The FMCG/Prepared Food Sector in AFRICA: An Overview and

The FMCG/Prepared Food Sector in AFRICA:

An Overview and Trade Analysis

EIP/STR/001/04/2016

(SECTOR REPORT)

Export Initiatives & Partnerships Division,

Phone: +9714-4455333; Fax: +9714-4455355

E-mail: [email protected]; Web: www.dedc.gov.ae

PO Box 123336, Dubai – UAE

Primary Information Sources: Prepared – April, 2016

Disclaimer: While all attempts have been made to collect & present accurate information, DE makes no warranty, express or implied, as to the fitness,

appropriateness of the above information for a particular purpose, or assumes any legal liability for the accuracy or usefulness of any contained information.

All 3rd. party information sourced are either through subscriptions of the organization or information freely available on the internet.

mailto:[email protected]

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# Description Page

1 Overview 3

2 The Market 3

3 Key Success Strategies 4

4 Conformity Assessments (PCA) 5

5 Prepared Food & Beverage products imported by Africa in

2014-15 and Top Importing Countries (ITC Trade Map) 6

Overview The fast-moving consumer goods (FMCG) sector represents one of the largest industries worldwide. Also labelled the consumer packaged goods (CPG) sector, it is mainly characterised by companies that supply low-cost products that are in constant high demand. Products that are classified under the FMCG banner include food, beverages, personal hygiene and household cleaning utensils. The term “fast-moving” stems from the fact that FMCG products usually have a short shelf life and are non-durable. From a retailing perspective, FMCG is often cited as a low margin – high volume game. Seeing as profit margins are usually rather slim, firms operating in the FMCG sector mostly employ a strategy focused on driving top line sales. Within categories, FMCG products are often near-identical, and for this reason price competition between retailers can be intense. To boost profitability, companies use marketing and other techniques to establish loyalty to the product, which enables them to charge higher prices. That said, managing input costs also remain vitally important, as small margin gains still have a significant impact on the bottom line due to the large volumes. Another important characteristic of the FMCG sector is that it generally does well in an economic downturn, with consumers rather cutting back on luxury products. Well known FMCG multinationals include Coca-Cola, Unilever, Procter & Gamble and Johnson & Johnson. The FMCG sector in Africa has significant scope to expand. Poverty levels in especially sub-Saharan Africa (SSA) are still quite high, with food and other necessities dominating consumer budgets. For this reason, the food sub-sector of FMCG has a very large market to cater for, while penetration rates in the other categories still have significant room to expand. In this report, we first explore the size of the FMCG market in Africa in addition to the main drivers of growth in the sector. We subsequently turn our focus to the African consumer and highlight certain traits and spending patterns applicable specifically to the FMCG market. The report also considers key strategies for FMCG retail success in Africa and concludes by identifying FMCG growth spots on the continent.

The Market FMCG retailers generally operate in a low-margin environment. As a result, the existence of a large market is crucial to the success of these companies. Here, a large market refers to a region with a large population with adequate spending power. Fortunately, FMCG products usually enter consumer markets at low price points and as a result, spending power has to be fairly low for the majority of FMCG product categories to be adjudged as being unaffordable. That said, income levels will impact the frequency of household FMCG purchases as well as influence purchasing decisions in relation to the trade-off between cost and quality The United Nations (UN) Population Division estimates that the African population reached 1.16 billion in 2014. Although significantly smaller than that of Asia, the size of Africa’s population is larger than any other continent. Furthermore, Africa’s population is forecast to expand rapidly over the next 15 years. The UN Population Division forecasts Africa’s

population will approach 1.68 billion by 2030, more than 60% higher than the figure recorded 20 years earlier. Populations in other regions around the world are forecast to expand at a much slower pace. This bodes well in relation to the potential future growth of consumer markets in Africa. Furthermore, Africa is expected to benefit from the so-called demographic dividend – an increase in the proportion of the working-age population relative to the total population – over the long term. That said, the continent will only secure the full benefit if high unemployment rates among working-age populations are reduced.

