Last week was organised a major event gathering French and African business communities, called Ambition Africa. Hosted in the Ministry of Economy and with senior level participants, it shed light on the current hot topics on the agenda for investors, donors and companies involved in the African continent. A specific panel on consumer goods was held, gathering Marc Bandelier, CEO of CFAO FMCG, Christophe Ruffat, Deputy Director General, Professional Products Divisions, and Julien Garcier, founder and MD of Sagaci Research. There were interesting insights discussed that we would like to share in this blog post.
Localise production to make affordable goods
According to Marc Bandelier, as the vast majority of the consumer goods market in Africa is driven by price for low purchasing power, it is key to focus on affordability. And the way to drive down prices is to produce locally, stating that an imported product costs on average twice as much as a locally made one.
That is the reasoning driving the CFAO investment in setting up “multi-purpose factory” that can serve several manufacturing clients, which share fixed costs, of energy, infrastructure, HR, etc. Such factories can both be used to put together BIC plastic pens or fruit juices for example.
BIC plastic pens assembling line in Abidjan
L’Oréal strategy focuses on building proximity as well. From a supply chain angle, which three factories in the continent, one in Kenya, through the company it bought, Nice & Lovely, one in Egypt and one in Ivory Coast, with CFAO.
The pure export model is no longer the preferred route, and there is a desire to localise the production as much as possible. Also from a consumer insights angle, with dedicated R&D laboratories working to adapt the products to specific customer tastes.
The local first mindset was also highlighted in the sourcing aspect, with the CFAO Carrefour Playce Abidjan having already 2/3 of its fresh produce stored coming from Ivory Coast, a share constantly on the rise.
Be close to the end consumers through an efficient go to market strategy and execution
After producing locally and tailoring the goods to the local tastes, comes the complex distribution part: bringing the products to the consumers, where they shop, and the challenges related to the last mile delivery. It was reminded to the audience that 95% of sales happen in the traditional trade, or what is called the “informal” trade, meaning random kiosks, groceries, etc, in opposition with the modern trade, i.e. supermarkets. Last mile delivery.
To address this, brands use distributors to go deeper in the trade, but face execution control issues, meaning they struggle to control what they will actually do, get precise figures on the numerical distribution, the quality of display of their products, some insights on the competition presence, etc.
Things become complicated when you realise that there are actually more intermediaries, like wholesalers, sub distributors, large retailers, small retailers, etc... All these middlemen will take a cut on the products, leading to a loss of information and higher prices. Some start-ups are working on bypassing this, like Twiga Foods for the agro food sector, leveraging technology to make logistics more efficient and ordering direct.
It has been mentioned also that the barriers to entry have gone down, and there are now more and more new entrants copying the well known products, such as the Bouillon Kub from Nestlé. In West Africa, the Lebanese have for example been able to gather capital to launch new consumer goods products. Interestingly, the ability to know well your distribution chain and be comfortable selling your products on credit (and recovering the money) has been emphasized as a significant success factor. Which can be seen in the recent growth of local actors such as Patisen in Senegal.
Being present in this channel usually entail to sell products at lower quantity to cater for lower purchasing power, as you can see from this Nestlé hanger for instance.
As a conclusion, it was stated again that one needs to be patient to succeed in Africa, and prepared for volatile market environnements. The African continent is fragmented, across 54 markets, with various tastes and preferences, and complex operating conditions. There is no such thing as the African consumer or the African market.
This feedback from high level practitioners is in line with our experience in helping consumer goods companies operating in Africa and developing the right digital tools to address the pointed issues. While the strategy and the economics might sound straightforward, “targeting a market of 1,5bn people”, we believe it is actually the operational execution that is much more difficult and require the appropriate use of technology driven solutions such as our Sales Force Automation SaaS.