Driven by Africa’s burgeoning middle class, demand for consumer goods and services in Africa is expected to skyrocket in the next decade. In total, it is estimated this will add $1.1 trillion to African GDP by 2019. However, although some companies have already attempted to mobilize resources to capture this opportunity, a report by Nielsen titled “How to Navigate the Retail Distribution Labyrinth?” exposes the difficulties that companies are facing to reap the benefits.
By shining light on the reality behind the African consumer market and its dependence on multiple small retail outlets, the report argues that the underlying bottleneck limiting the future success of the incoming companies is fundamentally a distribution problem. Companies need to adopt agile business models to navigate these distribution challenges effectively. In this blog post, we dig deep into the analysis and show how Optimetriks’ digital data gathering and management platform can be leveraged to unlock the full extent of the opportunities available in the FMCG market in Africa. Additionally, market research is crucial in understanding the African consumer market and tailoring distribution strategies accordingly.
Key business intelligence informations:
- Even top selling products struggle with product penetration
For a range of different products in Nigeria, the market leaders had an average product penetration of 65%. Data analysis helps in understanding product penetration rates by extracting insights through advanced analytics techniques. That is, on average, 65% of the 745,000 visited outlets had these top selling products. However, more surprisingly, for the remaining 10 best selling products, the average product penetration was merely 30%.
Collecting relevant data from various sources, such as sales transactions and customer interactions, is crucial to gain insights into consumer preferences and product performance.
- Consumers have a strong preference for products they know of or have tried before
Across these seven countries, about half of the surveyed 10,000 outlets said consumers had a preference for “trusted” brands. This may not be surprising given the tight budget environment most consumers live under.
- Across Africa, except in South Africa, most sales are made through traditional outlets.
In Ghana, Cameroon and Nigeria, more than 90% of sales are made through traditional informal outlets. Whereas in Kenya, often labelled as one of the most developed retail markets, 70% of sales are still made through traditional outlets.
- Across the different African countries there is a varied mix of separate types of traditional outlets
In Ethiopia, Cote D’Ivoire and Cameroon, more than half of the traditional outlet types present are convenience stores. Conversely, in Uganda, Kenya and Nigeria, grocery stores/dukas are most common.
- Consumers go to different outlet types for different purposes
In Kenya, most consumers who buy at table-tops do so because of their handy location. Whereas most consumers who buy at kiosks do so because they need a quick top-up of something. Conversely, purchases at dukas or supermarkets quite often occur because people need to stock up on various different products.
- Inefficiency: sales are often concentrated on a small percentage of the outlets who stock the product
For instance, in Lagos, Nigeria, although laundry detergents are stocked in over 100,000 outlets, 50% of the sales occur in only 10% of these outlets (10,000 outlets). Similarly, 80% of the sales of beverages occur in about 40% of the outlets offering them.
Challenges in the FMCG Industry:
The FMCG industry faces numerous challenges that can impact its growth and profitability. One of the most significant hurdles is the intense competition within the sector. With many players vying for market share, FMCG companies often find themselves in price wars, which can erode profit margins and diminish customer loyalty.
Another critical challenge is the changing consumer behavior. Today’s consumers are increasingly health-conscious and environmentally aware, leading to shifts in their purchasing habits. FMCG companies must stay agile and adapt to these changes to remain relevant in the market.
Supply chain disruptions also pose a significant threat to the FMCG industry. These disruptions can lead to stockouts, delayed deliveries, and increased costs, all of which can negatively impact a company’s bottom line. Additionally, regulatory compliance is a constant concern for FMCG companies. Adhering to various regulations, such as food safety and labeling requirements, can be both time-consuming and costly, further complicating the operational landscape.
FMCG Distribution Challenges in Africa:
The FMCG industry in Africa faces unique distribution challenges that can hinder its growth. One of the primary issues is infrastructure constraints. Many African countries have underdeveloped infrastructure, making it difficult to transport goods, especially to rural areas. This lack of infrastructure can lead to significant delays and increased costs.
Limited access to markets is another challenge. Some African markets are difficult to reach due to conflict, poor infrastructure, or limited transportation options. This restricted access can prevent FMCG companies from fully capitalizing on market opportunities.
High transportation costs are also a major concern. Due to the lack of infrastructure and limited competition, transportation costs in Africa can be exorbitant. This can significantly impact the profitability of FMCG companies operating in the region.
Additionally, the limited cold chain infrastructure in some African countries makes it challenging to transport perishable goods. Without adequate cold chain facilities, FMCG companies may struggle to maintain the quality and safety of their products, leading to potential losses.
