Africa: Consumers,
Consumers Everywhere...
Growth opportunities for consumer goods companies
Consumer goods companies around the globe spend great energy and
resources to achieve the growth that stock markets constantly seek.
In stagnant markets, growth is possible, but it can be a zero-sum
game as what one company gains another loses. Rapid, long-lasting
growth requires a strong market, and during this economic downturn, Africa has produced some of the world’s highest growth rates.
Establishing a foothold in Africa now can lead to a long-term
competitive advantage.
While most executives are familiar with
the business opportunities offered by
Africa’s natural resources, many are still
unaware of the enormous opportunity
that the continent’s large and growing
“consumer class” offers. As regional
growth continues, the question for
executives at consumer packaged goods
(CPG) companies is no longer whether
their firms should enter the region, but
where and how.
Our experience in West Africa
illustrates that the opportunity there,
while enormous, requires a change
in mindset.1 How can you translate
Africa’s rapid growth into success for
your company?
A Track Record of Growth
African consumer goods businesses are
already delivering growth and profits
for global CPG companies. We recently
studied the performance of nine West
African subsidiary companies of global
consumer goods companies and found
that eight registered faster revenue
growth than their parent company,
and on average their compound
annual growth rate (CAGR) was
more than double.2 Profit before tax
(PBT) growth was faster in seven of
the nine companies we examined.
In addition, these subsidiaries delivered PBT margins of around 13 percent, not far from their parent
companies (see figure 1 on the following page). This is particularly notable
given their investment in growth and
the fact that parent companies may
be taking additional profits through
internal trading agreements.
Basic economic and demographic
factors are driving this impressive
performance. While per-capita incomes
The United Nations’ definition of West Africa includes 16 countries: Benin, Burkina Faso, Cape Verde, Gambia, Ghana,
Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. For our
purposes we have also included Cameroon, which borders Nigeria but is classified as part of Central Africa by the UN.
2
Product sectors examined included food, drink, personal products and household cleaning products. Where PBT was not
available for CAGR calculations, net profit has been used as a proxy. Where necessary, due to incomplete company data,
shorter time periods within the 2004-2009 range were used in CAGR calculations. PBT is for last available financial year.
1
Africa’s large and
growing “consumer
class” offers a great
opportunity for
CPG executives
that can translate
these consumers
into profits for the
company.
FIGURE 1: The performance of West African subsidiaries compared with their
global CPG parent companies
CAGR and PBT margin
18%
16.8%
16%
15.6%
13.6%
14%
12%
12.8%
11.1%
10%
8%
7.1%
6%
4%
2%
0%
CAGR revenue growth
CAGR PBT growth
PBT margin
Global CPG parent company
West Africa subsidiary
Notes: CAGR
GR stands
t d for compound annual growth rate;
t PBT stands
t
for profit before tax. Data based on financial performance of nine global
CPG companies from the food, drink, personal products and household cleaning products sectors. Where PBT is not available for CAGR
calculations, net profit is used. Shorter time periods are used in some CAGR calculations because of incomplete company data. PBT is for
last available financial year.
Source: A.T. Kearney analysis
in most African countries remain
low, incomes are rising, leading to
the development of a new “consumer
class” with increased disposable income.
At the same time, demographic trends
are bringing change—there are simply
more consumers to buy more goods,
and a changing age profile is leading
to more people who are in the early
stages of an economically active life.
