Sector Report Fast-Moving Consumer Goods In Africa - Tralac

Fast-Moving Consumer Goods in Africa 6FMCG in AfricaFoodCurrently, food dominates African consumers’spending, but this will gradually change asincomes rise. The African population presentlyremains heavily dependent on cheap staple foods,while the increased inclusion of meat in the diethas barely begun. For the large majority of theAfrican population, the nutritional transition is stillfocused on quantity increases rather than qualityincreases. For these reasons, the FMCG sectoron the continent presents retailers with lucrativeopportunities, with a wide range of productsexpected to see a sharp increase in demandover the next few decades as African consumerscontinue to move up the ‘food curve’. Once basicneeds have been met, consumers will start focusingon quality improvements, e.g. including more meatin one’s diet, or buying a higher-quality brand of thesame product. It is important for FMCG retailers toestablish a footprint in a country at an early stage sothat they can benefit from both quantity and qualityshifts in consumers’ spending behaviour.Slowing consumer spending in Africa’s largesteconomy and the prospect to profit from theevolution of the consumer elsewhere on thecontinent have spurred South Africa’s retailers toexpand into SSA. Shoprite has been the leader inthis regard, already having a notable presence ina number of SSA countries. International retailersare also looking to expand into Africa, most notablyWalmart (through its acquisition of South Africa’sMassmart) and French retailer Carrefour. Informaloutlets continue to dominate food retail in mostAfrican countries, and this will be the biggestobstacle to overcome. That consumers are startingto favour the convenience offered by supermarketsand shopping centres is not in doubt, but the supplyof retail space is thin, and bureaucratic obstaclesnumerous. Another crucial concern is the lack ofsufficient distribution channels and the difficulty ofimporting products.BeveragesBeer - Africa has become an increasingly attractivefinal frontier for the global beer industry, as largepopulations, positive demographic developments,increasing urbanisation and higher disposableincomes improve the market potential in a largelyunderdeveloped industry. This is further supportedby the saturation of beer markets in most developedand emerging economies. Governments across thecontinent are making a concerted effort to clampdown on the consumption of illegal, unregulatedalcohol because of the health risks as well as theforegone tax revenue. As wealth increases, legalbeer consumption generally increases and in Africa,there is a huge opportunity to trade consumers upfrom the informal segment or home brews, intothe branded sector. Large multinational companiessuch as SABMiller, Diageo, Heineken, and Castelhave already acquired significant interests in Africanbrewers, helping to consolidate the industry andimprove corporate governance and operatingefficiency. Beer companies are among the largestlisted companies in many African countries.

7 Fast-Moving Consumer Goods in AfricaIn Nigeria, Nigerian Breweries and Guinness Nigeriahave a market capitalisation of around US 6.7 billionand US 1.7 billion, respectively. That is equivalent toaround 11% of the entire Nigerian Stock Exchange’stotal market capitalisation. In Kenya, East AfricanBreweries Limited, a subsidiary of Diageo, is thesecond largest listed company with a marketcapitalisation of US 2.4 billion, or 10.5% of theNairobi Stock Exchange’s total market capitalisation.Furthermore, Guinness Ghana is one of Ghana’slargest companies, and accounts for around 10.5%of the entire Ghana Stock Exchange’s value. Finally,on the Dar es Salaam Stock Exchange, TanzaniaBreweries has the largest market capitalisation ofaround US 1.5 billion, or around 40% of the total.Many African countries are producers of the cropsthat can be used as raw ingredients for beer, suchas sorghum, barley, cassava, and maize. Accordingto SABMiller, the prices of sorghum-based beershave to fall to 80% of that of the mainstream brandsin order to get the required boost in demand tojustify the investment. At the end of 2012, GuinnessGhana Breweries Limited introduced the country’sfirst cassava-based beer, Ruut Extra Beer, ontothe Ghanaian market. The beer contains 51%locally sourced cassava. In March 2013, SABMillerfollowed suit by introducing Eagle Lager, thecompany’s first cassava-based beer in Ghana. Thesebeers have been successful due to tax incentives,and have provided an opportunity to turn locallygrown cassava into cash crops.Soft Drinks - Soft drinks are neither a necessity nora luxury product. Its price is generally sufficientlycheap so that it can be bought by even the lowestincome earners. It is however not a necessity, so intough times there might be sharp cuts in spendingon soft drinks, and/or increased differentiation byconsumers based on price. At the same time, thequality of tap water in Africa is generally so bad thatpeople will opt to buy soft drinks, including bottledwater, where they can afford to do so. As a result,the non-alcoholic beverages industry in Africa hasaccess to a potentially massive market. As incomesincrease and consumers get increasingly healthconscious, the demand for carbonates is likely tofall, while that of juices and bottled water will tend torise. There is also a strong opportunity for alcoholfree ‘social drinks’ as incomes rise and the economyformalises. Other crucial contributing factors to thesoft drinks market in Africa is the development oftourism, retail, and distribution networks.Soft drinks account for 40% of the global beveragesmarket, with alcoholic drinks making up a further50% and hot drinks the remaining 10%. Carbonatesaccount for the largest share of the soft drinksmarket (37%), followed by juices (20%), bottledwater (20%), ready-to-drink tea (9%), sports &energy drinks (9%), and concentrates (3%). Whilecarbonates still dominate the soft drinks industry,the other categories have caught up quickly inrecent years, with especially bottled water makingup ground. As consumers become more healthconscious, the popularity of drinks that containminerals and vitamins has increased.Pepsi and Coca-Cola are rival manufacturers of softdrinks and directly compete against each otherin most countries in Africa, although Coca-Colaenjoys a dominant market position in most of thebeverages markets on the continent. Coca-Cola hasfollowed a good strategy in Africa, placing particularfocus on how to get its product to consumers. Thecompany has implemented innovative ways ofachieving this and overcoming the general lack offormal retail, for example, by providing individualvendors and kiosks with refrigerators, and bicycleswith coolers.

