smokeless stoves or solar lamps, these have emerged organically from local inventors spotting an opportunity for genuine innovation. The demand certainly exists, and its one that is independent of the household’s income range.

There’s a whole new market opportunity to be tapped, by these and other such similar inventions, if only consumer brands would take a moment to notice.

Importance and value of Africa’s informal food markets

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

Kenyatta Market, Nairobi, Kenya (Photo Credit: Niti Bhan)

There’s a new book released by the International Livestock Research Institute (ILRI) and partners — Food Safety and Informal Markets: Animal Products in Sub-Saharan Africa—that probes the complicated world of traditional or ‘informal’ markets in livestock products. Here are some unexpectedly juicy findings:

Research by ILRI and partners shows that in most developing countries, more than 80 per cent of livestock product purchases occur through informal markets — and in places where there is no ‘formal’ alternative, like a western-style supermarket, close at hand. And the studies find that this situation is unlikely to change for decades to come. Also, even where supermarkets are an option, studies in East and Southern Africa have found that, due to a poorly patrolled chain of custody between producer and seller, milk and meat sold in supermarkets may pose a greater health threat than what is sold in traditional markets.

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Informal & Social Measures in the Kadogo Economy (Photo Credit: Niti Bhan)

Moreover, small producers have many attractions for poor consumers. They are typically within walking distance for people who lack cars and they offer the opportunity to purchase fresh food in small amounts — part of what is known in East Africa as the ‘kadogo’ economy. (Kadogo is street slang for ‘small.’) In addition, many sellers in traditional markets will extend credit and typically offer the traditional foods their customers prefer.

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Uchumi Supermarket, Ngong Road, Nairobi, Kenya (Photo Credit: Niti Bhan)

Many policymakers mistakenly believe that food-borne illness in developing regions will rapidly decline as the modernization or ‘supermarketization’ of food sales steadily supplants informal markets. But the ILRI studies show that Africa’s supermarket food is not necessarily safer than food in informal markets and also that informal markets are unlikely to disappear — and could even become stronger — in the coming decades.

Indeed, the research shows that consumers prefer informal to formal markets, and not just for their lower prices, but also because traditional markets tend to sell fresher food. They also sell local products and breeds, which many consumers continue to prefer — and those preferences seem to intensify as incomes rise. For example, in Africa and Southeast Asia, consumers often prefer local chicken breeds over cheaper imported breeds.

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Freshly shredded cabbage (Photo Credit: Niti Bhan)

Informal markets are growing, not shrinking, across the developing world and in many ways mirror the “locavore” trend occurring in wealthy countries’, said Grace.If we are going to improve food safety in these markets, we need policies that are guided by an understanding of producer and consumer behaviour, local diets and customs, and interventions that can reduce illness without imperilling food security or increasing poverty.’

 A deeper understanding of the entire value web (chain doesn’t apply as the rural ecosystem is as unstructured and informal as the markets) of  these informal markets for meat, milk, vegetables and other foodstuffs will offer greater value than towards informing policy alone.

Informal retail is expected to grow, and “supermarketization” will neither come fast enough to change this any time soon, nor be able to replace the complex role the bazaar plays in both rural and urban contexts. This is worth remembering for consumer facing brands, especially in the FMCG sector, as well.

Informal trade is big business in Africa

On my way to Nairobi  from Singapore a couple of years ago, I had the opportunity to observe first hand the phenomenon of informal trade between China and the African continent. The energy and excitement of the traders, laden with goods on their way back, was a palpable part of the inflight experience. Today, I came across this bit of news showing that the airline recognizes the sizeable opportunity available in successfully serving this rapidly growing economic activity.

A Kenya Airways ticketing office at Tea Room area near the intersection of Accra and River roads has sent a signal of the growing significance of the informal economy to big companies seeking to grow their top line.

The Tea Room area is a hotbed of informal traders, who import vehicle spare parts, stationery, mobile phones and accessories, building materials and computers, among other goods.

The traders frequent favourite import destinations such as China, Dubai and Turkey, which offer relatively cheaper goods.

“Tea Room is a prime location, accessible and a central point for a large number of small-scale entrepreneurs in town. This shop will therefore offer opportunities to traders for direct interaction with our staff and this will enable provision of tailor-made services to this market segment,” said Kenya Airways managing director Mbuvi Ngunze in a statement. ~ Business Daily, 11th Jan 2015

This recognition of the important role played by the so called informal market for consumer facing businesses is one that will become increasingly visible. And, I suspect, its an overlooked opportunity for local brands to gain market share and first mover advantage. Here’s a complementary snippet from an entirely different industry:

To win his first mobile network operator licence, Zimbabwean telecoms tycoon Strive Masiyiwa based his projections not on “World Bank numbers” but by studying the informal sector.
[…]
Masiyiwa explained Mascom came to its numbers by recognising the strength of the informal economy and understanding the local market. “I understood the informal sector was real.”

