on 9 march, south africa finally gave walmart the green light to acquire the third largest retailer in south africa, massmart, for $2.4 billion. the competition appeal court denied the government’s request to have the deal re-examined, but ruled that the 500 workers terminated before the deal be rehired. the transaction has given walmart instant access to massmart’s network of stores in 14 african countries, its regional supply chain, and a employees numbering 28,000 full- and part-time employees. some have feared that the prolonged legal battle has tarnished the investment image of south africa—and sub-saharan africa more broadly. although south africa’s labor is particularly vocal, it’s helpful to remember that india for example, have explicit restrictions on foreign investment in multi-brand retail.
i see a number of africa’s supermarkets—such as south africa’s shoprite, pick ‘n’ pay, or kenya’s uchumi and nakumatt—and indigenous fast-moving consumer goods (fmcg) companies as prime targets for mergers & acquisitions, as well as venture capital, on the back of the expansion of the continent’s middle class. along with financial performance, investors should closely examine four elements of growth strategies in evaluating whether or not a company is a good investment.
product development: despite the growing numbers of middle class households in sub-saharan africa, on a global scale, most of these consumers would be considered lower-middle class. product categories that are sold in developed and emerging market countries may not have a base among african consumers. market-entry strategies for fast-moving consumer goods (fmcg) companies should recognize that some product markets are non-existent among the african middle class. this is not to say that these products cannot be sold. a number of indian companies—like dabur india, marico, godrej, and emami—have already entered the african market, tapping in to diaspora links, as well as using their experience selling affordable products in more developed markets where western multinationals have competed with them. companies should commission extensive market data surveys and focus groups—which are notoriously underdeveloped in sub-saharan africa—in order to adequately understand and capture the needs of the african consumer.
marketing and branding: once a company conceptualizes a new product to be sold in the african market, it must devise an appropriate marketing and branding strategy to convince its audience to buy the good. the fact that the african middle class is overwhelmingly urban suggests that companies must use language in its product messaging that speaks to the cosmopolitan consumer. african urban life is constantly changing; it is highly aspirational (with influences from the conspicuously affluent west), yet traditional (many rural cultural practices are maintained in the city). the lingua franca among many urban youths—the fastest growing consumer group—mixes western languages with local ones. sheng, spoken in kenya, is one such example. the pervasive use of cell phones and the rise of the informal economy are bringing many products’ points of sale closer to the customer, which demands new forms of advertising beyond traditional forms of television and radio media.
pricing: companies should offer products that meet the consumer at their price points through less expensive packaging and alternative product formulation. the rising affluence of africa’s middle class means that more people will shop at supermarkets and purchased packaged foodstuff, such as breakfast cereals. however, commodity price swings in key ingredients for processed and manufactured foods translate in to variable end-prices for price-sensitive consumers, who may change their buying behavior and ultimately affect the company’s profitability. for example, nestlé is increasingly buying cocoa directly from farmers and manufacturing products in côte d’ivoire, rather than abroad, to keep prices as low as possible for their west african consumers. companies should help governments develop their manufacturing base, which would help host countries—with stronger labor lobbies—to create jobs. they should also lobby governments to enact legislation and policies to soften the impact of high commodity prices, break up agricultural cartels, as well as encourage governments to implement food programs that boost productivity and output.
distribution: in order to reach consumers outside of capital cities and commercial hubs, supermarkets should develop appropriate transportation networks—depending on the geography—using direct-distribution, wholesale and third-party methods to ensure goods reach consumers. marketing perishable goods and avoiding high stock turnover given infrastructure constraints is possible if companies work with governments to ensure a steady supply of electricity and water. multinationals should also look to model local companies—or pursue outright merger and acquisition deals—who have long-operated in the region and take advantage of their established distribution networks.
africa for investor mouth 