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.
Household FMCG spend
According to the World Bank’s Global Consumption Database, total household expenditure on FMCG goods reached almost US$240bn in 2010 for a sample of 39 African countries. Household FMCG expenditure was highest in Nigeria (US$41.7bn), followed by Egypt (US$27.6bn), South Africa (US$23bn), Morocco (US$20.1bn) and Ethiopia (US$19.2bn). Other countries with fairly large FMCG markets in an African context include Kenya, DRC, Ghana, Ivory Coast and Tanzania. 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.
Africa’s economic performance has improved greatly since the turn of the century, leading to notable gains in GDP per capita and lower levels of poverty. These gains are also evident when considering household consumption spending growth. Annual household spending growth in Africa easily exceeded the corresponding global figure for most years during the 2000-13 period. This again bodes well for African retail in general. The recent sharp decline in global crude oil prices should also have a net positive impact on African disposable income levels, which is again an added benefit. That said, companies operating in the FMCG sector should be mindful of changes in consumption patterns.
The above is an excerpt from our Fast-Moving Consumer Goods in Africa 2015 Report. Please feel free to download.
Source: KPMG AFRICA