So here are our big themes in 2019 and a look ahead to 2020. It’s been another eventful year in African consumer and retail markets in 2019.
Some big retail players coming unstuck
In grocery retail, some big players have come unstuck. In Kenya, Nakumatt is now, definitively, closing down. 3 stores closed this week and the rest are slated to close in January. Massmart’s international strategy is a mess – the South African discounter is in lots of markets but no scale in most of them. It also reported its first trading loss since it listed on the JSE in 2000.
Shoprite is performing well in South Africa but taking a kicking from currency devaluation. CEO Pieter Engelbrecht is actually considering exiting some markets. There are a few to choose from. Shoprite is opening new stores far too slowly in Kenya. It has just three supermarkets there two years after announcing its plans to enter.
And then there is Choppies, the listed Botswanan chain that still hasn’t released its financial results for the year ended June 2018. It’s sold its stores in South Africa, is closing down in Kenya and Tanzania and has indicated it will exit more markets. It is another story of poor governance that has spooked would be investors in grocery retail.
The growth of Carrefour
Elsewhere, some retailers are having a better year. Majid Al Futtaim, Carrefour’s Egypt and East Africa partner is looking to double its store numbers in Egypt. It is growing rapidly in Kenya, finally opened its first store in Uganda this week and is apparently on the hunt for a supermarket chain to buy in Southern Africa.
In West Africa, Carrefour’s partner CFAO is growing its supermarket network in Cameroon, Côte d’Ivoire and Senegal. Also in Senegal, Auchan is still expanding and cementing its #1 position. The other big news is that CDCI, the #2 player in Côte d’Ivoire is now wholly owned by Moroccan supermarket owner Retail Holding – a big threat to market leader Prosuma, which now looks underpowered and vulnerable.
The rise and fall and rise? of Jumia
There have been lots of other retail stories too – in Ethiopia, Senegal, Cameroon, DRC we can see a clear pattern of grocery retail modernisation – a slow but transformative change in major cities.
Online, “Africa’s Amazon” Jumia had a stunning IPO in New York that saw its share price triple. It has spent the past eight months battling allegations of fraud and mismanagement as its market cap has plummeted far below its IPO price. Jumia has now exited several markets – Cameroon, Tanzania and Rwanda – and expect more to follow – to cut costs and appease investors. Actually we think Jumia’s platform is both valuable and interesting. However it has long been clear that the operational costs of trying to offer an Amazon-style online offer in most Sub Saharan African markets is ruinously costly and unprofitable.
Disruptors in the value chain
Another big story is some well funded, big hitting disruptors in the value chain. The most obvious of which are WeFarm, Twiga, Copia and MaxAB – all of which have received significant funding in 2019. WeFarm and Twiga both aim to transform the process of product getting from farm to market, while Copia and MaxAB both aim to streamline the route to market for products in the traditional trade. Worth watching. Especially in Kenya, where Twiga and Copia are based.
Emerging hubs and the growth of airport retail
Behind the scenes, there is also a revolution in airport retail. Several countries are vying to become gateways into Africa, most obviously Ethiopia (and Ethiopian Airlines). The new Bole International airport in Addis Ababa will eventually be able to take 22m passengers a year. Rwanda’s new Bugesera airport will eventually take 14m passengers. Kenya’s Jomo Kenyatta airport is also expanding. Airport retail operators Dufry and Lagardère both – correctly – see Africa as a big growth market.
Total, Vivo Energy and the changing forecourt
Another ‘stealth’ area of change is the forecourt. The two big players in Africa – Total and Vivo Energy (which acquired most of Engen’s African network in 2019) are leading the charge to develop the forecourt – modernising it with new supermarkets, and pharmacy and fast food partnerships. But actually we see the effects resonate much more widely, with a long tail of smaller, domestic operators understanding that higher automobile penetration makes high traffic sites like forecourts valuable retail spaces.
One of the fastest growth retailers you may never have heard of
We’re not going to say too much about Chinese discounter Miniso except this: if you haven’t heard of them, pay attention. With their launch in Ghana in 2019, Miniso is now in nine African countries. It has an extraordinary growth profile internationally.
Going cheap in South Africa
2019 was also a year in which the weakness of the rand made South African companies look like easy acquisition targets. PepsiCo acquired Pioneer Foods in July for $1.9bn, while in the first half of the year, The consumer staples sector was the second highest sector for inbound M&A value. Expect more of the same in 2020.
What lies ahead in 2020?
The forecasts we’ve seen for oil prices suggest that growth in oil-dependent Angola and Nigeria will be hard to come by. Both markets are considered attractive targets but the key takeaway is that trade remains risky and often challenging. So too, looking east, in Sudan and Ethiopia, where fx availability will be an ongoing issue in 2020.
Expect more shakeups in the retail market in Kenya. Nakumatt and Choppies’ exit frees up 15 or so store locations. Uchumi – another former giant – is close to collapse. Naivas is seeking to challenge for the #1 spot but it’s still carrying a lot of supplier debt and it’s not clear to us that it has a magic formula for sustainable organic growth. Quickmart (which merged with Tumaini in 2019) is best placed to benefit from Choppies’ exit. There is also a long tail of small regional supermarket players. Too many, in fact. We expect Carrefour to keep expanding. 2020 will be a make or break year for Shoprite. Either it expands and becomes competitive or it doesn’t.
We think DRC, and its cobalt-powered economy, will become more interesting. Cobalt is a key component for electrical vehicle batteries and some analysts predict that by 2022 prices for electric vehicles will match those of gasoline-powered vehicles. So 2020 may not be the year, but it will be an important year.
Another big trend we’re seeing across various sectors and in multiple countries is a big push towards domestic manufacturing, and more protectionism. This has dominated recent conversations we’ve had in Ethiopia, Nigeria, Angola, Ghana and beyond. Fundamentally, governments don’t want hard currency exiting for products that could be made in country.
Related to that, private label is on the rise. Especially in Morocco and Egypt, where supermarket networks are more developed and growing. And in Southern Africa, where South African retailers have large and sophisticated private label portfolios and are pushing uptake. But we also see private label as a growing trend in Angola, Kenya and Côte d’Ivoire.
A final word on.. Rwanda. Rwanda opened a flagship Volkswagen assembly plant in 2019. It has a realistic chance of delivering 100% access to electricity by 2025. It is being used as a test bed for a whole range of initiatives designed to take it to middle income status. It isn’t a big market that demands attention through sheer weight of population. It is, however, an interesting market.
