Formalizing African Retail - The path ahead in grocery retail and shopping malls August 2017 - API Summit
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Formalizing African Retail The path ahead in grocery retail and shopping malls August 2017
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
© Sagaci Research Ltd
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 1
Consumer goods distribution landscape in Africa
Traditional retail Modern/organized/chained retail
• Small stores • Store sizes from 500 sqm
• Independently owned (or chains with less than 4 stores) • Stores belong to a chain, with centralized
• Served by wholesalers purchasing, served by distributors and frequently
© Sagaci Research Ltd
• Typically no self service, no prices displayed nor cash by brands directly with a key account manager
registers • Self service, prices displayed and cash registers
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 2
Traditional retail is overwhelmingly dominant across Africa
Example 1: Example 2:
Number of retail outlets across Senegal (2017) Retail universe in Embakasi (district of Nairobi), 2017
- number of stores -
2,780 323 57
380
37,598
Traditional
retail
Modern
retail
40,379
Kiosks Semi- Convenience Supermarkets TOTAL
wholesalers store and
Hypermarkets
© Sagaci Research Ltd
Modern retail
Traditional retail
Source: Sagaci Research Retail Census (June 2013) Sagaci analysis
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 3
Organized modern retail 1% to 10% of total in most African countries
Modern food retail sale share by country
- In % of total food expenditure, Q4 2015 -
55,5%
44,4%
27,5%
21,7%
12,2%
10,9% 10,4%
7,3% 6,7% 6,5%
4,1% 3,2%
2,8% 2,8% 2,6% 2,4% 2,2% 1,8% 1,8%
1,2% 1,1% 1,0% 0,9% 0,9% 0,9% 0,7% 0,6% 0,5% 0,5% 0,4% 0,3% 0,3% 0,2% 0,2% 0,1%
South Africa
Tanzania
Namibia
Botswana
Tunisia
Ethiopia
Kenya
Ghana
Zambia
Angola
Uganda
Rwanda
Libya
Algeria
Liberia
Nigeria
Mauritius
Madagascar
Morocco
Egypt
DR Congo
Niger
Swaziland
Lesotho
Mozambique
Zimbabwe
Togo
Sierra Leone
Cote d’Ivoire
Gabon
Cameroon
Burkina Faso
Senegal
Malawi
Burundi
© Sagaci Research Ltd
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
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 4
FMCG brands know how to work with modern retail … but struggle in traditional retail
Traditional retail Modern/organized/chained retail
High capillarity, large number of stores, low turnover Limited number of stores with high turnover
per store
Cheaper distribution
Expensive distribution Higher volumes per outlet, but in fewer outlets,
High capillarity, low volumes per outlet centralised warehousing
Reach through distributors and wholesalers Direct supply - Key account model
Lack of control, difficult to understand and manage Extensive marketing and promotions used
Distribution over multiple layers, parallel imports... Key Account Management, shelf rotation,
promotions...
© Sagaci Research Ltd
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 5
Traditional retail is key, even in specific categories like yogurt
Example:
Yoghurt penetration in Embakasi (district of Nairobi), 2017
© Sagaci Research Ltd
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 6
Traditional retail will remain dominant for the coming years …
• Traditional retail accounts today for 90 to 95% of grocery purchases
Current capillarity • Traditional retail is the only network with enough capillarity to reach all
of traditional retail segments of the population
• Market is expanding at 6% + annual rates creating large opportunities and
Market are growing sustaining the traditional retail outlets
fast • Population growing at 2 - 3% in most countries
• GPD per capita growing up to 3%
Limited speed of
development • Modern retail outlet expansion is relatively slow, any significant
increase in the number of outlets will require several years
of modern retail
© Sagaci Research Ltd
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 7
… even with strong expansion of international banners in Africa
15 12 9 6
countries countries countries countries
12 6 3
countries countries countries
© Sagaci Research Ltd
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 8
Modern retail in Africa Local and international players have their specific challenges
ahead
Local African champions – recent example of challenges
faced by Nakumatt Multinational retail banners
Limited sophistication often translates into Struggling to understand local consumer
Limited retail poorer financial performance, shelf rotation Challenges to preferences
sophistication etc adapt models to
Frequently perceived as premium players
and expensive
local preferences Difficulty in setting up local supply chain for
local products (vs importing)
Stretched Rushed expansion with limited understanding
on the new sites potential turnover Most major global retailers have failed
network several times in expanding abroad
Securing sites too quickly, and accepting high Multiple failures
expansion rents to secure sites I.e. Walmart in South Korea or
of entry
Germany, Tesco in France or Taiwan,
strategies... Carrefour in many European markets or
Japan
Family owned companies with no institutional
Shortages of investors or access to debt However, once the surviving international
capital Limited capital to fund development and to retailers have managed to adapt, they can
... But survivors
cope with difficulties achieve strong market positions
can succeed
© Sagaci Research Ltd
I.e. Carrefour has +230 stores in China
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 9The path ahead: Grocery retailing in Africa
Global trends Potential for African innovation
• Will online finally get to grocery retailing the way it got to • The particular conditions of the African landscape could bring
