By Abdi Ali
Published September 27, 2015
A survey that reveals the most attractive developing retail markets across Africa has placed Gabon at the top followed by Botswana and Angola in the second and third positions, respectively.
The study, known as African Retail Development Index and conducted by a South African management-consulting firm known as AT Kearney, ranks markets according to their expansion potential.
The survey, that was released in Johannesburg on September 8, 2015, discusses the growth in the middle class in Africa, increased consumerism, the spread of malls, land being taken up for development for retail purposes and Sub-Sahara’s young and connected middle class that is growing fast and still deciding on its favourite brands.
This second African Retail Development Index (ARDI) by AT Kearney reconfirms the continent’s retail potential of many countries throughout Africa–not just oft-discussed markets like Nigeria and Ghana, but also small, dynamic markets such as Gabon, the ARDI’s top-ranked market and home to Sub-Saharan Africa’s highest GDP per capita, and also mid-sized and fast-growing countries such as third-ranked Angola.
The report begins with a look at entry strategies for sub-Saharan Africa, followed by an in-depth analysis of the top 14 countries.
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The 2015 ARDI ranks the top 15 Africa countries according to market attractiveness for retail expansion. ARDI is a useful framework for retailers because it not only identifies the markets in Africa most attractive for retail expansion today, but those that offer the most potential.
The Index identifies three distinct differences in stages of retail advancement in the Top 15 countries–basic, developing, and mature–with only southern Africa falling into the mature bracket. They are characterised by having a formal shopping culture, international and growing private label exposure, innovation, and stable and transparent pricing. In this market, the key purchase drivers are convenience and quality.
Mirko Warschun, AT Kearney partner and leader of the firm’s consumer industries and retail practice for Europe, Middle East, and Africa, notes that Nigeria, ranked 4th in 2015, moved down the index, despite its market size and room for growth.
“Nigeria has massive room for growth in formal retail with 25 new shopping centres in development,” Warschun says. “True spending, however, remains comparatively low as the ‘true middle class’ is a lot smaller relative to the smaller countries ranked higher.”
With its tremendous potential and strong economic projections, however, Nigeria is still a market to consider.
Tanzania, that is ranked 5th overall, has dropped a notch in 2015. Though the largest and arguably the most stable of the East African Community countries, “Tanzania is in the early stages of development, and therein lies the opportunity,” Warschun says. “This unsaturated market has one of Africa’s fastest growing retail sectors, boosted by new shopping malls.”
Bart Van Dijk, AT Kearney partner and leader of the firm’s consumer industries and retail practice in Africa, said that it was 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.
“How you pick among the opportunities depends on your offering,” he says. “Retailers with a basic offering should target the large cities and countries because scale will be important, while retailers with a wider assortment should target higher average income countries including the smaller ones.”
The ARDI is based on four dimensions: market size, market saturation, country risk, and time pressure, and ranks the potential and urgency of moving into each country accordingly.
Ethiopia, with Africa’s second largest population, barely cracks the top 15. The ARDI report includes a summary of all 15 countries in the Index, recommendations for the Cash and Carry retail model, and commentary on the opportunity presented by the East African Community–Kenya, Tanzania, Uganda, and Rwanda–bloc.
Mike Moriarty, AT Kearney partner and leader of the firm’s Global Consumer Institute, concludes, “Success in Africa requires analysis, understanding, and the flexibility to customize, but for those willing to take the risk, the rewards are plentiful.”
The Africa Retail Development Index ranks Sub-Saharan Africa countries on a 0-100 point scale: the higher the ranking, the higher the potential and urgency to enter the country.
The countries considered for the rankings were pre-selected based on three criteria – a country risk of 35 or higher in the Euro money country-risk score, population size greater than 1.5 million, and GDP per capita (PPP) of more than US$1,000.
ARDI scores are based on Country and Business Risk (25%), Market Size (25%), Market Saturation (25%), and Time Pressure (25%).