He suggested that even knowing the number of cattle in Botswana can offer insight into spending power. “Cows represent wealth in Botswana.”

Like Masiyiwa, we’ve been able to identify indicators to assess size and value of a particular industry or segment, though it may be undocumented and considered informal.  Some are common across regions, like wealth in the form of the cow, while some need to be identified and validated for the task at hand.

Regardless, the fact remains that the true size of the opportunities still remain undiscovered.

Mobile Money Is Driving Africa’s Cashless Future

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This article was written for HBR a few months ago. Here are some key snippets:

Three distinct factors are driving this transformation. First and foremost is the desire for financial inclusion. Africa’s unbanked majority needs access to affordable tools for savings, loans, and credit. The second is the need to lower the costs and risk of retail and trade based primarily on cash transactions. The third is the introduction of cashless policies from regulators in countries like Nigeria, Kenya, and Ghana. Low consumer confidence in traditional financial institutions also makes this an opportune moment for new players to enter the solution space. And cellular technology is leading the way.

[…]

But the possibilities for ecommerce and consumer marketing are enormous. Nigeria’s ecommerce market alone generates $2 million worth of transactions per week, and online transactions are expected to cross $6 billion by the end of 2014. Interestingly, the fears regarding Ebola and Boko Haram are driving more people to shop online (and stay at home). E-tail could help consumer goods companies leapfrog the need for extensive distribution infrastructure, something consumer product companies are already exploring.

Analysing shifts in consumer household purchasing patterns – Milk ATMs in Kenya

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Uchumi Supermarket, Ngong Rd, Nairobi Photo Credit: @bankelele

“We are selling one litre at Sh65, but a consumer can get as little as 77ml at a cost of Sh5. All one needs to do is key in the amount they require, and the product is dispensed,” Gitonga, who procures his machines from Italy, said.

Flexibility is the key to survival, indeed. This quote is from a Kenyan newspaper article titled “Dip in purchasing power drives demand for milk dispensers” which covers the increasing visibility of these milk vending machines in Nairobi and touches upon some of the demand drivers.

Mr Gitonga told Business Beat he shares the profits equally with supermarkets and retailers as he is protected from other expenses such as rent, water and electricity.

He said the demand for milk from the machines is being dictated by changing dynamics in the local market, including the need for quality milk, depressed purchasing power and a surging population.

The prices for processed milk have increased since the introduction of VAT last September, which has prompted consumers to turn to raw milk. Currently, a litre of raw milk in most estates costs between Sh50 and Sh55, while a litre of processed milk averages Sh85.

“We are giving consumers who frequent outlets in estates that sell raw milk that may not be inspected a safer choice.”

What strikes me is the fact that this shift back to one of the fundamental purchasing patterns observed among the lower income demographic is not only an obvious sign stretched household budgets due to rising price of food, but a classic example of the flexibility required by those managing on irregular income streams.

That is, this daily habit to purchase only what is needed and that too by cash amount (5 shillings) or quantity, is the same purchasing model for kerosene, another household staple.

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Could this shift in buyer behaviour also be considered a signal of the fluctuating fortunes of the “floating class” identified by the African Development Bank as those who are part of the emerging middle class but their cash flow might not be as steady as for someone on a regular paycheck?

If so, then we’re seeing here an example of an innovative solution to providing a daily need – milk – to urban households without a cow in the backyard – by ATM entrepreneurs as a whole new market creation opportunity.

Not for milk per se, but for products and services which can offer the flexibility that volatile income streams require, and are still upwardly mobile or progressive consumables that the emergent middle class household needs for their shopping basket, in this case, pasteurized milk.

And the increase in demand might actually also be an increase in the population of those who are now part of “middle class with floating”… this could be one of the dividing lines. I’d keep an eye on the fortunes of these milk machines in supermarkets if I were interested in the African middle class market.

 

Prepaid services for water in Africa – survey

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An increasing number of African water utilities are turning to pre-paid metering in order to curb wastage, claw back lost revenues and extend service coverage. Do the rewards justify the high roll-out costs?

Chris Heymans, senior water and sanitation specialist at the World Bank, is currently undertaking a study of pre-paid services in eight cities in six African countries. He observes that while the investment is hard to recoup in domestic connections with low consumption volumes, PPS for public standpipes and large institutional clients are more likely to be financially viable because the high volumes of water sold can quickly repay the high installation costs of pre-paid meters.

The key constraints for institutional pre-payment meters are that governments need political will to stand by such systems, and some decision-makers have concerns about the ethics of putting strategic institutions such as schools, hospitals or police stations at risk of being cut off. In Lusaka for instance, LWSC made an exception for the city’s main hospital, which was simultaneously equipped with a PPS and a bypass system to ensure that it would not run out of water.

Source.