Fast-Moving Consumer Goods in Africa 8FMCG in AfricaPersonal Care ProductsThis segment includes shampoo, toothpaste,soap, deodorants, and make-up. The sub-sectorhas great potential for expansion in Africa. Apartfrom the usual reasons (favourable demographicprofile and strong economic growth), an addeddriver for this sector is that many Africans appearwilling to spend a proportionately large share oftheir incomes on beauty products. This is at leastpartially driven by the entry of popular internationalbrand names, the sharp uptake of mobile telephony,and increased internet access, which have resultedin Africans being more exposed to Westernculture. Three other important factors that willunderpin the growth of this industry in Africa overthe long term are improving levels of education,the youthfulness of the population, and the rise offemale independence. With regard to the last point,more women are now in the labour force and fertilityrates are declining, which means that more moneyis available for spending on personal care products.A survey conducted by Kenyan businesswomanSuzie Wokabi (founder of SuzieBeauty Cosmetics)showed that Kenyan women are willing to spend upto 20% of their salaries on beauty products.An important issue in the personal care sector isthe adaptation of Western products to the specificneeds of African consumers. Some internationalcompanies have recognised this, and have eitheradapted their global products to suit Africans’needs, or launched new product ranges. (Forexample, Unilever developed its Motions range ofshampoos and conditioners aimed specifically atethnic hair; make up manufacturers have introduceddarker shades; and anti-ageing products have beendeveloped for ethnic skin.) It has also opened upopportunities for local entrepreneurs, with examplesincluding SuzieBeauty Cosmetics (Kenya) and Houseof Tara (Nigeria).According to Euromonitor International, the size ofthe beauty industry in the Middle East and Africawas US 20.4 billion in 2011 (around 4.8% of theglobal total), with South Africa contributing US 3.9billion, while Nigeria and Kenya have the secondand third largest industries in SSA, respectively. Ona global scale, toiletries account for around 30% oftotal sales, skin care and hair care each contributesa further 20%, and make-up and fragrances 10%each. The skin care category saw the biggestincrease in its share of the global market between2008 and 2012, followed by men’s grooming. Thecategory seeing the largest decline in its share overthis period was fragrances.Home Care ProductsThe global home care market size in 2013 wasclose to US 155 billion. The largest sub-category islaundry care, which accounted for around 53% oftotal sales. This is followed by surface care (14%),and dishwashing (12%). Due to the relative lack ofmodern housing in much of Africa, this sub-sectoris still largely under-developed. Over the longterm, this segment should expand quickly, drivenby increased home ownership, rising disposableincome, and consumer education and hygienecampaigns.