For example, look at Nigeria,
West Africa’s most populous and strategically important market. Nigeria’s
population has increased from less
than 100 million 20 years ago to
150 million today (see figure 2). This
is leading to a higher proportion of
citizens who are young adults, the age
range when consumer consumption
tends to be highest.3 Despite this
population growth, gross national
income per capita increased by a
CAGR of 7.3 percent between 2000
and 2008.4 Considering this, it is
not surprising that increased private
consumption is forecast to be a leading driver of growth in Nigeria in
the next 20 years. Further down the
road, the drivers of economic stimulation are expected to endure. The UN
expects Nigeria’s population to grow
to 289 million by 2050, an 83 percent increase in 40 years. As an executive at SABMiller told Business Day
newspaper in November 2009, “For
all the challenges of the Nigerian
market, if companies do not have
FIGURE 2: Nigeria’s population profile
Analysis:
1970-1990
1991-2010
2011-2030
2031-2050
Population growth
Million
%
40.9
60.9
68.4
62.4
72%
63%
43%
28%
Analysis:
2010
2020
2030
2040
4%
3%
2%
1%
0m
5m
10m
15m
Million
% of total
population
63.3
80.5
98.6
112.3
40.0%
41.6%
43.5%
43.3%
Analysis:
2010-2015
2016-2020
2021-2025
2026-2030
2010-2030
2029
5m
Population in 15-39 age group
2027
10m
2025
0%
2023
15m
5%
2021
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
0
(% real change, yearly)
6%
2019
50
The key 15-39
age group
GDP
7%
2017
100
Private consumption
(% real change, yearly)
8%
2015
150
Male
2013
200
9%
Female
2011
250
Forecast growth in private consumption
2009
Population (million)
300
Population age profile, 2010
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
Annual % change
Population growth, 1970-2050
350
Average annual growth rates
GDP
Private
consumption
6.1%
1.8%
1.7%
4.3%
3.3%
5.9%
3.7%
5.6%
7.5%
5.7%
Sources: United Nations, Economist Intelligence Unit, A.T. Kearney analysis
3
4
Nigeria’s population in the 15-to-39 age group is 63 million—greater than that of Western Europe (58 million). By 2040 the difference is expected to be more than double (112 million
vs. 51 million). Source: United Nations.
Source: World Bank; gross national income per capita is based on purchasing power parity.
Why Are They Holding Back?
Our research finds several factors are keeping companies from taking advantage of
Africa’s emerging market opportunities:
Too risky. Top executives have historically held the perception that Africa
is too risky to enter. Many have a tendency to group all of Africa, a continent of more
than 50 countries, into one category.
Low priority. In some cases, the opportunities in other markets have simply
outweighed those in higher-risk African markets. We believe this will change as opportunities in other markets become more difficult to identify and those in Africa become
better understood.
Operational challenges. Businesses find the operational challenges of Africa
daunting. Our experience, however, is that while African markets pose some challenges,
they are not insurmountable. For those used to operating in developed countries, the
key to success is a mindset change. Whereas in developed countries being “world-class”
is a typical goal, in Africa success is common sense, patience and ingenuity.6
a Nigeria strategy, they do not really
have an Africa strategy.”
While many have overlooked
Africa’s consumer opportunities for
various reasons, the numbers show
that this is an opportunity that can’t
be missed (see sidebar: Why Are They
Holding Back?).
Where to Now?
What we have frequently found in our
work in Africa is that many companies
struggle to find the appropriate
approach for entering the market.
There are three key questions for toplevel executives: Where, when and
how to invest?
Where to invest? Just like in developed markets, competitive considerations such as market structure, market
concentration, the strength of local
and international brands and retail
structure are core considerations about
where to invest. Equally important is
developing a profound understanding
of consumer segments, their require5
6
ments and demand patterns. However,
given the business environment, there
are several additional factors that
require closer consideration in Africa
than they would in developed markets:
Market potential. What are the
income levels and growth in the target
country, and what is the income disparity? What are the population
trends? Is this market a good platform
for growth in Africa?
Political, legal and social considerations. Is the country politically stable
and receptive to foreign investment?
What are the regulations, tariffs and
restrictions on foreign ownership and
currency movements? What is the state
of the legal system (particularly intellectual property protection)?
Infrastructure. What is the condition of local transportation, including
roads, airports, ports and railways?
What is the reliability of electricity
and water supplies, and telecommunications? What does the country have
in terms of forwarding agents, ware-
houses and chilled facilities?
Human capital. Are there enough
suitable local partners in this country,
and do they have enough existing
skills? What is the workforce development potential?
