The 15 most attractive retail / FMCG markets in Africa

14 September 2015

The African region is developing steadily, with the economic growth creating a larger middle class and with it, bigger opportunities for retail companies. In a new report, A.T. Kearney ranks the potential of 48 countries on the African continent, finding Gabon to be in the number 1 spot, followed by Botswana. Giant Nigeria comes in at number 4, while last year’s top performers Rwanda and Namibia fall to number 7 and 8 respectively.

In a recently released report from A.T. Kearney, the management consultancy maps the current state of retail attractiveness within sub-Saharan Africa as well as their longer term potential. In the report, titled ‘Retail in Africa: Still the Next Big Thing’, the advisory assessed the development of 48 African countries, excluding North Africa (Mauritania, Western Sahara, Morocco, Algeria, Tunisia, Libya, and Egypt).

The ARDI top 15

The so-called African Retail Development Index (ARDI) 2015 reveals that a number of African nations are witnessing the development of a shopping culture, based broadly on strong economic figures that are seeing the growth of a middle class. The region remains a massive potential for business development as its long term GDP growth potential remains staller as the region starts to catch up. For retail, the potential too is unrivalled, say the authors, with many of the young growing middle class not yet decided on brand favourites.

Yet, Africa too remains a difficult region in which to place safe bets. The region has mainly long term potential, with the short terms more difficult to divine as instability continues in many countries in the region. A main factor that is contributing to the development of the shopping culture is an increase in urbanisation – particularly strong in countries like Gabon, Ghana, Angola and South Africa among others.

Ranking the FMCG
To assess the retail attractiveness of the investigated countries A.T. Kearney uses four categories, each bearing 25% of the total weighting: Market Attractiveness measures the level of retail sales per capita (40%), population (20%), urban population (20%) and business efficiency (20%), while Country Risk looks at the country risk (80%) and risks to business (20%). Market Saturation looks into the metrics of share of modern retailing (30%), number of international retailers (30%), modern retail sales area per urban inhabitant (20%) and market share of leading retailers (20%), while Time Pressure measures the CAGR of modern retail sales (2010 - 2014) weighted by the general economic development of the country and the CAGR (2010 - 2014) of the retail sales area weighted by newly created modern retail sales areas.

Breaking down the ARDI top 15

The ranking finds Gabon to be this year’s most attractive retail market. The country moved up from last year’s number 5 spot with strong economic potential as well as a relatively stable risk rating. The country has a relatively high GDP for the region, while the stable score of its true middle class (with around 75% on more than $2 per day) across the board makes it a high value investment target for its undeveloped retail market. Botswana comes in second in 2015, after jumping 6 spots from last year’s ranking. The country remains relatively rich from resources, agriculture and tourism (with more than two thirds above $2 per day) – providing strong fundamentals for the further development of its retail market. While the market is relatively saturated, absolute growth continues.

Angola too has managed to jump considerably in the ranking, up from place 12 to number 3. Considerably larger population wise than the number 1 and 2 position, with 22.3 million, the country has enjoyed strong 7% growth in recent years. Due in part to its natural riches, with oil and minerals, the country has a relatively few of its population living on less than $2 a day (42%) with nearly a third of the population earning more than $4 dollars a day – akin to the middle class.

Million people per income segment

Nigeria finds itself in fourth position, with its fast growing population, now at 178 million and plentiful natural resources, making it a prime target for retail potential. As it stands the country has a relatively large middle and upper class – with 25% earning more than $4 a day – as well as a low penetration of supermarket trade (1%)  – with much of the shopping done at informal stores. This provides considerable scope, according to the report, for multi- channel formal shopping development. Tanzania rounds off the top five, the country boasting a relatively stable political climate, 50 million people, and more than 7% annual GDP growth. Placing the country in a relatively good position for retail activity, even if 73% of its population earns less than $2 a day.

The biggest fallers in attractiveness this year are Rwanda and Namibia. Rwanda falls from the number 1 spot last year to number 7 this year - particularly financial and political risks have sparked its slip from top spot – yet the country remains well ranked overall. Namibia too has seen its ranking decrease significantly – from number 3 to number 8 – mainly due to the high level of market saturation in the country.


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Consumer goods start-ups grow interest from venture capital

23 April 2019

Funding the latest consumer goods start-up has been a real money-spinner for venture capitalist firms, with a number of $1 billion companies – or unicorns – having emerged in the space in recent years. New analysis has explored the resulting corporate consumer products activity in the acquisitions space.

Consumer products have enjoyed years of strong growth as new markets opened in developing Asia. China in particular has enjoyed strong growth across a range of consumer good types as the country’s middle class expanded. Private equity firms have been keen to pick up targets in the space as they expand their portfolios to include additional local capacity as well as customers in new markets.

As a result, a study from Bain & Company has found that interest from PE firms in the consumer product space grew sharply in 2018, hitting 6.1% of all invested capital for the year, and making it the third most sought-after category. It is now only behind financial services (23.9%) and advanced manufacturing and services (13.9%).

Corporate venture capital investment

The ‘M&A in Disruption: 2018 in Review’ research found that growth in the segment reflects key changes in the segment as a whole. This is particularly true of insurgent brands, which often leverage local expertise in order to take on international giants in domestic markets.

Short change

The market changes have led to shifts in motivations for consumer goods company investments from PE firms. The number of strategic investments stood at 50% in 2015 compared to deals that increased scope. This has shifted significantly, with 34% of deals focused on strategic outcomes in 2018 compared to 66% for scope. The move towards scope reflects companies seeking out fast-growing products that enable stronger revenue growth streams.

Acceleration in scope-oriented M&A in consumer products

However, there were other motivations for deal activity in the space. Activist investors have put pressure on companies to expand their portfolios in recent years, with the trend expanding from just US targets to Europe.

Further trends

The other key shift in the space regards outbound deal activity. The study found that outbound deal activity has increased significantly in the Americas (up 363%) with total deal volume up only slightly (15%). Key deals included Coca-Cola and Costa, Procter & Gamble and Merck’s consumer health unit, and PepsiCo and SodaStream. In the Asia-Pacific region, outbound deal activity rose 195% while total deal activity fell sharply, by -36%. The EMEA region saw both a sharp decline in outbound deal activity, at -68%, as well as lower overall deal activity, which fell by 32%.

Cross-regional deal making

Deal-making in the current environment is increasingly fraught with uncertainties, as business models change on the back of new technologies, new consumer sentiments and wider market changes from new entrants. As such, acquisitions are increasingly useful as possible hedges on changes in market direction. As such, companies are increasingly pressed to take a future-back position, making sure to incorporate a vision of how the company needs to look in five years into acquisition strategy.

The firm notes that certain acquisitions which enhance a remembrance of a nobler mission, revive a sense of entrepreneurialism and engage directly with consumers may be necessary qualities in acquisitions that transform a company to fit market expectations in the coming decade. While going forward, focus on innovation, partnering with retail winners, reducing cost base and constantly reallocating scare resources will be necessary to protect market share in areas where insurgent local and strategic competitors are active.

Related: Private equity asset growth top priority for 2018.