9 Fast-Moving Consumer Goods in AfricaFMCG Growth Spots In AfricaGiven Africa’s large market and the potential forrising household income, the FMCG sector on thecontinent stands to benefit immensely. Given thatthe sector provides either necessities or accessibleluxury goods, the size of the market is notconstrained by income dynamics in the same wayas many other sectors. Taking the FMCG sector’scharacteristics into account, and consideringAfrican countries’ demographic profiles, incomelevels, and economic growth potential, we thinkthe following geographies have the strongestprospects for growth in the sector over the nextfive to 10 years: Angola, Ethiopia, Ghana, Kenya,Morocco, Mozambique, Nigeria, Rwanda, Tanzania,Uganda, and Zambia. In this report, we analysethe FMCG sectors of three of these countries,highlighting specific product categories that areexpected to do well.GhanaDrivers:Important gateway to large West African consumer market; generallyaccommodating business environmentRisks:Purchasing power of consumers under pressure at present due to highinflation and depreciating currency; risk of higher taxes due to thegovernment’s weak financesFood - Informal markets dominate food retail atpresent. This should slowly start to change as thenumber of shopping malls rise, and consumersincreasingly prefer the convenience that is offeredby one-stop shopping at supermarkets. The lattertrend is partly being driven by the growing expatriatepopulation in Ghana, especially Accra. In addition,the shopping mall experience has proved to be verypopular in Ghana: Accra Mall attracts around 25,000shoppers per week. Currently, the most importantsupermarket chains in Ghana are Shoprite, and twodomestic players, Melcom and Maxmart. Shopriteentered the Ghanaian market in 2003 and currentlyhas shops in Accra, Accra Mall, and Tema. Shopriteis also expected to be the anchor tenant at the WestHills and Junction projects currently underway.Beer - Ghana’s beer industry is dominated bySABMiller and Guinness Ghana Breweries, withthe beer market estimated at around 1.76 millionhectolitres. According to Business MonitorInternational (BMI), beer volume sales are expectedto expand at a compound annual growth rate of6.4% during 2013-17. In recent years, brewers haveemphasised high-end brands to boost margins bygetting drinkers to spend more on each beer theyconsume. While the cassava-based Eagle Lagerand Ruut Extra Beer are far from premium products,they are still more than twice the price of popularhome brews, but have nonetheless been able totap a market that was previously serviced by illicit,unregulated products. SABMiller has stated that thecompany expects to source its cassava for its EagleLager from as many as 1,500 smallholder farmerswithin the next year. The government charges anexcise tax of 47.5% for beers that have less than30% local content. For brews with more domesticingredients, the excise tax drops to 10%. Thisfollows the Local Raw Materials law that imposesconcessionary excise duty rates on a sliding scaleon the use of raw materials produced in Ghana,in substitution of imported raw materials in theproduction of excisable goods.Soft Drinks - Large beverage-producing companiesincluding Coca-Cola and PepsiCo have beenoperating in Ghana for some time. Coca-Cola’soperation in Ghana is made up of Coca-ColaEquatorial Africa Limited and its franchised bottlingpartner, The Coca-Cola Bottling Company of Ghana(TCCBCG), while PepsiCo operates under thesubsidiary Beverage Investment Ghana Limited.Meanwhile, Voltic Ghana is the market leader inbottled water in Ghana with an 85% share of themineral water market. SABMiller acquired a majoritystake in Voltic Ghana in 2009. A significant challengefacing the beverages sector in Ghana is the fact thatmany materials needed to support growth of the

Fast-Moving Consumer Goods in Africa 10FMCG Growth Spots In Africasector are not produced domestically, and have tobe imported. This renders the sector vulnerable toexchange rate fluctuations and keeps productioncosts relatively high. BMI forecasts a compoundannual growth rate of 7.5% in carbonated soft drinksvolumes sales during 2013-17.Personal Care - Ghana has strong prospects forgrowth in all of the sub-categories of this segment.We highlight particularly strong prospects for oralcare and make-up. According to the World HealthOrganisation (WHO), many African women usedamaging skin-bleaching products on a regularbasis. Ghanaian Grace Amey-Obeng openeda beauty clinic in the 1980s to help her fellowGhanaians to reverse the damaging effectsthat bleaching products have had on their skin.However, with the imported skincare productsshe prescribed becoming too expensive for hercustomers – especially given the Ghanaian cedi’spoor performance – Ms Amey-Obeng decided tostart her own product range, Forever Clair, in 1998.Starting out with only US 100, the business nowhas an annual turnover of US 8 million - US 10million. The company has eight branches in Ghanaand also exports to Nigeria, Burkina Faso, Togo, theIvory Coast, and even Switzerland and the UK.KenyaDrivers:Strong population growth; growing middle class; educated labour force;dynamic private sector; regional leader – possibilities for regional expansion;relatively well developed retail infrastructureRisks:Risk of terror attacks by Al Shabaab; private consumption partly dependent onagricultural earnings; risk of inflation and higher taxes; exposure to Europe forexport and tourism revenuesFood - Kenya’s food retail sector is well developed inan African context. Foreign retailers are yet to breakinto the market with four local players – Nakumatt,Tuskys, Uchumi, and Naivas – dominating thescene. Nakumatt has the biggest market share,although Tuskys has a larger number of branches.Stores of these companies are also very prevalentin other East African countries, especially Uganda.In January 2014, it was revealed that Nakumatt islooking to buy three of Shoprite’s stores in Tanzania,where Kenyan retailers still have only a limitedpresence. Kenyan retailers are expected to increasethe range of their product offerings over the outlookperiod in order to build market share. They will alsobe looking to expand further in the region, especiallyin countries where their presence is still relativelylimited such as Tanzania, Rwanda, and South Sudan.Meanwhile, Massmart’s attempt to acquire a stakein Naivas had failed, although the company is stilllooking to expand into the Kenyan market, mostprobably through taking space in the Garden CityMall that is currently under construction.Beer - While still the dominant producer in Kenya,East African Breweries Limited (EABL, a subsidiaryof Diageo) has seen competition intensify inrecent years from small local brewers and importsof international brands such as Heineken andSABMiller. Still, East African Breweries controlsaround 90% of the Kenyan beer market, andcontinues to expand into the rest of East Africa.A glance at the company’s subsidiaries acts asconfirmation of this: Kenya Breweries Limited,Uganda Breweries Limited, Serengeti Breweries

