In the last two decades, we have witnessed a significant improvement in the livelihood of the African population as the African middle class has been growing steadily and households are increasingly generating more disposable income. Despite these improvements, there are still a good number of African consumers who just seem to have money to cover basic expenses. This could be a reason why majority of businesses that thrive on the continent are basic-needs focused ventures.
Are consumers in Africa feeling better off today? The simple answer is ‘yes,’ consumers on the continent are better off than what used to pertain in the 80’s and 90’s, but like everything, the answer is never as simple as the question. There seems to be an extreme situation because for instance in Countries like Ghana, Kenya and Nigeria, we have consumers who say that they are feeling better off and showing higher levels of prosperity than you will see in some of the wealthier regions in Europe and North America. But on the other end of the spectrum, you will see that there are consumers also in those markets that are in the bottom 10 percent of feeling worse off.
According to the Nielsen Data, only 12 percent of consumers in a number of African markets have disposable income. In countries like Nigeria, about 60% have just enough to pay for the basics. And with ‘recency effect,’ people with low disposable income are much more impacted by short term changes. For example, food inflation is a big one. Over the last year, food inflation in Nigeria has gone down significantly (by 25%). But when you ask the average Nigerian their thoughts on food prices, they have this psychological feeling that food price inflation is still high when in reality the opposite is the case.
Rising food prices is a common concern that cuts across the Ghanaian, Kenyan and Nigerian markets. In these markets, small changes usually have big impacts, so things that one might take for granted in wealthier nations such as technological additions, improved connectivity, infrastructure improvement actually end up driving much bigger changes to people’s feelings of prosperity. And when people in these markets begin to feel more prosperous, it often times leads to more spend.
The Effect of Rising GDP
A good number of African countries have seen significant rise in their GDP’s over the last 5 to 7 years, particularly with Ghana, Kenya and Nigeria. Ghana for instance currently enjoys one of the highest GDP growth rates in the world, but the sentiment of the average consumer does not directly reflect this, even though salary rates of some professionals might also seem to be going up.
The thing is while we have indeed seen impressive GDP growth in a number of African countries, it hasn’t stepped up with the global average, and we have actually seen that the per capita GDP wealth might have dropped with some countries on the continent.
Fact is, GDP can be an incomplete measure when it comes to understanding wealth or prosperity. GDP has many other factors in it besides consumer spend such as Net Export and Foreign Direct Investment (FDI) which in African markets have a huge impact on the GDP figures. However, what we see in the short term when we look at things like confidence and prosperity is that consumer spend is coming back and in the same short term consdieration, consumer spend is outpacing GDP growth in a lot of African markets.
Can the Manufacturers take Advantage?
Being equipped with information and market trends, it only makes sense that manufacturers take advantage of data and come up with products that cater to the needs of consumers; in terms of the market segmentation of those who are feeling much prosperous and others who are not feeling equally as prosperous but still want value for their spend.
The Neilsen data shows that 66% of consumers in Sub-Saharan Africa are willing to try out new products (this is quite a high number!). It is then up to the manufacturers to figure out the equation where a large number of consumers want to try out new products coupled with a smaller number that have disposable income – this is possible though, with a proper execution game in place based on consumer understanding and insight and also innovation. It is important that manufacturers invest in making sure that they have the right products for the right market segment.
The advise for a manufacturer considering the African market is “don’t be average.” You cannot assume a middle position with the African market because most markets have consumers with polarized perceptions, so if you sit in the middle and try to cater to the average consumer you will lose it because there is no “average consumer.” The key is to take time to analyse what your target market is and getting the granular understanding down beyond the market level; understanding community and consumer psychology.
There is no shortage of opportunities on the continent, that’s for certain. Market success is about where you put your priorities; strategy is about making choices and good strategies are based on informed data sets. It is important that the manufacturer finds the balance between delivering for today and executing for the future. Data shows that in fact, a lot of smaller players (at retail level) in African markets seem to be driving much of the growths. This is actually a global phenomenon, but it seems more pronounced in African market since they are faster, more flexible, less stringent laws, they have strongholds and they drive growth through these strongholds.
It is also important to know that asides consumer confidence and spend being seen in the food market and non-food markets, the likes of personal care and home care are also experiencing increased spend inflows. Growth is also being driven by players outside of the top 10 or even top 20 players. Growth is being driven by small manufacturers (this is particularly playing out well in Western and Eastern Africa). Small manufactures are now being able to drive a level of agility and local consumption and this can see them spearheading consumer confidence for a good number of years ahead.
Big manufacturers can leverage on their brand strength, scale and ability to execute across markets to take advantage of increased consumer interests in manufacturing products; as small manufacturers seem to be better at driving pockets of growths.
The Growing Middle Class
The growing middle class goes hand in hand with growing income, disposable income, wage growth, increased spend etc. Africa’s growing middle class in terms of disposable income differ across the continent. Africa’s growing middle class is a reality, it isn’t a myth. More and more businesses are experiencing increased sales and profits that come naturally with a middle-class bulge.
Opportunities for Manufacturers
As stated earlier, it is important that manufacturers do not stay in the middle or seek the average market. Successful manufacturers on the continent define their own segments, because the markets are fragmented, and it is important to be granular in your approach to market. It is important to understand what your consumers want within the context of a fairly tight or limited basket based on the market’s disposable income on what they want and what is going to deliver value for them.
It is also important to deliver for today whiles innovating for tomorrow at the same time. So, what does the consumer look like now and what will they be looking out for tomorrow in that same segment.
The African Consumer Confidence
The three main drivers of consumer confidence on the continent are job prospects, the state of personal finances and whether or not now is a good time to spend. Generally speaking, globally, when consumers are confident, they spend but if they are less confident, they save. In Africa currently it is a mixed bag of feelings but skewed more to the confident side. In Nigeria currently, what we see now is very high confidence levels.
Often times, the traditional measures are incomplete when it comes to consumer spend. In the Nielsen data for example, consumers in Nigeria are very confident at 126 (anything over a 100 is confident); the global average is 106.
81% of Nigerians say that their state of finances has improved, job prospects are up and they are more willing to spend.
In Ghana, their confidence levels are up at 108 (steady but higher than the global average). Data shows that there has been an improvement in state of finances, but job prospects are down by 5 points.
The Kenyan market on the other hand appears to be more cautious at this point.
Innovation is tough and not easy, but being armed with the right information, businesses are able to build products that speaks to the consumer’s needs, making the chances of success quite high, particularly with African markets.
For the most parts, it is advisable to give the market what it craves and knows it craves, but it is genius and better result is achieved if one is able to anticipate market needs even before they realize that they need it; but such innovation would mean walking a tightrope.
The type of innovation that has been shown to work in African markets are those that are designed specifically for target segments. Lift and shift innovation that might have appeared to work in another developing market when rubber stamped in Africans markets usually fail woefully.
There are increasing foreign manufacturers looking to go into Africa, some from Europe but majority from Asia. These companies are willing to take the bet due to the growing middle class of which majority have not really made brand choices or commitment before. This presents an opportunity for manufacturers to build a virgin market of loyal consumers.
The bottomline is being cognizant of the fact that markets across the continent can be very different based on sector and it is important to do proper research and understand your market granularly. For instance, do you know that Nigeria is the second fastest growing champagne market outside of France? So, when we talk about value for money, we are also talking about opportunities and premium.
Finally, for cosmetics manufacturers, it is projected that in the next five years, sub-Saharan Africa is expected to be the number one region for personal and beauty care industry in the world.
Understand your consumer, be flexible, be agile and go where the opportunity is. Always be consumer centric.