The future of consumer spending in Africa is virtually infinite, Absa Investments analyst Chris Gilmour said on Thursday.
The continent is becoming a modern day Mecca for consumer industries in search of higher yield as urbanisation and rising affluence spawn a middle class that is clamouring for high-quality goods and services.
“The nature of economies in Africa has changed quite considerably away from being commodities and resources based to being very much consumer facing. According to McKinsey & Company, 45 percent of GDP (gross domestic product) growth in the 2000s came from consumer-facing sectors.
“Any consumer company in SA that doesn’t have a proper presence in the rest of Africa has got a major problem.”
Gilmour was speaking at Frontier Advisory’s “The African Consumer Outlook” forum at the Industrial Development Corporation in Johannesburg.
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Among local companies, Shoprite has earned its stripes as continental kingpin. Part of its success it no doubt owes to its first-mover advantage – it began its expansion in 1995 in Mozambique, and its non-South African supermarket operations now span 16 countries in Africa‚ with more than 130 stores. Rival Pick n Pay has about 90 stores outside SA.
“Shoprite back in 1995 realised that at some point we were going to reach saturation in SA. And if you look at the plethora of shopping malls in SA now, we are in fact near saturation. Three or four super regional malls will open in four to five years and that will be it and there probably won’t be anymore really big opportunities,” he said.
Africa is not an easy place to do business with impediments like dubious bureaucracy, corruption, lack of infrastructure and underdeveloped markets.
“Supermarket evolution will be a slow process.
“Shoprite has been there for the past 20 years but only 9 percent – 10 percent of their total earnings come out of Africa. Land is incredibly expensive and scarce and that may put a brake on the immediate prospects for the move from informal (retail) to formal,” Gilmour said.
Christo Wiese, Shoprite chairman, said there should be no doubt that there were formidable challenges inherent in trading in Africa.
“The continent has toughened us and taught us how to trade successfully under often taxing conditions.
“It has taught management to innovate – if you cannot, you don’t survive,” he said in the group’s annual report.
