--Consumer-goods companies that want to grow in Africa should
take a focused rather than a broad approach
--Africa's consumer-focused industries are likely to grow by
$410 billion by 2020 from 2011
--McKinsey & Co. says consumer companies should approach
growth in Africa with a focus on urban centers
By Devon Maylie
JOHANNESBURG--Consumer companies that want to grow in Africa
should take on a focused approach rather than trying to reach the
whole continent at once, according to a new report by consultancy
McKinsey & Co.
Africa's consumer-focused industries such as banks, mobile-phone
companies and retailers are likely to grow by $410 billion by 2020
from 2011, which would account for more than half the total revenue
increase that all businesses are expected to generate in Africa by
the end of the decade, McKinsey said.
However, to tap into that growth, companies need to become more
urban-focused and understand their consumer better, the consultancy
said.
Already, 40% of Africa's population lives in cities, more than
India's 30% and close to China's 45%. By 2016, more than 500
million Africans will live in urban centers, and the number of
cities with more than 1 million people is expected to reach 65,
compared with 52 in 2011, McKinsey estimated, on par with Europe
and higher than in India and North America.
"The urbanizing trend is strong and continues to be strong,"
said Bill Russo, a director at McKinsey and lead author of the
report, "The Rise of the African Consumer."
"The approach [by companies] should focus on urban centers to
get scale," he said.
McKinsey said consumer goods companies started to pay more
attention to Africa after the global financial crisis that
escalated in 2008. While many developed countries weren't growing
much at this time, Africa was posting higher growth figures, albeit
from a low base. That growth largely has been driven by the
discovery of natural resources, including major oil finds. However,
many countries in Africa still are struggling to develop
much-needed infrastructure and services, while cross-border
conflicts threaten the region's stability.
Nonetheless, Africa's improving outlook already has lured
investment from global consumer companies and spurred the
development of local businesses. Wal-Mart Stores Inc. (WMT) this
year closed a roughly $2.4 billion deal to buy 51% of South
Africa's Massmart Holdings Ltd. (MSM.JO), with plans to use the
discount retailer as a foothold for continental expansion. The
company is targeting large cities for growth across the region.
Yum! Brands Inc. (YUM) said it plans to double the number of KFC
outlets in Africa by 2014, while clothing companies Gap Inc. (GPS)
and Spain's Zara, owned by Inditex SA, opened outlets in
Johannesburg this year, their first entry onto the continent.
Further luring retailers to the continent are projections that
by 2020 more than half the households in Africa, home to a billion
people of which more than half are under the age of 20, will have
discretionary income, rising to 130 million households from 85
million currently, McKinsey said.
McKinsey said consumer companies should approach growth in
Africa with a focus on the urban centers to build up their brand
and get a following. McKinsey found that 55% of consumers in
sub-Saharan Africa are loyal to a grocery brand and 70% are loyal
to a small group of brands. Their report also highlighted that
urban Africans use the Internet as much as people in Brazil and
China. In 2010, there were 43% more Google advertisement clicks in
Africa than in Western Europe, the report noted.
"The more granule, targeted the approach, the more successful
you can be," Mr. Russo said.
Write to Devon Maylie at devon.maylie@dowjones.com