C&B Notes

The Emerging African Consumer

Both multinationals and local companies are working hard to appeal to the emerging African middle class consumer with products that are tailored specifically for their needs and meet their required price points.  Logistics and distribution at the retail level is another consideration.

Africa’s attractions stem from its new middle class, loosely defined by the African Development Bank as anyone who spends between $2 and $20 a day in purchasing-power parity terms.  The bank estimates that more than 34% of Africans (326m people) fit this description, up from 27% in 2000.

The challenge is to make stuff such consumers can afford, says Sullivan O’Carroll, the boss of Nestlé South Africa.  Nestlé offers wares called “Popularly Positioned Products”.  The name may not be snappy but the products are cheap and address common nutritional deficiencies.  For instance, Nespray, an instant milk powder, contains calcium, zinc and iron — all essential for children.  It is sold in a 250g pouch that costs only a few rand.

Designing products that appeal to locals is only part of the challenge.  Even in South Africa, which has the best infrastructure, consumers may be eager but hard to reach.  Nestlé delivers directly to spaza shops (informal convenience stores), that make up about 30% of the national retail market.  Many of these are in remote areas and owners often cannot afford delivery vans.  Nestlé has set up 18 distribution centers that deliver to spazas.  It charges them the same prices as bigger outlets… Soweto’s spazas range from a hole in the wall on a dust road in a squatters’ camp to a proper mini-market with a bright-green façade.  Many of the owners are canny in dealing with customers.  But for the supplier, working with them is tricky.  Few have much working capital — 5,000 rand (about $600) is typical.  Many have no ambition to grow.  Some are hard to find.  Nestlé views micro-distribution as a marketing expenditure: its staff can talk spaza owners into trying new products and check that its wares are prominently displayed.  The goal is to make what it calls “micro-distribution” break even.