When to invest? This is a perennial question for developing markets,
with the right answer differing by
country and product. Many companies have been directing foreign direct
investment (FDI) at markets such as
South Africa and countries in Africa,
with their relatively more skilled workforce, more developed capital markets,
more stable business environments and
higher gross national income (GNI)
per capita.5
There are three
key questions for
top executives:
Where, when and
how to invest.
In these markets, however, it may
be too late to gain the “early mover”
advantage. In our view, Ghana, Nigeria
and Cameroon are three countries
where the time is right for CPG companies to examine investment opportunities. Ghana in particular offers
an attractive combination of political
stability, strategic location and growth.
How to invest? Local contacts,
knowledge and understanding remain
By comparison, using the World Bank’s “Atlas Method” for comparing the relative size of economies, South Africa’s GNI per capita was six times the average GNI per capita of Ghana,
Nigeria and Cameroon in 2008.
See “Supplying Sub-Saharan Africa” in Executive Agenda, Vol. XIII, No. 1, 2010, at www.atkearney.com.
FIGURE 3: Global consolidation: windows of opportunity
Opening
Peaking
Maturing
High
South Africa
a
a
Tunisia
Market
priority
riority
Low
a
Ghana
a
Nigeria
Closing
Se
Selected
West African
W
countries
Ot
Other
African
countries
co
Mor
M
Morocco
Cameroon
Ca
Definition
• “Consumer class” is growing • Consumers are becoming
familiar with more inter• Consumers are willing to
national consumer brands
explore new and foreign
• Consumer “pull” for
brands
global brands is strong
• Governments are relaxing
restrictions and becoming • Frequently, the retail
sector is maturing
increasingly welcoming of
foreign CPG companies
• Consumer spending on • Consumers fully
international brands has accustomed to a range
of local and international
expanded
brands
• Local competition has
become more sophisti- • Competition is fierce
from major CPGs
cated
• Major growth opportu• Growth opportunities
nities come from taking
focus on extending
share from competitors
geographic reach
Typical
method
of entry
and
growth
• Organic growth happens
• Goods are imported with
through investment in
local joint-venture distriproduction in facilities,
bution partners
focusing on major pop• Local production with JV
partners when scale allows ulation centers
• Small-scale acquisitions
create a foothold, increase
local expertise and build
platform for expansion
• Typically organic,
growth focuses on
extending geographic
reach across the
country and gaining
share
• Possible add-on
acquisitions
• Major acquisitions lead
to consolidated market
position and share
very important in markets that are
unfamiliar to many CPG companies.
The right way to invest in a market
depends on the product and the country, and where each stands with respect
to its “window of opportunity” (see
figure 3). In markets in the “opening”
stage of opportunity (including much
of Africa today), working with local
partners to build local knowledge
and experience is the preferred way
of entering before organic growth
becomes the major way to increase
scale and market penetration (see
sidebar: Case Study: Establishing a
Growth Platform).
Risk, Reward
Source: A.T. Kearney analysis
CASE STUDY: Establishing a Growth Platform
In 2008 an international beverage company sought an entry strategy for a large African
market. The competitive landscape already included large international companies plus
a number of smaller local players. Despite considerable experience in Africa, the company needed a regional partner to bring market experience and contacts. It made a 60
percent investment into a small regional company, gaining control while still leaving the
partner with a vested interest in making the company a success.
While starting a company from scratch or buying a company outright were
options, by partnering with a local company, the company built the strongest possible
platform on which to build and achieve market share through organic growth.
Africa offers some major growth
opportunities, but not all opportunities are alike — some will prove more
attractive than others. Leading companies will target their efforts with the
knowledge that while risk is higher
than in developed markets, the potential reward may be even higher.
So which companies will rise to
this challenge? Only time will tell.
Those companies courageous enough
to invest early will reap the greatest
rewards in the future.
Authors
Charles Davis is a partner in the operations practice. Based in the London office, he can be reached at [email protected].
Angus Hodgson is a consultant in the consumer goods and retail practice. Based in the London office, he can be reached
at [email protected].
The authors wish to thank Francesca Iodice for her support in writing this paper.
A.T. Kearney is a global management consulting firm that uses strategic insight,
tailored solutions and a collaborative working style to help clients achieve sustainable
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