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A.T. Kearney Ranks Africa’s 15 Most Promising Retail Markets

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Sourcing in Africa isn’t a faraway concept anymore—the low-cost continent is making moves to secure its position as a potential manufacturing destination, and now, as a place for retailers to branch out to.

And with major apparel companies setting up shop on the continent, plus the 10-year renewal of the African Growth and Opportunity Act (AGOA), you’ve got a region well primed for expansion in both sourcing and retail.

“Africa’s landscape is changing—slowly, perhaps, but inexorably. As economies rise and a shopping culture emerges, the retail opportunity is greater than ever before,” according to a new report by global management consulting firm A.T. Kearney ranking Africa’s most promising new markets.

Naturally, some countries are better positioned than others to receive retailers, but the nations topping the list aren’t the same as those of talked about by apparel industry experts or the ones big brands have already ventured to.

Fast fashion retailer H&M opened a 50,000-square-foot store in South Africa this summer and Zara arrived in Africa three years back and now has nine stores across South Africa and Egypt.

A.T. Kearney surveyed African nations based on market size, market saturation, country/business risk and time pressure to determine the market attractiveness for retail expansion.

Two small countries, Gabon and Botswana came in first and second, Angola third, and Ethiopia (Africa’s second largest country in terms of population) barely made the list ranking 14. South Africa, which is so far the continent’s most saturated market, ranked sixth.

Sub-Saharan Africa, it seems, is still the “Next Big Thing,” according to the report, and the region will likely hold that position for several decades to come.

“It is one of few markets with annual GDP growth of more than 5 percent,” A.T. Kearney analysts said of the region. “Its young and connected middle class is growing fast and still deciding on its favorite brands. In short, it is brimming with potential.”

But the report makes to pretense about the challenges with moving to Africa—the long-term growth potential there is “truly breathtaking,” but the short-term results likely won’t be amazing.

Retailers forayed into South Africa because it was the surer bet, the place other brands were going, but because the opportunity in Africa as a whole is more dynamic today, South Africa is no longer the way to go.

“It might be most instructive to think of Africa as a set of opportunities that can be augmented and added onto one another, rather than just one singular opportunity,” Bart Van Dijk, A.T. Kearney partner and leader of the firm’s consumer industries and retail practice in Africa, said. “How you pick among the opportunities depends on your offering. Retailers with a basic offering should target the large cities and countries because scale will be important, while retailers with a wider offering should target emerging markets.”

African markets fall into three major stages, according to A.T. Kearney: basic, developing and mature, and each provides its own set of benefits for retailers.

Basic

Angola, Côte d’Ivoire, Ethiopia, Gambia, Rwanda, Senegal, Tanzania, and Zambia are the markets ranked among the report’s top 15 that fall into the basic stage. In these countries, no formal shopping culture is apparent, and where it is, the markets are focused near exclusively on dry goods. Price is also key.

“For retailers entering markets in the early stages of development, a very basic format could thrive and offer an opportunity for scaling and expanding. In particular, the discount, “value for money” format may offer a strong proposition in countries where there are no organized supply chains and where people are accustomed to informal shopping,” the report noted.

Developing

Countries falling into the developing stage include Gabon, Ghana, Mozambique and Nigeria, and these, according to the report, could make for the most logical entry points.

“By starting in the middle, a retailer could logically expand to other countries in different stages: to other developing markets by slightly adapting formats and assortments; up the curve by developing more targeted or larger assortments; or down the curve with a small dry goods assortment,” the report noted.

Mature

South Africa, Botswana and Namibia are the top 15’s mature markets and the avenue specialty retailers and luxury purveyors are using as entry points.

“If scale is not your biggest worry, Africa’s mature markets—in the ARDI, they include Botswana, Namibia, and South Africa—remain solid points of entry, with established shopping cultures, relatively high wealth levels, and well-established infrastructure,” Mirko Warschun, A.T. Kearney partner and leader of the firm’s consumer industries and retail practice for Europe, Middle East, and Africa, said. “In these markets it is important to bring a differentiated retail concept.”

Gabon, the report’s top ranked market, has one of the highest per capita income levels in Sub-Saharan Africa, 86 percent of its 1.7 million population is urbanized, and it has a “true” middle class.

The country earned the spot for its moderate to low country risk, developing but not yet saturated market for modern trade and little competitive pressure as growth there is happening now.

Ethiopia, which came much lower down the list at 14, has improved its infrastructure, fueling a growth in retail and its middle class is growing and becoming more brand aware. But the government’s restrictions on foreign direct investment (FDI) while it tries to grow its own cash-and-carry wholesaler Alle, has hampered its market potential.

“Although U.S. giant Walmart and Kenyan supermarket chain Nakumatt have expressed interest in entering Africa’s second most populous country, FDI restrictions will continue to leave them on the outside looking in until the retail market gets stronger and more organized,” the report noted.

Whatever the market, more and more Western retailers are looking to expand their presence in Africa and retail growth there is here to stay.

“Africa currently has 15 percent of the world’s population but only 3 percent of the world’s GDP—but the gap is closing. Younger generations are being educated, industries are expanding, and the middle class is growing, allowing the consumption of goods that were previously either too expensive or, more importantly, just weren’t available,” according to the report.

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