Retail news. Semester 1 of 2014 table of contents
E-commerce in Africa: Not quite ready for take-off [Bizcommunity.com 13 June 2012]
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- THE AFRICA REPORT : No. 46 December 2012 – January 2013: Africa in 2013.
- Wal-Mart and the Game in Botswana [July 2012 download]. *PROFESSOR ROMAN GRYNBERG
- South Africa’s quick service restaurant industry
E-commerce in Africa: Not quite ready for take-off [Bizcommunity.com 13 June 2012]Lack of bandwidth is not the only factor hampering the development of e-commerce and online business in Africa, says Peter Harvey, founder and managing director of PayGate, an online payments solution provider. Harvey adds that the continent also needs a much more sophisticated financial infrastructure. "To make e-commerce happen you need a complex ecosystem for making and processing online payments," says Harvey. "Africa's bandwidth problem is well on the way to being solved, but the online payments system still has a long way to go." Banks are one critical part of the ecosystem, says Harvey. "The first step in an online transaction is a person with a valid credit or debit card - so we need our issuing banks to speed up the rate at which they are rolling out cards to their customers. Debit cards are likely to dominate, because most Africans have little experience of handling credit and credit cards carry huge risks for banks. Accepting online payments Next, says Harvey, the continent needs a cadre of acquiring banks that are prepared to accept online payments on behalf of their merchant customers. "At the moment, the business case for making the necessary investments is still difficult. An acquiring bank who wants to get into e-commerce will need to buy the appropriate licences from the card associations like Visa and MasterCard, install card processing systems, hire skilled staff to manage those systems, and understand and manage its risk of being exposed to fraud." It's a big ask, notes Harvey. "Whoever takes the lead is going to incur a cost, and it's not yet clear whether the returns will be worth it. But there is hope: The retail sector is expanding as Shoprite and others roll out their operations in the rest of Africa. As these stores start to offer point-of-sale card transactions, more cards will come into circulation and there will be more consumer demand for online shopping. Sooner or later, the balance will tip". An imbalance between supply and demand Visa and MasterCard are both interested in the African market, adds Harvey, but are likewise struggling to find a business case. "It's easier to find a bank that will issue cards than one that will acquire transactions, which leads to a big imbalance between supply and demand. Tourists arrive expecting to be able to use their cards, and more and more locals want the same - but it's still hard to find merchants who will accept them." Harvey says payment service providers (PSPs), who offer the payment gateways that link customers, merchants, banks and the card associations, are vital connectors in the ecosystem. "As PSPs we obviously have an interest in growing the whole network," he says. "If we do our job properly, we can play an important facilitating role that includes educating merchants, helping them to find acquiring banks and helping to manage their relationships with those banks. We have already established good relationships with banks in East and West Africa including I&M Bank in Kenya and Zenith Bank in Nigeria." Exclusive agreements One of the big hurdles is the desire of many African banks to make exclusive agreements, Harvey adds. "If you take Kenya as an example, even though it's one of the most advanced countries in Africa for e-commerce, MPESA is only available for one bank, over one network. If there were four or five acquiring banks and a similar number of PSPs, there'd be a lot more activity. Trying to tie people to exclusivity arrangements stifles the whole market." Until Africa's e-commerce ecosystem reaches the point of sustainability, says Harvey, the continent is losing out. "The merchants who can afford to put in the time and resources, register a business offshore and use banks outside Africa. That means money leaves local economies, which nobody wants. The other alternative is for smaller businesses to use payment aggregators or 'supermerchants', but they pay a premium for the service." In the long run, concludes Harvey, the best hope for success is for governments to take the lead. "Rwanda is an excellent example of a country where there is high-level government commitment to promoting e-commerce, with strong support from the Bank of Kigali and major businesses like RwandAir. They are putting pressure on the banks where necessary, and creating the legal frameworks that are needed to provide security. Those who follow that example will be the first to reap the rewards. Africa is a billion-person market with massive growth potential." 
THE AFRICA REPORT: No. 46 December 2012 – January 2013: Africa in 2013.“South Africa in Africa” [p 54-]. In September agribusiness firm Tiger Brands made its 3rd acquisition in Nigeria buying 63.5% stake in Dangote Flour Mills [owned by billionaire Aliko Dangote]. In 201 it had bought biscuit manufacturer Deli Foods Nigeria and a 49% share in food & beverage UAC of Nigeria Plc. South African retailers are ubiquitous in Africa’s larger cities:
These stores get a higher reputation on the continent than in South Africa itself for quality despite a steeper price tag. In some cases they help to push up the quality of local produce. An example is Shoprite division Freshmark which sources fresh fruit and vegetable from 354 local suppliers in 11 African countries. As a result small scale farmers in Zambia & Ghana have raised safety standards to international levels.
Shoprite [309 supermarkets in Africa [including U-Save]
“Malls: South African shopping trolleys roll out across the continent”. [p 64]. McCormick Property Development which has 52 malls spread throughout SA is planning 4 large developments in Southern Africa by investing $1bn:
These developments are the result of formalisation of the retail space led by SA retailers like Shoprite, Massmart and Woolworths. Shoprite has a supermarket growth rate of 19.7% outside SA compared to 12.9% in SA itself. In 2013 Shoprite plans 21 supermarkets in Angola and 9 in Nigeria in addition to distribution centres. Pick n Pay is playing catch-up and it increased shareholding to 49% in Zimbabwean retailer TM Supermarkets. Massmart which was purchased by US giant Walmart [$2.4bn] in March 2012 has its presence through Game stores in East Africa. European and US chains are testing the waters in SA:
Some Zim Statistics [p 122].
