Formalizing African Retail - The path ahead in grocery retail and shopping malls
Formalizing African Retail - The path ahead in grocery retail and shopping malls
Page 1 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Objectives and Agenda Share Sagaci Research´s view on the retail evolution in the past years and future developments • Grocery retailing • Shopping malls • We have collected a number of insights from different countries across the continent to illustrate some of the emerging trends • Most references to Africa are beyond the South African market as RSA is structurally very different and at very different level of development
Page 2 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Consumer goods distribution landscape in Africa Traditional retail Modern/organized/chained retail • Small stores • Independently owned (or chains with less than 4 stores) • Served by wholesalers • Typically no self service, no prices displayed nor cash registers • Store sizes from 500 sqm • Stores belong to a chain, with centralized purchasing, served by distributors and frequently by brands directly with a key account manager • Self service, prices displayed and cash registers
Page 3 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Traditional retail is overwhelmingly dominant across Africa Source: Sagaci Research Retail Census (June 2013) Sagaci analysis Example 1: Number of retail outlets across Senegal (2017) - number of stores - 57 323 Supermarkets and Hypermarkets Semi- wholesalers Kiosks 37,598 2,780 40,379 380 TOTAL Convenience store Traditional retail Modern retail Traditional retail Modern retail Example 2: Retail universe in Embakasi (district of Nairobi), 2017
Page 4 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Organized modern retail 1% to 10% of total in most African countries 0,1% Libya Algeria 0,2% Morocco 4,1% DR Congo 6,5% 0,5% 1,1% Burkina Faso Cameroon Uganda 0,5% Liberia Ghana 0,9% 0,6% 2,4% 2,2% Gabon 2,6% Nigeria Egypt Senegal Angola Cote d’Ivoire 6,7% Kenya Togo 1,8% Malawi 0,4% 0,3% Burundi 0,7% Mozambique Tanzania 0,9% 1,0% Rwanda 1,2% Madagascar 0,9% Zambia 2,8% 1,8% 2,8% 3,2% Mauritius 0,2% 0,3% Ethiopia Sierra Leone Niger Zimbabwe Botswana 27,5% South Africa Swaziland 44,4% Tunisia 10,4% 10,9% Namibia 12,2% Lesotho 21,7% 55,5% 7,3% Modern food retail sale share by country - In % of total food expenditure, Q4 2015 - Source= AfDB, IMF and World Bank and Sagaci Research Note: Modern food retail sale share is calculated as the percentage of all supermarket sales (both chained and independent ones) over total food expenditure
Page 5 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential FMCG brands know how to work with modern retail … but struggle in traditional retail Traditional retail Modern/organized/chained retail Direct supply - Key account model Reach through distributors and wholesalers Cheaper distribution Higher volumes per outlet, but in fewer outlets, centralised warehousing Expensive distribution High capillarity, low volumes per outlet Extensive marketing and promotions used Key Account Management, shelf rotation, promotions...
Lack of control, difficult to understand and manage Distribution over multiple layers, parallel imports...
Limited number of stores with high turnover High capillarity, large number of stores, low turnover per store
Page 6 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Traditional retail is key, even in specific categories like yogurt Example: Yoghurt penetration in Embakasi (district of Nairobi), 2017
Page 7 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Traditional retail will remain dominant for the coming years … Current capillarity of traditional retail Market are growing fast • Traditional retail accounts today for 90 to 95% of grocery purchases • Traditional retail is the only network with enough capillarity to reach all segments of the population • Market is expanding at 6% + annual rates creating large opportunities and sustaining the traditional retail outlets • Population growing at 2 - 3% in most countries • GPD per capita growing up to 3% • Modern retail outlet expansion is relatively slow, any significant increase in the number of outlets will require several years Limited speed of development of modern retail
Page 8 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential … even with strong expansion of international banners in Africa 12 countries 6 countries 3 countries 15 countries 12 countries 9 countries 6 countries
Page 9 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Modern retail in Africa Local and international players have their specific challenges ahead Limited retail sophistication Limited sophistication often translates into poorer financial performance, shelf rotation etc Rushed expansion with limited understanding on the new sites potential turnover Securing sites too quickly, and accepting high rents to secure sites Family owned companies with no institutional investors or access to debt Limited capital to fund development and to cope with difficulties Stretched network expansion Shortages of capital Multiple failures of entry strategies...