other industries? some innovation in the grocery retail area be some innovation
• Amazon spends 13,7Bn USD in acquiring wholefoods 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)
• However, many trials came before and failed, as grocery
retail is extremely complex
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
© Sagaci Research Ltd
• Innovative models could emerge bottom-up from the traditional channels
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 10Shopping mall landscape in Africa: 413 malls in 34 countries
413 shopping malls in Africa in Q1 2017 (Excluding South Africa) 27 new openings since 2016
1 3
3.7-10.5%
CAGR Mall of Egypt
6,9%
CAGR 28 441-501
60
410 413 1 7
386 2
359
8
Range accounting
1 Two Rivers
for expected delays
in 2017-18 pipeline
4
Novare-apo
Mall
2014 2015 2016 Q1 2017 Remaining 2018 Expected
2017 2018
© Sagaci Research Ltd
Number of openings since Dec 2015
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 1127 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 -
© Sagaci Research Ltd
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
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 12Shopping malls in Africa: Few malls larger than 70k sqm of Gross Leasable Area
Shopping malls typically small or medium Specific characteristics of retail landscape
Highstreets for retail are non existent; malls are the
173 9 413 only option for international brands
54
124 North Africa Mall as a replacement of entertainment activities:
one of the few safe destinations for leisure (air
119 conditioned and modern)
• Large share of food and beverage in the
172
tenant mix
47
Destination for higher classes
289 Sub-Saharan Africa • Accessible by road, when 90% of the
125
population does not have a car
59
14 Relatively small malls
45 • 19 out of the 27 new openings in 2016 and
Neighborhood Local (12- Total Q1 2017 have less than 16,000 sqm GLA,
(3-5,000 sqm) 70,000 sqm) and 25 less than 30,000 sqm
Community (5- Regional
12,000 sqm) (>70,000 sqm)
© Sagaci Research Ltd
1. Ex-South Africa
Source: Sagaci Research African Shopping centers Database, March 2017
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 13Development of shopping malls in Africa facing important challenges
Need to master the basic approach for generating traffic
• Deep understanding of the catchment area, the access possibilities and
the integration with city life
Generating foot traffic • 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)
Main international brands do not have Africa on their radar (beyond
South Africa)
Recruiting relevant tenants • Lack of understanding of the countries
• Higher risk perception
• Lack of local partners/distributors to develop the brand
Lack of tenant base results in very similar tenant mixes in most of the
malls in a city
Differentiate • Options for differentiation
against competing malls • Target local specificities
• Differentiation on new leisure services / equipment (i.e. gyms,
© Sagaci Research Ltd
trampoline parks)
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 14Trade 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) 365
Rosslyn Riviera Thika Road
448
Ridgeway TRM
Village Market
s
New Muthaiga Garden City
Limuru road Mountain
794
Yaya Center
Junction Ad Life
Junction mall
Prestige Plaza
Kilimani
The Hub
321 Karen CrossRoads
Karen
Galleria
© Sagaci Research Ltd
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
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 15Tenants 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 Apparel Sheet Street
Mr Price Home Miladys
37 Mr Price owns 1,100+ stores in
Mr Price Sport Franchised
South Africa alone
Accra Mall,
Accra
23
Franchise partner in East Africa: Deacons
12
9
7
5 5 5
3 3
2
1
© Sagaci Research Ltd
Source: Mr.Price, Press Search
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 16Tenants are looking to expand (II)
Example 2: Yves Rocher, a growing pan African tenant targeting top malls in each market
Number of stores of Yves Rocher in African Countries
65
57
Centre
City Stars, Cairo
Commercial Sea
(AAA mall)
Plaza, Dakar
13
11
6
4 3 3 2 2 1 1 1 1
Morocco South Africa Algeria Tunisia Libya Mauritius Gabon Senegal Egypt Kenya Madagascar Niger Mauritania Rwanda
© Sagaci Research Ltd
Source: Yves Rocher
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 17The path ahead: African shopping malls innovations
Specific topics for African malls Potential innovations
• How to improve access for the non-driver • Newer locations?
population? (90% of the population in Africa) • Focus on alternative means of
Generate Traffic
• How to improve frequency of visits by access (walk, public transportation)
current customers? • Focus on more regular services?
• Development of different (lower
• How to improve affordability to the general cost) tenants?
Affordability
population? • Development of spaces for
traditional retail within malls?
• How to diversify and increase the number of • Attraction of new international
Tenant
tenants available? tenants?
development and
• How to diversify from the reliance on leisure • Development of different (lower
differentiation
and entertainment? cost) tenants?
• How to reduce the costs of land? • Emergence of multi-mall
Costs • How to reduce the costs of development and developers, willing to leverage on
© Sagaci Research Ltd
speed it up? experience and scale effects?
Formalizing African Retail | August 2017 | Sagaci Research | Confidential Page 18Our contact details
www.sagaciresearch.com
@sagaciresearch
Julien Garcier João Terlica
Managing Director Managing Director
+254 716 313 442 +34 625 088 888
julien.garcier@sagaciresearch.com joao.terlica@sagaciresearch.com
© Sagaci Research Ltd
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