As Africa becomes a more attractive investment destination, with fast growth and greater stability, investors must become used to a new way of doing business. We discuss seven things that can make the difference between success and failure.
2. THE TIME TO ESTABLISH A FOOTHOLD IN AFRICA IS NOW
Heineken beer is sold in more than 170 countries, but when the world’s third-largest brewer does
business in Africa, It accepts that it must pay by different rules and also find different way to do
business. One of the main areas that Heineken have had to overcome is failing infrastructure,
which has necessitated them building their own power plant as well as their own water treatment
plant. Their example shows that such issues need to be obstacles to success and can be over-
come.
It is worth noting that these issues are no unique to Africa and are faced by operators I other
emerging markets. Global players are likely to have approaches to dealing with them, but Africa
will present a sterner test. At Seymour Sloan we looked at the five areas we thought were the ones
organisations must be aware of when entering Africa:
• Underdeveloped infrastructure
• Disorganized and fragmented retail landscape
• Lack of reliable market research
• Unclear and ever-changing government regulations and a severely
• Limited talent pipeline.
Through our research and discussions with market leaders, we have identified a range of effective
approaches for companies to navigate this potentially tricky landscape.
3. Being creative and innovative in overcoming infra-
structure issues and keeping costs low
African economic growth as well as life in general is hampered by frequent power cuts. In Nigeria,
Africa’s largest economy, they experience around 26 power outages in a typical month. In addi-
tion to power issues, there is a poor road system and a lack of adequate transport. Outside South
Africa, the transportation network is insufficient, even against other emerging markets—less than
100 meters of road per square kilometre of land area compared with 400 meters in China or 1,500
meters in India.
Successful companies understand that they must find ways to overcome Africa’s infrastructure
without incurring costs. They invest in their own infrastructure in order to offset potential increases
in risk and cost. They purchase power generators, install solar panels, build water tanks and even
occasionally pave roads. In Ghana, which experiences frequent water shortages, one beverage
company overcame the unreliable municipal service through installing its own water tanks, guaran-
teeing water supplies for its factories.
They key to remaining competitive is balancing the high costs of infrastructure solutions with rig-
orous cost and cash management. As an example, Heineken’s local subsidiary in Nigeria, Con-
solidated Breweries places cost management at the heart of its business. Salaries are in line with
regional and local companies rather than with multinationals. To further curb costs, Consolidated
Breweries substitutes second-hand equipment where possible for expensive new machinery to cut
out inefficiency and repair costs.
Innovation is a tool that can overcome the infrastructure issues associated with Africa. One suc-
cessful example is Cowbell, a milk powder provided by Promasidor, an African dairy company.
Promasidor substituted the animal fat in its milk with vegetable fat, giving its product a longer shelf
life and diminishing the dependency on a cold supply chain.
African children pour the powdered milk directly on their tongues, which avoids concerns about
finding fresh water. Promasidor is now a leader in the powdered milk market in Nigeria.
Poor infrastructure also affects the certainty around raw material supply, which can be a massive
risk and cost to some businesses. Leading operators overcome this through building strong suppli-
er relationships or vertical integration to guarantee their supply line. Heineken aims to buy 60% of
its raw goods from local suppliers to guarantee quality and reliability. All parties benefit: The brew-
ery avoids disruptions at local operations and the local economy benefits from new jobs, generat-
ing income that may spur consumer spending. The company also provides farmers with agricultur-
al education to increase crop yields— another move that helps establish a robust supply chain.
Coca-Cola Company, in collaboration with the non-profit TechnoServe and the Bill & Melinda
Gates Foundation, has successfully partnered with local governments and farmer associations in
Kenya and Uganda to improve the quality of locally grown fruit, which it uses in its fruit juices. As
demand was rising, it was becoming challenging to maintain quality levels consistently.
