As FMCG (Fast Moving Consumer Goods) companies seek the next growth phase for their brands outside of the BRIC (Brazil, Russia, India, China) markets, Africa has become the next springboard.
Factors fuelling this include strong African GDP growth, an increasingly urban and growing middle class, and a strong consumption drive in the African economy.
“With home grown markets in Europe or North America growing in low single digits the key challenge for global FMCG companies is how to fuel growth and remain an attractive investment prospective for institutional investors,” says Michael Wood, co-founder and director of Aperio, a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa.
“In the last 20 years growth was fueled by entering and growing their business in developing markets: the BRIC markets being those markets with the most impressive growth. Most of these companies have fought bitterly to gain market share and most of the successful companies were `early in’ these markets.”
As growth begins to slow down and entry becomes more and more expensive in these BRIC markets, global FMCG companies are turning to other developing markets to fuel growth. Many are looking to where a similar “early in” entry strategy would work, or where there are still opportunities to carve out market share.
“The reality is that today there are very few developing markets left. That’s why Africa is currently generating so much interest as the next BRIC markets for many companies,” he says.
Wood explains that the concept of being “early in” in many African markets should not exist as these markets have been open for many years and in-fact multinationals like Unilever, Nestle and Coke have been there for decades. The reality is that in many African markets, in many categories, the business is still under-developed and offers brand builders the same or similar opportunities to those they have had in developing markets like the BRIC markets 20 years ago.
When asked whether Africa can be the next BRIC region, Wood shares his insights and believes it can be.
“If we look at Africa GDP growth since 2000 it has been impressive, ahead of world growth and is now almost on a par with developing Asia markets. In 2012 markets like Angola grew in double digits and Nigeria, Ghana, and Tanzania all grew at over 6%,” he says.
“This growth is accelerating, fueled by investment into Africa: FDI (Foreign Direct Investment) in Africa has consistently grown over the last 10 years from a level of under USD20 Billion per annum to nearly USD60 Billion per annum.”
In addition, Africa has a fast growing, young, increasingly urban population and a growing middle class which means demographics are fuelling the African growth.
Africa’s population today sits at 1 Billion, with 40% below 20 years old, and it is expected to grow to 1.4 Billion by 2025. Nigeria is expected to grow to the third largest country in 40 years’ time, with a population of over 450 Million, Ethiopia too will make the top 10 countries globally in the same time period growing from 84 Million today to over 278 Million by 2050.
“What’s interesting is that there is a strong GDP growth per capita. This has resulted in the emergence and growth of a middle class on the Africa continent,” explains Wood.”This is also seen in high urbanisation rates, currently at 40% across the continent, expected to grow to 50% by 2025. Nigeria alone has 74.2 Million people living in urban areas.”
“The emergence of an African middle class means there is a strong consumption drive in the African economy. Urban African consumption of consumer goods is at a much higher level than most other developing markets – 45% of GDP growth from 2000 has come from the consumer goods sector. Over 300 million people are today classified as middle class in Africa and since 2000 this middle class has contributed massively to private consumption growth, FMCG food, beverages and non-food consumer products will account for 50% of household consumption by 2020.”
The African continent therefore presents high growth opportunities for FMCG companies, however Africa is a complicated, challenging and difficult to enter market and succeeding in Africa requires a focused strategy. This strategy needs to focus on where to play, how to connect with consumers, the right route to market and strategies for overcoming business complexities.
“If FMCG companies have the ambition for growth, the appetite for some risk and can get some expert help to define and develop their African business, the opportunities can be endless,” concludes Wood.