Key Success Strategies When analysing the performance of the top global FMCG retailers with a presence in SSA, OC&C identified certain strategies that set the winners apart from the less successful companies. These strategies predominantly pertain to how the more successful firms entered the SSA market, marketed the product to the consumer to establish brand loyalty and setup the supply chain to ensure the product is adequately priced while still generating a commercially viable profit. These key success strategies are briefly outlined below. Focus on “country clusters” – Seeing as economic development and per capita income levels differ significantly between SSA countries, FMCG retailers are advised to focus on clusters rather than on individual countries. Here, a cluster refers to a region that contains more than one viable market. Other characteristics that could make certain regions especially appealing pertain to cultural similarities across the region, good quality road infrastructure across country borders and political stability. The main clusters identified by top FMCG firms are West Africa (Nigeria, Ghana and Ivory Coast), Southern Africa (South Africa, Namibia, Botswana and Angola) and East Africa (Kenya, Ethiopia, Uganda and Tanzania). Nonetheless, OC&C highlights that getting in early is vitally important, as securing market share fast will “prove defensible and profitable as some FMCG firms are already demonstrating.” Localise the product offering – It is critically important for FMCG retailers to ensure they are properly informed about the needs and lifestyles of consumers in African countries. This will ultimately inform decisions around products, pricing and marketing. African consumers are certainly brand and quality conscious, but affordability remains the key consideration when purchasing decisions are made. A good example of this is Unilever, which sought to lower prices and improve affordability by reducing pack sizes, which in turn allowed the firm to target low income households. Furthermore, FMCG retailers should endeavour to target multiple price points. Often retailers focus on the easy wins, usually the more affluent customer where the product and packaging do not need to be re-engineered significantly. However, lower income households still represent a very large potential market. According to OC&C, “brands need to develop a hierarchy covering different levels of price and exclusivity in order to win new customers of lower affluence and keep them as their wealth rises.”

Marketing that is a local fit – Brand awareness is low in general across SSA. To build brand awareness, it is advised that multinational retailers leverage the influence of western brands and countries. Furthermore, OC&C disputes the marketing effectiveness of traditional “above-the-line broadcast media” and proposes firms focus more on physical and digital marketing. A good example of direct marketing relates to Coca-Cola supplying its fridges to local retail outlets. Meanwhile, Nestlé used local entertainers to market the company’s products while Heineken supplied outlets with branded beer matts, fridges and draft taps. Get creative with the supply chain – International FMCG retailers wishing to enter the African market need to carefully evaluate all possible supply chain models. While simply importing the product is certainly the option requiring the smallest initial capital investment, possible drawbacks include import tariffs in addition to the fact that products are often delayed at ports. A number of African countries have introduced foreign investment incentives in recent years. Although these regulations differ across countries, they usually involve some kind of tax holiday and favourable terms on imports. Examples of multinational FMCG retailers which opted to establish a manufacturing base in Africa include Diageo, Heineken, Nestlé and Unilever. Heineken and Diageo have acquired local breweries to bolster market share as well as for establishing local manufacturing bases. OC&C further notes that Unilever and Nestlé have “both deployed significant capital investments to build their own manufacturing capacity in Africa, notably Unilever in South Africa.” Source: Extracted from “Fast-Moving Consumer Goods in Africa 2015, KPMG”

Conformity Assessment Conformity Assessment a process designed to ensure that specific products meet the requirements of the technical regulations and standards set by a regulatory authority in the importing country. Conformity assessment verifies products’ compliance with the requirements of applicable standards and technical regulations. It follows a review by SGS product specialists of reports from verification activities such as laboratory testing, physical inspection and factory audits. Conformity of products is evidenced by the issuance of a Certificate of Conformity (CoC), a document that is mandatory for customs clearance.