Challenges to adapt models to local preferences Struggling to understand local consumer preferences Frequently perceived as premium players and expensive Difficulty in setting up local supply chain for local products (vs importing) Most major global retailers have failed several times in expanding abroad I.e. Walmart in South Korea or Germany, Tesco in France or Taiwan, Carrefour in many European markets or Japan However, once the surviving international retailers have managed to adapt, they can achieve strong market positions I.e. Carrefour has +230 stores in China ... But survivors can succeed Local African champions – recent example of challenges faced by Nakumatt Multinational retail banners
Page 10 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential The path ahead: Grocery retailing in Africa Our view International banners (south African and European mainly) will keep investing and entering different countries • They will adapt their models to the local realities • Some players might partner with local or acquire local chains Local national champions will overcome their difficulties and modernize or will be acquired Traditional stores will still make up for a large proportion of retail • Innovative models could emerge bottom-up from the traditional channels Global trends Potential for African innovation • Will online finally get to grocery retailing the way it got to other industries?
• Amazon spends 13,7Bn USD in acquiring wholefoods • However, many trials came before and failed, as grocery retail is extremely complex • The particular conditions of the African landscape could bring some innovation in the grocery retail area be some innovation in the pipeline • As it has happened in other sectors, i.e. • The success of mobile money leapfrogging the whole world in electronic payments • The excellent adoption of Uber (near perfect market landscape, available labour, no organized taxi services in many cities, trust as an added value)
Page 11 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Shopping mall landscape in Africa: 413 malls in 34 countries 28 60 413 410 386 359 2016 441-501 Remaining 2017 2018 Expected 2018 Q1 2017 6,9% CAGR 3.7-10.5% CAGR 2014 2015 413 shopping malls in Africa in Q1 2017 (Excluding South Africa) 27 new openings since 2016 3 8 1 4 7 2 1 1 Mall of Egypt Two Rivers Novare-apo Mall Number of openings since Dec 2015 Range accounting for expected delays in 2017-18 pipeline
Page 12 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential 27 malls opened in 2016 and Q12017 Rating of newly opened shopping malls – 2016 and Q1 2017 Mall name Country City / Area GLA (Sq m) Rating Mall of Egypt Egypt 6th of October 165000 AAA Two Rivers Mall Kenya Nairobi 63000 A Novare Lekki Mall Nigeria Lagos 22000 A Xyami Lubango Angola Lubango 14000 B The Hub Karen Kenya Nairobi 29000 C Lar Patriota Shopping (AKA Galerias Patriota) Angola Luanda 15187 C Prima Center Guinea Conakry 12000 C Circle Mall Nigeria Lagos 10800 C Rosslyn Riveria Mall Kenya Nairobi 10777 C Maryland Mall Nigeria Lagos 7000 C El Mohammadia Mall Algeria Algiers 15240 C Asaba Mall Nigeria Asaba 7000 C Nextgen Mall Kenya Nairobi 15,000 D Mkuki House Shopping Mall Tanzania Dar es Salaam 22000 D Maxim Mall Egypt Cairo 21622 D Juja City Mall Kenya Nairobi 20500 D Onitsha Mall Nigeria Onitsha 12100 D Alexandria City Centre Expansion Egypt Alexandria 12000 D Owerri Mall Nigeria Owerri 11000 D The Octagon Ghana Accra 7000 D Accra Mall Extension Ghana Accra 16000 - Cedar Mall Kenya Nanyuki 12000 - The Palms Shopping Mall - Ota Nigeria Ota 10687 - Shopping Avenida Talatona (Candando) Angola Luanda 10000 - Green Square Mall Kenya Kericho 9800 - Unicity Shopping Mall Kenya Nairobi 11,500 - Xyami Huambo Angola Huambo - - Source: Sagaci Research African Shopping Centers Database, March 2017
Page 13 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Shopping malls in Africa: Few malls larger than 70k sqm of Gross Leasable Area Specific characteristics of retail landscape Highstreets for retail are non existent; malls are the only option for international brands Mall as a replacement of entertainment activities: one of the few safe destinations for leisure (air conditioned and modern) • Large share of food and beverage in the tenant mix Destination for higher classes • Accessible by road, when 90% of the population does not have a car Relatively small malls • 19 out of the 27 new openings in 2016 and Q1 2017 have less than 16,000 sqm GLA, and 25 less than 30,000 sqm 1.
