The Rise of the African Consumer & its Impact on the FMCG Food Sector

Colas NursinghdassOctober 2014

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The African ContinentA brief overview

The African Continent - OverviewKey facts

56 countries with >2,000 dialects 10 countries = 81% of private

consumption1

GDP per cap growth >40% in 3 countries2

Consumer spending of $1.4 trillion by 2020

Rising middle class & income inequality Improved business climate with

regional integration efforts Risk factors: Ebola, Terrorism

Key considerations

Market intimacy Market prioritization &

clustering “Pay your school fees” Route-To-Market strategies Urban vs rural approach Location of business entities Local manufacture vs

importation Embed risk management

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1) Algeria, Angola, Egypt, Ghana, Kenya, Morocco, Nigeria, Sudan and Tunisia in 20112) Kenya, Zambia, Ghana by 2020

Sources: FMOFAIRVIEW (2010) Driving the African Private Equity OpportunityMcKinsey (2012) The Rise of the African ConsumerBCG (2013) Winning in Africa

FMCG sector

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The African Consumer Base

A brief overview

The African Consumer Base – population growth & urbanization

Key facts

Nigeria population 273M by 2030 DRC may surpass Egypt by 2030 Cities will hold 50% of pop. in 2030

from 37% in 2009 By 2025, 95 urban areas predicted; 12

of these will hold ≥5M people Per cap consumption 80-120% higher

in cities than rural areas Mid-Tier cities such as Abidjan, Rabat

are more accessible, have less competition and may offer better profit margins

Key considerations

From country-level to city-level business strategies

Differentiated RTM strategy in Urban versus Rural as both distribution coverage required for business success

Segmented pricing strategy with higher margins in urban areas that could support lower price points in rural areas

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Sources: FMOFAIRVIEW (2010) Driving the African Private Equity OpportunityKPGM (2014) Fast Moving Consumer Goods in AfricaBill Russo (2013) Article in www.fbreporter.com

The African Consumer Base – Young population

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Source:McKinsey (2012) The Rise of the African ConsumerAfDB (2012) Africa’s Demographic Trends

Key facts

The world’s youngest population with >200M in 15-24 age group

16-34 age group accounts for 53% of income in urban centres

Attitudes & behaviours markedly different than Elders: more likely to search for info online, more brand conscious, they follow latest fashion and trends

More educated than ≥45 age group

Key considerations

Long-term prospect if we understand needs, aspirations and lifestyles of this important consumer segment

Align product portfolio in order to meet their changing consumption habits and expectations

Innovation to maintain interest in the brands

Internet as part of media strategy in urban centres (mobile devices)

The African Consumer Base – Rising, Optimistic Middle Class

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Source:McKinsey (2012) The Rise of the African ConsumerThe Economist.com (2014) The beer frontier

Key facts

130M Households with discretionary income by 2020, same as in USA

By 2060, African middle class will rise to 1.1 billion, 42% of the African population

More optimistic consumers purchase more frequently and buy new and more expensive products

HH’s with $20,000 annual income account for 40% of growth in spending power

Key considerations

Expect significant demand for FMCG products from middle class that will mainly reside in Urban centres

Growth will be driven by higher-income groups although majority of consumption will still come from low-income consumers

Unlock revenue growth among middle class with better price point management while increase transactions at the low-end with affordable offerings (smaller size or different package type)

The African Consumer Base – A Diverse Market

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Source:Nielsen (2012) A Blueprint for Media Strategies in AfricaBill Russo (2013) Article in www.fbreporter.com

Key facts

Consumers differ in terms of attitudes, buying and media preferences

Consumers growing more savvy but media preferences differ from country to country

Media, Mobile and Messaging penetration vary among clusters

Digital penetration rising with 52% of consumers accessing internet via mobile phones

Power of “Word of mouth”

Key considerations

Evolve media strategies to resonate with both niche and mass targets

Integrate the power of Word of Mouth as it is the most powerful tool for product recommendations. E.g. brand ambassadors, referral programmes

Utilize existing consumer segmentation such as AC Nielsen’s in order to guide marketing strategy across the continent (see appendix)

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Winning examplesHow others are winning in FMCG

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Relevance: African solutions to African challenges done the African way

Hi Mid Lo

Trad

Bars

Su/Hi

Affordability Play

Value Play

Transactions Play

Moms &Meals

Teens &Leisure

FamiliesLeisure &Meals

Portfolio architecture: Coke aligns its brand-pack-price offering to different opportunities in each retail channel

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Affordability: Addressed through re-engineered low-cost product offerings

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Commercial Strategy to Win in

AfricaFor FMCG Food & Beverages Sector

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Market intimacy & opportunity sizing

Opportunity clustering & prioritization

Product Portfolio Architecture in line

with consumer segments & key

consumption occasions

Package-Price focus to optimize revenue & profit

growth

Retail channel strategies to cater

for formal & informal trade

Supply Chain to consider

competition, import costs, infrastructure

RTM strategies to cater for both

urban and rural areas, with consistent

availability at the lowest cost-to-

serve

Execution excellence – every transaction counts

Continuous improvement cycle

– feed back into planning cycle, fast

decision-making

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Virtuous cycles that drive sustainable growth

Build brand equity

Translate into

shopper purchase

Expand Gross Margin

Leverage Sales & Marketin

g investme

nt

Invest behind

the categorie

sA

responsible business

(environment, social license)

Working closely

with key stakeholde

rs

Commercial cycle of growth Business cycle of sustainability

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Appendix

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Projected Consumer Spending by countryProjected consumer spending by 2020

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Projected Consumer Spending by country

Source: KPMG (2014) Fast-Moving Consumer Goods in Africa

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Distinct Consumer Segments have different needs

Source: McKinsey (2012) Rise of the African Consumer

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AC Nielsen’s 7 consumer segments across Africa

Source: Nielsen (2012) A Blueprint for Media Strategies in Africa