Many countries in Africa require a COC, some among them being Algeria, Kenya,

Nigeria, Botswana, Burundi, Egypt, Ethiopia, Gabon, Ghana, Kenya & Niger. A Product

Conformity Assessment prevents the importation of unsafe, substandard or counterfeit

goods; it supports government authorities to enforce the implementation of obligatory

legislations established for the protection of consumers’ health and safety and the

environment. Interested exporters may contact [email protected] (Intertek) or

[email protected] at SGS Gulf Ltd. to know more.



Sources: ITC calculations based on UN COMTRADE statistics.

Exported value 2013 (USD

'000)

Exported value 2014 (USD '000)

'1501 Lard and other pig&poultry fat - 19 '1504 Fish/marine mammal,fat,oils&their fractions - 16

'1505Wool grease and fatty substances derived therefrom (including lanolin) 61 -

'1507 Soya-bean oil&its fractions 475 74 '1508 Ground-nut oil&its fractions - 58 '1509 Olive oil and its fractions 386 1,324 '1510 Other oils from olives 28 11 '1511 Palm oil & its fraction 8,905 10,264 '1512 Safflower,sunflower/cotton-seed oil&fractions 1,849 2,265

'1513Coconut (copra),palm kernel/babassu oil & their fractions 185 205

'1514 Rape,colza or mustard oil & their fractions 589 1 '1515 Fixed vegetable fats&oils & their fractions 26,525 9,003 '1516 Animal or veg fats, oils&fract, hydrogenated 13,877 19,839 '1517 Margarine 2,358 1,574

'1518Animal or vegetable fats & oils chemically modified; inedible mixtures 276 365

'1520 Glycerol (glycerine) 18 -

'1521 Vegetable waxes, beeswax & other insect waxes - 5 '1522 Degras and residues 54 12

'1601Sausages and similar products, of meat, offal or blood 818 609

'1602Prepared or preserved meat, meat offal or blood, nes 6,583 5,424

'1604 Prepared/preserved fish & caviar 10,078 10,113 '1605 Crustaceans & molluscs, prepared/preserved 319 157

'1701 in solid form 175,931 88,369

'1702Sugars,nes,incl chem pure lactose etc; artif honey; caramel 345 365

'1703Molasses resulting from the extraction or refining of sugar 108 10

'1704Sugar confectionery (incl white choc), not containing cocoa 8,874 8,399

'1803 Cocoa paste, whether or not defatted - 2 '1804 Cocoa butter, fat and oil - 9 '1805 Cocoa powder, without added sugar 7 18

'1806Chocolate and other food preparations containing cocoa 53,370 61,061

'1901p p

starch or malt extract 9,715 18,872 '1902 Pasta & couscous 48,037 33,265 '1904 Breakfast cereals & cereal bars 924 1,500

UAE's Exports of Prepared Food & Beverage products to AFRICA

Code Product label

Trade Indicators


Exported value 2013 (USD

'000)

Exported value 2014 (USD '000)

UAE's Exports of Prepared Food & Beverage products to AFRICA

Code Product label

Trade Indicators

'1905 Bread, biscuits, wafers, cakes and pastries 46,076 52,572

'2001Cucumbers, gherkins and onions preserved by vinegar 395 275

'2002 Tomatoes prepared or preserved 14,421 19,221

'2003 Mushrooms&truffles, prepared or preserved 37 79

'2004 Prepared or preserved vegetables nes (incl. frozen) 891 713

'2005 Prepared or preserved vegetables nes (excl. frozen) 8,038 16,064 '2006 Sugar preserved fruits and nuts 1 212 '2007 Jams,fruit jellies & marmalades 2,108 1,337 '2008 Preserved fruits nes 4,215 6,840 '2009 Fruit & vegetable juices, unfermented 72,446 99,052

'2101Extracts essences & concentrates of coffee and tea 835 781

'2102 Yeast 2,235 3,092 '2103 Sauces mixed condiments & mixed seasonings 17,480 18,563 '2104 Soups, broths & preparations thereof 1,173 187 '2105 Ice cream 4,608 5,406 '2106 Food preparations, nes 70,869 68,126 '2201 Mineral & aerated waters 1,211 1,317