The Role of Business Intelligence:
Business intelligence (BI) plays a critical role in the FMCG industry by providing valuable insights that inform business decisions. One of the key benefits of BI is improved supply chain management. By analyzing data on inventory levels, shipping times, and delivery costs, FMCG companies can optimize their supply chains, ensuring products are available when and where they are needed.
BI also offers enhanced customer insights. By understanding customer behavior, preferences, and purchasing patterns, FMCG companies can develop targeted marketing campaigns that resonate with their audience, ultimately driving sales and customer satisfaction.
Increased operational efficiency is another advantage of BI. By identifying areas of inefficiency and providing recommendations for improvement, BI helps FMCG companies streamline their operations, reducing costs and improving overall performance.
Finally, BI supports better decision-making. With data-driven insights, FMCG companies can make informed decisions that reduce the risk of costly mistakes, ensuring they remain competitive in a dynamic market.
Supply Chain Optimization Strategies:
FMCG companies can optimize their supply chains by implementing several key strategies. One effective approach is adopting a demand-driven supply chain. By using data analytics to forecast demand, companies can adjust production and inventory levels accordingly, ensuring they meet customer needs without overstocking.
Streamlining logistics operations is another crucial strategy. Simplifying logistics processes, reducing transportation costs, and improving delivery times can significantly enhance supply chain efficiency, leading to better customer satisfaction and lower operational costs.
Implementing a Vendor-Managed Inventory (VMI) system can also be beneficial. By partnering with suppliers to manage inventory levels, FMCG companies can reduce stockouts and overstocking, ensuring they have the right products available at the right time.
Using data analytics to optimize inventory levels is another powerful strategy. By analyzing inventory data and identifying trends, FMCG companies can make informed decisions about inventory management, maximizing supply chain efficiencies and reducing waste.
Leveraging new tools such as FieldPro Connect can significantly enhance field force efficiency, as discussed in our field force effectiveness strategies.
Data-Driven Decision Making:
Data-driven decision-making is essential in the FMCG industry, where companies must respond quickly to changing market conditions. One of the key benefits of data-driven decision-making is improved accuracy. By relying on accurate data, FMCG companies can reduce the risk of costly mistakes and make better-informed decisions.
Increased speed is another advantage. Data-driven decision-making enables FMCG companies to respond quickly to market changes, reducing the risk of lost sales and revenue. This agility is crucial in a competitive industry where timing can make all the difference.
Enhanced customer insights are also a significant benefit. By understanding customer behavior, preferences, and purchasing patterns, FMCG companies can develop targeted marketing campaigns that drive sales and improve customer satisfaction.
Finally, data-driven decision-making supports better resource allocation. By using data to inform decisions, FMCG companies can allocate resources more effectively, reducing waste and improving operational efficiency. This approach ensures that companies can maximize their resources and stay competitive in a dynamic market.
So what? Understanding consumer behavior
Given the complexity of the consumer goods market in Africa, tailoring the distribution strategies is crucial for the success of any FMCG business. Accounting for when and where a product is usually sold will massively determine its profitability and success in the market. Additionally, given the influence that trust has on consumer behaviour, as well as the fact that most sales occur in small traditional outlets, companies will benefit from establishing close relationships with the plethora of small retail outlets upon whom success will in large measure depend on.
Where does Optimetriks come in for FMCG companies?
We have built an agile Sales Force Automation technology toolkit that is specifically tailored to help FMCG brands operating in Africa tackling those challenges. It relies on an Android app with a very simple user experience to equip either mystery shoppers, sales representatives and any field/sales staff, associated with live business intelligence reporting dashboards. Through these two interfaces we digitise the main distribution workflows, such as retail audits, outlet registration, order and stock management, deliveries, etc.
Using technology translates into enhanced transparency, efficiency and bottom line impact of the resources mobilised for the field operations that managing distribution in the traditional trade requires.
In view of the insights shared above, our solution could help in particular:
- to measure precisely the numerical distribution and identify the outlets that are out of stocks on key SKUs
- within the traditional trade, to segment the outlets based on the sales generated or their typology to ensure there is the right assortment of products
- to calculate sales per outlets and ensure the coverage of the field ressources is linked to that KPIs.
- to track the number of outlets visited per day per sales rep and their performance to ensure commission based payment
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We currently work with more than 100 tier 1 clients in the FMCG space in Africa over 25 countries.
If you are interested in knowing how our solution and expertise could benefit your company, please reach out to us !
