The investment case for Africa requires taking the long view, especially when it comes to thinking about serving consumers on the continent.
Yes, it’s true Africa’s macroeconomic environment has slowed down overall, in spite of several bright spots. It’s also true that the rate of growth of Africa’s middle class consumers is relatively slow. But the absolute numbers will keep rising, and that’s a huge opportunity. Overall, business management consulting firm McKinsey projects household consumption will grow at an average rate of 3.8% from 2016 to 2025 to reach some $2.1 trillion.
A lot of that growth will be driven by the continuing urbanization of the continent. The UN estimates African cities will add an additional 24 million people every year between 2015 and 2045.
Supermarket chains like South Africa’s Shoprite and Kenya’s Nakumatt might be tiny blips on the global retail stage today, but the consumer markets they serve are attracting the attention of investors ready to play the long game. It makes sense if you’re look at the growth potential of the consumer base. In addition, the informal economy of open street markets still dominates 90% of retail in large countries like Nigeria and Kenya, meaning it’s a near safe bet there’s plenty of room to grow.
This week, Nakumatt, which is East Africa’s largest retailer, sold a 25% stake to a yet-to-be named international investor. The family-owned business also hired a former veteran of Tesco, the UK’s largest retailer. It’s a sign of Nakumatt’s operational and corporate targets—or perhaps reflects the ambitions of its mystery investor. Africa’s top retailer, Shoprite, has continued to expand across the continent and is now looking to become even larger with another merger.
Supermarkets are generally a very local business and, as McKinsey explains in a Sept. 2016 report, retail is one of a few industry sectors—along with health care and food and agriculture—in which African-owned companies can grow revenue faster than global peers and do so more profitably as the market opportunity expands. With overall African household consumption expected to grow about 45% from 2015 to 2025, now might be the time to get in on Africa’s supermarket sector.