'2202Non-alcoholic beverages (excl. water, fruit or vegetable juices and mi 28,693 33,515

'2203 Beer made from malt 3,511 1,329 '2204 Wine of fresh grapes 8,500 8,044

'2205Vermouth&other grape wine flavoured with plants or aromatic substances 441 348

'2206 Fermented beverages, nes 211 386

'2207Ethyl alcohol & other spirits (if undenatured then higher than 80% by 685 305

'2208Spirits, liqueurs, other spirit beverages, alcoholic preparations 31,107 32,290

'2209 Vinegar and substitutes for vinegar 45 53


Imported value 2014 (USD

'000)

Imported value 2015 (USD '000)

'1511 Palm oil & its fraction 4,326,425 2,968,309 Ethiopia South Africa Uganda Angola Nigeria

'1507 Soya-bean oil&its fractions 1,705,480 1,692,342 Algeria Egypt Morocco South Africa Zimbabwe

'1512 Safflower,sunflower/cotton-seed oil&fractions 995,904 433,475 Egypt South Africa Sudan Ethiopia Botswana

'1516 Animal or veg fats, oils&fract, hydrogenated 497,718 270,969 Egypt Ethiopia Algeria Rwanda South Africa

'1515 Fixed vegetable fats&oils & their fractions 293,549 223,858 Libya Egypt Tunisia Djibouti South Africa

'1517 Margarine 336,532 213,244 Algeria Ghana South Africa Nigeria Senegal

'1513Coconut (copra),palm kernel/babassu oil & their fractions 120,799 95,941 Egypt South Africa Tanzania Somalia Ethiopia

'1509 Olive oil and its fractions 119,284 89,316 South Africa Angola Morocco NigeriaCote D'Ivoire

'1502 Bovine,sheep&goat fats 46,235 31,962 Nigeria Morocco South Africa Zimbabwe Madagascar

'1518Animal or vegetable fats & oils chemically modified; inedible mixtures 32,640 28,248 Tunisia Kenya Egypt Tanzania Ethiopia

'1510 Other oils from olives 25,156 23,107 Congo Tunisia South Africa Tanzania Ethiopia

'1514 Rape,colza or mustard oil & their fractions 8,693 19,159 South Africa Morocco Tunisia Egypt Mauritius

'1503 Lard stearin&oil,oleostearin&oil&tallow oil 16,272 12,321 Nigeria Zambia Zimbabwe Algeria South Africa

'1521 Vegetable waxes, beeswax & other insect waxes 34,246 11,349 Kenya South Africa Ethiopia Algeria Tanzania

Prepared Food & Beverage products imported by Africa in 2014‐15 and Top Importing Countries

Code Product label

Trade Indicators

Top African Importers for Selected Products (Value > USD 5 Million



'000)



Code Product label

Trade Indicators


'1504 Fish/marine mammal,fat,oils&their fractions 10,986 7,284 Morocco Egypt South Africa Nigeria Ghana

'1505Wool grease and fatty substances derived therefrom (including lanolin) 9,838 6,786 South Africa Egypt Morocco Nigeria

Cote D'Ivoire

'1508 Ground-nut oil&its fractions 7,390 5,806 BeninBurkina Faso Madagascar Botswana Togo

'1520 Glycerol (glycerine) 8,772 4,363 South Africa Togo Cabo Verde DR Congo Egypt

'1604 Prepared/preserved fish & caviar 914,569 727,153 Egypt South Africa Libya Algeria Ghana

'1602Prepared or preserved meat, meat offal or blood, nes 220,595 181,212 Angola Egypt Mauritius Namibia Gambia

'1601Sausages and similar products, of meat, offal or blood 247,710 165,403 Angola Lesotho Gabon Algeria

Sierra Leone

'1605 Crustaceans & molluscs, prepared/preserved 25,501 26,124 South Africa Namibia Egypt Mauritius Angola

'1701Cane or beet sugar and chemically pure sucrose, in solid form 5,299,413 4,426,329 Algeria Sudan Nigeria Egypt South Africa