Ex-South Africa Source: Sagaci Research African Shopping centers Database, March 2017 125 119 289 47 54 124 45 9 172 173 Regional (>70,000 sqm) 59 14 Neighborhood (3-5,000 sqm) Community (5- 12,000 sqm) Local (12- 70,000 sqm) 413 Total North Africa Sub-Saharan Africa Shopping malls typically small or medium
Page 14 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Development of shopping malls in Africa facing important challenges Generating foot traffic Differentiate against competing malls Recruiting relevant tenants Need to master the basic approach for generating traffic • Deep understanding of the catchment area, the access possibilities and the integration with city life • Ensure ease of access, availability of parking space • Expand towards unserved public: What are the access opportunities offered for the non-driver population? (90% of the population in Africa) Lack of tenant base results in very similar tenant mixes in most of the malls in a city • Options for differentiation • Target local specificities • Differentiation on new leisure services / equipment (i.e.
gyms, trampoline parks) Main international brands do not have Africa on their radar (beyond South Africa) • Lack of understanding of the countries • Higher risk perception • Lack of local partners/distributors to develop the brand
Page 15 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Trade performance varies immensely depending on location: Illustration of Nairobi, Sagaci Research trade density tracker Absolute Trade Density (sales per square meter) in Nairobi’s shopping malls, per district (Q2-2017, in USD /sqm/month) Note: Absolute Trade Density is inclusive of VAT. A standard mix of categories for all malls in each district is assumed (equally weighting beauty, food and clothing categories), in order to ensure consistency in the comparison Source: Sagaci Research Analysis Junction mall Limuru road Kilimani Karen Village Market New Muthaiga Galleria The Hub Thika Road Garden City Karen CrossRoads Junction Prestige Plaza Ad Life Yaya Center Mountain TRM Rosslyn Riviera Ridgeway s 365 794 448 321
Page 16 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Tenants are looking to expand (I) Example 1: Mr Price has become one of largest brands across Africa Number of stores of Mr Price in African Countries Mr Price owns 1,100+ stores in South Africa alone Source: Mr.Price, Press Search 1 2 3 3 12 5 5 5 23 37 7 9 Mr Price Apparel Sheet Street Mr Price Sport Franchised Mr Price Home Miladys Franchise partner in East Africa: Deacons Accra Mall, Accra
Page 17 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Tenants are looking to expand (II) Example 2: Yves Rocher, a growing pan African tenant targeting top malls in each market 1 1 1 1 2 2 3 3 4 6 11 13 57 65 Kenya Niger Egypt Mauritius Madagascar Mauritania Senegal Libya Algeria South Africa Morocco Gabon Tunisia Rwanda Number of stores of Yves Rocher in African Countries City Stars, Cairo (AAA mall) Centre Commercial Sea Plaza, Dakar Source: Yves Rocher
Page 18 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential The path ahead: African shopping malls innovations Generate Traffic Affordability Specific topics for African malls Tenant development and differentiation Costs • How to improve access for the non-driver population? (90% of the population in Africa) • How to improve frequency of visits by current customers? • How to improve affordability to the general population? • How to diversify and increase the number of tenants available?
• How to diversify from the reliance on leisure and entertainment? • How to reduce the costs of land? • How to reduce the costs of development and speed it up? Potential innovations • Newer locations? • Focus on alternative means of access (walk, public transportation) • Focus on more regular services? • Development of different (lower cost) tenants? • Development of spaces for traditional retail within malls? • Attraction of new international tenants? • Development of different (lower cost) tenants?
• Emergence of multi-mall developers, willing to leverage on experience and scale effects?
Page 19 © Sagaci Research Ltd Formalizing African Retail | August 2017 | Sagaci Research | Confidential Our contact details Julien Garcier Managing Director +254 716 313 442 firstname.lastname@example.org João Terlica Managing Director +34 625 088 888 email@example.com www.sagaciresearch.com @sagaciresearch