Africa presents enormous economic and growth opportunities, which are presented by its leading consumer markets such as Nigeria, Kenya, South Africa and Ghana. Despite this, many multinational corporations struggle and face particular challenges when doing business in Africa, and struggle to conduct successful business in these markets due to issues such as weak infrastructure, difficult trade policies and procedures, and fragmented retail markets. Its true that these challenges have not stopped countless others breaking through the boundaries and acquiring a profitable market share in Africa. But how have those successful businesses been able to overcome distribution challenges in Africa?
Overcoming distribution challenges in Africa
Product adaptation for the local market
To begin with, the successful enterprises that have made a mark in Africa share one essential trait: they have recognised and embraced the need of adapting their products and services to the needs of the local market. Coca-Cola and Unilever are two prominent companies that have successfully accomplished this, according to Deloitte’s Africa: Tapping into Growth study.
Coca-Cola, which has a presence in 54 African countries, caters to underprivileged communities by selling beverages in returnable bottles. Customers can, in fact, pay solely for the contents of the bottle if they drink it at a store. Unilever, which employs around 40 000 people across the continent in over 40 locations, on the other hand, has adjusted some of its goods to better meet the needs of the African consumer. One such product is margarine, which has been changed such that it does not need to be refrigerated.
Secondly, these businesses make investments in their communities and local governments. According to Deloitte, Unilever was one of the first large tea businesses in Kenya to commit to sustainable sourcing of tea when it launched its “field schools” in 2007, which have now trained over 250,000 farmers in the region on sustainable tea production. These organisations ensure that they have skilled individuals to execute their objectives by investing in local talent and looking after their staff. This ensures that their employees are not headhunted by other companies. Utilising local skills, knowledge and experience are key to substantial and sustained growth in African markets.
Build the infrastructure that is required
Companies that are successful in doing business in Africa have a good understanding of the business landscape. According to the PWC analysis, Prospects in the retail and consumer goods industry in 10 Sub-Saharan African nations, this is why many “home-grown” enterprises are able to expand into other regions and gain ground against foreign competition. Shoprite Holdings, a South African supermarket chain, is one such example, having opened over 300 stores in 14 African countries since its entry into Zambia in 1995. Whereas more than 90% of sales on the continent are still done through informal means, this company has been cooperating with property developers to build shopping malls or just building their own retail centres.
The understanding of the “home-grown” edge has resulted to many of these companies becoming takeover candidates or being sought out to collaborate with through mergers, joint ventures, or supply arrangements. The PWC research cites WalMart’s acquisition of South African retail business Massmart as an example, and RCL Foods, a significant South African poultry supplier, taking investments in local product manufacturers that will benefit from its cold-chain distribution capability as another.
Establish credibility, and collaborate with local stakeholders
In Africa it is essential for non-African businesses to collaborate with local business networks to deal with the unique business environment, which is often hindered by bureaucracy, corruption, ever-changing regulations, as well as multiple currencies and protectionist measures.
To earn the right to influence local agendas and effect change, businesses in Africa should become more inclusive in their approach by appointing local business leaders to their board of directors, get listed on the local stock exchange and invest in community development.
For instance, NIIT, India’s IT training pioneer, works with a local government in Nigeria, South Africa and Ghana to help students develop vocational training skills and also finds them internships in India.
Invest in local talent recruitment, development, and retention
The lack of qualified professionals in Africa is mostly attributable to the population’s low education level and a significant brain drain of highly educated workers.
Leading companies make a substantial commitment to create a rich talent pipeline. They leverage their corporate reputation, brand strength and presence. Some companies also launch graduate recruiting and training programs and provide clear career development paths. They ensure that salaries are correctly benchmarked not just against local competitors, but also against companies in other fast-growing sectors that could raid their talent.
Explore new and novel distribution alternatives
Because transportation can present significant distribution challenges in Africa, many manufacturers have devised novel ways to transport their goods. Also, the vast majority of consumers in Africa still buy from small stores, hawkers, and “spaza shops” (run out of homes in South Africa). While modern retail is growing, it’s still a fraction of the informal retail landscape.
To accelerate market coverage, many companies establish a network of trusted third-party distributors and wholesalers, teaming their own salesforce with distributors to ensure a measure of control.
Some companies collaborate with traditional outlets directly to increase sales and improve distribution, and in the process, professionalise the way shopkeepers work. According to the Deloitte assessment, Coca-Cola has a “small army of entrepreneurs” who take over where trucking ends by walking or biking products and successfully fulfilling last-mile deliveries.
Marico launched a program in Egypt aimed at developing its relationship with suppliers and distributors and improving their communication skills, as well as in sales and management techniques. Such programs enabled it to maximize its outreach to consumers through its trained associates.
In some categories, companies bolster sales by encouraging unauthorised sellers to formalise their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets, transforming off-the-books sellers into a thriving new retail segment.
Gain a competitive advantage by collecting your own data
Data on Africa’s diversified consumers and retail environment is scarce and often not accurate or reliable. Instead of relying on less-than-reliable data from public research firms, leading consumer packaged goods manufacturers use innovative technology to gather their own data.
A good example of this approach is Olam, who are a global leader in agricultural products with a packaged foods company in Africa. Olam is investing substantially in analysing the dramatic disparities across West African consumers, allowing it to tailor products to local demands and uncover potential new growth areas.
So, in a nutshell, by adopting a number of these approaches that we have highlighted above it will ensure that your organisation can face up squarely to the many distribution challenges in Africa. It is important to state that when developing a strategy or intervention plan it is necessary that businesses gather as much information about the environment in which it wants to operate and compete in. Africa is not a one size fits all approach and companies that have realised this are the ones that are making significant progress in Africa.