'1704Sugar confectionery (incl white choc), not containing cocoa 567,898 431,700 South Africa Nigeria Egypt Ghana Angola

'1702Sugars,nes,incl chem pure lactose etc; artif honey; caramel 303,664 237,015 South Africa Nigeria Egypt Kenya Algeria

'1703Molasses resulting from the extraction or refining of sugar 30,573 34,911 South Africa Malawi Namibia Benin Botswana

'1806 cocoa 672,112 523,617 South Africa Algeria Libya Egypt Morocco

'1805 Cocoa powder, without added sugar 97,044 84,975 Egypt Algeria South Africa Morocco Tunisia '1804 Cocoa butter, fat and oil 49,380 38,343 South Africa Egypt Morocco Algeria Tunisia '1803 Cocoa paste, whether or not defatted 48,531 28,567 South Africa Egypt Morocco Algeria Libya



'000)



Code Product label

Trade Indicators


'1901Malt extract; food preparations of flour, meal, starch or malt extract 1,852,929 1,491,879 Nigeria Algeria Egypt Senegal Libya

'1905 Bread, biscuits, wafers, cakes and pastries 904,401 764,691 Libya South Africa Egypt Angola Algeria

'1902 Pasta & couscous 651,560 487,159 Somalia Angola Ethiopia South Africa Djibouti'1904 Breakfast cereals & cereal bars 238,493 184,418 Kenya Nigeria Angola Namibia Swaziland

'1903Tapioca and substitutes therefore prepared from starch 2,089 4,870 South Africa Egypt Mauritius Senegal Ethiopia

'2002 Tomatoes prepared or preserved 668,960 578,877 Ghana Nigeria Libya Algeria Sudan

'2009 Fruit & vegetable juices, unfermented 735,560 496,053 South Africa Egypt Libya Botswana Namibia

'2008 Preserved fruits nes 218,524 240,619 Algeria Egypt South Africa Ethiopia Nigeria

'2005 Prepared or preserved vegetables nes (excl. frozen) 297,787 228,047 Nigeria Angola South Africa Botswana Namibia

'2004 Prepared or preserved vegetables nes (incl. frozen) 88,366 67,047 South Africa Morocco Libya Algeria Mauritius'2007 Jams,fruit jellies & marmalades 89,045 66,971 South Africa Algeria Egypt Tunisia Libya

'2003 Mushrooms&truffles, prepared or preserved 26,230 27,053 Algeria Egypt Morocco Mauritius South Africa

'2001Cucumbers, gherkins and onions preserved by vinegar 30,815 15,454 South Africa Algeria Ethiopia Angola Egypt

'2006 Sugar preserved fruits and nuts 4,715 5,113 South Africa Egypt Morocco Algeria Nigeria'2106 Food preparations, nes 1,628,781 1,222,522 South Africa Algeria Nigeria Egypt Ethiopia

'2103 Sauces mixed condiments & mixed seasonings 523,553 478,549 Nigeria Algeria South Africa Zimbabwe Botswana



'000)



Code Product label

Trade Indicators


'2102 Yeast 359,353 240,520 Sudan Algeria Nigeria Ethiopia South Africa

'2101Extracts essences & concentrates of coffee and tea 269,505 214,415 South Africa Egypt

Burkina Faso Nigeria Senegal

'2104 Soups, broths & preparations thereof 291,368 184,321 NigerBurkina Faso Algeria Somalia Nigeria

'2105 Ice cream 68,394 50,517 South Africa Angola Namibia Botswana Nigeria

'2202Non-alcoholic beverages (excl. water, fruit or vegetable juices and mi 837,104 607,472 South Africa Libya Ghana Nigeria Zimbabwe

'2201 Mineral & aerated waters 58,682 38,710 Libya Namibia Angola Lesotho South Africa'2209 Vinegar and substitutes for vinegar 20,388 13,180 South Africa Angola Senegal Morocco Namibia

Documents

The FMCG/Prepared Food Sector in AFRICA: An Overview and