The ARDI not only identifies the markets in Africa most attractive for retail expansion today, but those that offer the most potential in the future. The development of organized retail is a solid predictor of opportunity for other industry sectors as well, such as communications and telecoms, financial services and infrastructure.
“Formal” retail, that which takes place in malls, shopping centers and other defined trade areas, remains in the nascent stages in most Sub-Saharan Africa countries, limited primarily to a handful of urban areas. Low rates of formal retail coupled with increasing urbanization and the relative stability of many African economies represents massive room for retail growth.
Mirko Warschun, A.T. Kearney partner and ARDI co-author commented, “The top 10 countries in the Index are diverse in terms of scale and growth potential. Retailers must understand where African countries are in the evolution of the retail landscape and the stages of market development to craft their expansion strategies for Africa.”
The ARDI is based on four elements – market size, market saturation, country risk and time pressure, and ranks the potential and urgency of moving into each country accordingly. The top 10 markets in the Index are segmented into three high-level approaches: Start with the Basics, Move Quickly and Differentiate.
Start with the Basics: The vast majority of Africa, including Rwanda, Tanzania, Gabon and Ethiopia, has limited market saturation, but also low maturity. While these markets are promising because of favorable demographics and recent growth trends, the main retail markets remain small, scattered and informal. The largest opportunities available in these markets revolve around offering basic consumer packaged products at low prices.
Move Quickly: The countries in this group – currently only Nigeria and Gabon from our Top 10 – have rapidly evolving retail dynamics and demographics, with some established retail players and many other global retailers planning entries. There is no time to spare entering these markets before these first movers gain an advantage as they establish their brands early and secure loyal customer bases.
Differentiate: These markets (Botswana, Namibia and South Africa) have Africa’s most advanced retail sectors as well as an existing presence of international retailers. These markets offer opportunities for retailers that have the capability to deliver differentiated products or formats that are hard to find and appeal to a growing middle class and globally minded citizens.
Bart van Dijk, A.T. Kearney partner and ARDI co-author noted, “There are wide differences in infrastructure and supply chain development across African countries. Understanding the opportunities and limitations from country to country is a critical element of the retail expansion decision.”
By 2020, nearly half of all Africans will be living in cities. As disposable incomes rise, consumer spending will grow to almost $1tr. Even with the challenges of entering and succeeding in Africa, the opportunity is impossible to ignore.
“Although there are many challenges, Africa has reached a point in its economic development where global retailers must evaluate the significant potential for growth in this market,” noted A.T. Kearney partner and ARDI co-author Mike Moriarty.
To read the full 2014 African Retail Development Index, click here.