11 Fast-Moving Consumer Goods in AfricaFMCG Growth Spots In AfricaLimited, United Distiller Ventnor, Central GlassIndustries, and East African Malting Limited. EABLis listed on the Nairobi, Uganda, and Dar es Salaamstock exchanges. The company has invested in newsupply chain capacity, including a new canning line,in order to boost production levels. East AfricanBreweries has 26,000 local partners across the valuechain, and sources 10,000 tonnes of sorghum inKenya (from only 400 tonnes four years ago), whiletwo new varieties of high-yielding barley seed wererecently launched.A big focus for East African Breweries is to boostthe spirits penetration rate amongst East Africanconsumers; the company has accordingly investedin marketing and sales capabilities in this area. Whileits ‘mainstream’ brands remain the most popular,the company expects consumers to trade up overtime as incomes rise. East African Breweriesstated in its 2012 annual report: “As our economiesdevelop, we expect that more consumers willtrade up from home brews and unbranded alcoholinto branded products. The size of this opportunityis considerable. This trend has already drivensignificant growth for Senator Keg in Kenya, and weare in the process of rolling out Senator in bottlesin our other markets.” With regard to spirits, theJohnnie Walker brand expanded by 74% acrossEast African Breweries’ markets in 2012, Smirnoffby 55%, Baileys by 82%, and Richot by 40%.Although spirits still account for only a small shareof overall alcohol consumption, the sharp growth isnotable. Interestingly, mainstream spirits performedpoorly for East African Breweries in 2012 (withsales falling by 6%), while emerging, premium,and reserve spirits sales grew by 32%, 22%, and276%, respectively. The same trend was noticedfor beer: sales of mainstream beer increased byonly 3%, while that of emerging and premiumbeer expanded by 12% and 18%, respectively.East African consumers appear to have ‘traded up’in the alcohol market over this period, with someconsumers switching from home brews to entrylevel branded products, and others from mainstreamto premium brands, although admittedly some mayhave switched from mainstream to emerging brandsdue to pressure on purchasing power. East AfricanBreweries recently introduced its Tusker Lite branddue to an increasing “taste for products that arelow in carbohydrates” among young adults. Thiscontributed to a 17% growth in the Tusker brandin 2012. Meanwhile, Pilsner Ice was rebranded inorder to appeal to modern young adult males, whilethe new SNAPP is aimed at young working women.Most recently, the alcoholic beverages market inKenya was hit by tax changes, namely a changein the value-added tax (VAT) bill, and a reductionin tax incentives for EABL’s Senator Keg brand.According to EABL, volume sales of Senator Kegdeclined by 85% after the increase in excise duty on1 October 2013, and this resulted in the closure of3,000 outlets, with 3,000 more reportedly in dangerof being closed. While being negative for EABL,the tax increase does open up opportunities forother companies active in the Kenyan beer market,although EABL is trying to offset the fall in demandfor Senator Keg by promoting its other brands.Although EABL clearly dominates, competition inKenya’s beer industry has increased in recent years,as both macrobrewers and microbrewers attempt totake advantage of naturally expanding markets. Atthe end of 2012, Keroche Breweries (Kenya’s onlylocal brewery) stated that it plans to raise its share ofthe beer market in Kenya to 20% (from around 3%currently) in two years, and is increasing capacity tomeet

The African Consumer and Retail White Goods in Africa Insurance in Africa Agriculture in Africa Power in Africa Construction in Africa . this regard, already having a notable presence in a number of SSA countries. International retailers are also looking to expand into Africa, most notably