4. Develop multi-tiered models to maximise volumes
through Africa’s Unique distribution chain
Informal retail is still 80% of the market within Africa as a whole. From street hawkers to shebeens,
retail is still very much traditional. With the exceptions of South Africa and Nigeria, modern retail,
as understood in developed economies, is a small proportion of the market. This means that op-
erators must know their ideal distribution footprint to maximise reach and sales. There are certain
product categories that are prone to sale via informal channels such as; food, alcoholic beverages
or tobacco, are particularly prone to being sold through informal channels.
Successful companies gain competitive advantage from the flexibility and adaptability needed to
supply such a varied retail market. They can build partnerships with third-party distributors and
wholesalers to maximize reach, work with traditional retailers at the point of sale and help informal
retailers formalize and progressively develop capabilities required to grow alongside modern retail.
In Africa, many producers have a network of trusted third-party distributors and wholesalers that
accelerate market coverage, teaming their own salesforce with distributors to maintain a degree
of control. As an example, a leading food company assigns sales supervisors to each one of its
sub-distributors—they have 10 to 30 of them per market.
The sales supervisor works at the sub-distributor, managing inventory and brand image while
the sub-distributor handles logistics and accounting. Similarly, another food producer relies on its
distributors to replenish products and collect cash, but its local sales employees will remain on the
ground to identify new outlets, place product displays and help distributors build their capabilities.
Producers can also collaborate with traditional outlets directly to increase sales and improve distri-
bution, and in the process, improve the way shopkeepers work. Diageo helps traditional retailers
improve their business by teaching them category display and customer management.
We are also seeing producers encourage unauthorized sellers to formalize their businesses. Brew-
er SABMiller helped shebeens in South Africa transition into licensed outlets by providing support,
including assigning employees to assist with the application process. In addition, all license appli-
cants were eligible for training in customer care, stock management, bookkeeping, credit control
and responsible alcohol use. SABMiller’s initiative, launched in 2002, transformed off-the-books
sellers into a successful new
Retail segment. The company has trained 12,400 tavern owners. The number of newly licensed
retailers has increased sales by an average of 31%.
5. Gain a competitive edge by compiling your own infor-
mation about Africa’s fast-evolving consumer or
trade landscape.
Africa is a very fragmented and complex market, more complex than the retail environment in
developed economies. Added to that is the lack of information available around customer habits,
behaviours and tastes. There is a competitive advantage to be gained by the organisation that can
gather meaningful data and then act on that data. Currently, Africa is a very complex market and
its customers still largely remain a mystery to retailers and producers.
Some companies establish research programs to identify consumer preferences and behaviour in
each African market. Olam, a global leader in agricultural products that also operates a packaged
foods business in Africa, is investing heavily to analyse the extreme differences among consumers
in West Africa. Its investments aren’t simply to help them tailor products to local needs and pref-
erences, but to also help identify possible new categories for growth. They are seeking to move
away from seeing customers as ‘African’ and adding layers of sophistication to the data in order to
draw out meaningful insights.
Partner with local stakeholders—governments, busi-
nesses and communities—to establish credibility.
Often the debate is around how external producers can influence key stakeholders in moving the
agenda towards where they would like it. Following our discussion in Africa, the main message
is that Africa refuses to be dictated to. Like other governments, African governments require the
freedom to define their own objectives. Where International provides and retailers can add value is
in offering their expertise in order to help governments and other stakeholders achieve their am-
bitions. There has to be a shift towards collaboration in a meaningful way before the potential for
Africa can be truly expanded.
Market leaders will typically collaborate with local business networks. They appoint local business
leaders to their board of directors or get listed on the local stock exchange. They also invest in
community development. They seek to form mutually beneficial partnerships with local govern-
ments. These all serve as signals that the relationship is friendly and not exploitative.
Kenya, facing high illicit alcohol consumption and the associated side effects, including blindness
and even death, from consuming poor-quality alcoholic beverages worked with Diageo to support
a new product offering a safer and legal alternative. The product was, regulated beer in a sanitary
keg. The government helped make the offering affordable to consumers by providing reduced tax
rates.