Wal-Mart and the Game in Botswana [July 2012 download]. *PROFESSOR ROMAN GRYNBERGLast week the South African Competition Tribunal authorised the acquisition by Wal-Mart of the 51 percent share in the South African Retailer Massmart at a price of some P16.1 billion. This gives the global wholesale and retail giant a foothold in Africa from which it will almost certainly expand. As throughout much of Southern Africa Massmart is better known as Game and therefore by extension a decision made in Pretoria, will mean that Wal-Mart has arrived in Botswana.
Massmart was already planning expansions of its network prior to the merger into countries like Nigeria, DRC and Angola. With a global giant like Wal-Mart now in the driver's seat the market expansion into Africa will only be held back by the pace of growth and incomes of the continent. In many ways the merger is, from a purely product and sales range, a near perfect fit as the range of products in Game shops are similar to the range that one finds in many Wal-Mart stores around the world. It was by no means obvious for a very long time that the Wal-Mart/Massmart deal was going to proceed because it was feared by Wal-Mart that the South African Competition Authority would impose targets on using local suppliers. This was seen as a deal breaker by Wal-mart. Instead what has happened was that Wal-Mart has agreed to establish in South Africa a R100 million fund to help develop local suppliers as well as some commitment to recognise the unions. The conditions imposed on Wal-Mart have been described by business analysts as 'meek and mild'. In all fairness to the Competition Authority in South Africa, which has a fearsome reputation for protecting South African consumers from unfair trade practices, it could not have imposed a local supply obligation on Wal-Mart and not on other wholesalers and retailers in the industry. Will the acquisition by Wal-Mart of Massmart be good for Botswana? The fear in South Africa, justified or not, was that because of Wal-Mart's size - it is said to be China's biggest buyer , and with its value chains local producers would simply be cut out of the market and that other retailers would, similarly be driven out of business. The fear is that over time Wal-Mart will also drive out competitors who were reliant on these often more expensive local suppliers who will in turn go out of business. In Botswana we have few local suppliers of consumer goods except a narrow range of food products and therefore the fear of the impact of Wal-Mart on the country is not what you find in South Africa. Competitors on the other hand will have a much tougher life as a result of Wal-Mart but that will be good for the Botswana consumer, at least in the short to medium term. But what is particularly interesting is the agreement to set up a R100 million fund to help develop suppliers in South Africa. If these suppliers will be successful then they will sell to Wal-Mart which will then export it to Game in Botswana and other countries and so South African producers will continue to maintain their control in the African market. This is all good for South Africa producers but what about us? The presumption is that Botswana and the other African countries would simply not notice what Wal-Mart had agreed to and it would just be business as usual. South African owned and based firms will continue to export across the border and as for the Botswana supplier, well, what Botswana suppliers? In South Africa Wal-Mart has now created a precedent which has been noticed in other African countries and perhaps it is time that all the South African based retail operators recognise that they are operating in a different African reality, where all the countries in which they sell want to see domestic production and exports. Maybe it is time for Botswana to give consideration to asking that all the South African retailers and wholesalers copy Wal-Mart's 'generosity' and establish funds to help develop local entrepreneurs to supply their value chains. It is extremely difficult for small Botswana producers of any product to ever penetrate the retail supermarkets here in the country. Not only does the local producer have to demonstrate that they can produce a product consistently without supply disruption at a competitive price they also have to overcome the fact most supermarkets practice what is called 'single point of supply sourcing' and they simply don't want to buy from many sources. Supermarkets order most of the products that you find on the shelf from one point and that is what makes them so profitable and their prices relatively low. It is also what destroyed the old small shops. They do not have to buy from scores of buyers which increases their overheads enormously. They also are able to buy in bulk. Kraft, for example, makes chewing gum in Botswana from raw materials that are imported from South Africa and beyond. The final product is then returned to Guateng where it is distributed from one point to its entire marketing network throughout southern Africa with some of the product coming back to Botswana. It is an enormous challenge to get a small local producer in Botswana to import raw materials and intermediate goods, produce the product then export back it back to South Africa for distribution and then return it, at least in part to Botswana, and still make a profit. That is why it so rarely happens and only tends to happen with high value to weight items like chewing gum. The big South African-based retailers are probably very well placed to help local business, if they choose, but a little prodding, assistance and direction from government might make some of them a little more like Wal-Mart in their generosity towards the development of local business in Botswana.
QSR industry [also known as fast food industry, or fast food & takeaway industry] is undergoing major transformations due to globalisation and domestic market trends e.g.
SA experienced 69% increase in national per capita income [$3 610 to $6 090] from 1994 to 2010. This is reflected in an increase in the black middle income, labour force participation by women, rural-urban migration. There is thus an increase in consumerism [protection of consumer rights & interests; placing value on acquisition of material goods; belief in the benefits of consumption of goods to the economy] and fast food consumption. At the opposite end is a decline in eating home-cooked meals as household incomes are rising and more people can afford to eat out. Foreign tourists also exert pressures to improve meal solutions [2010 World Cup had 300 000 visitors from 32 countries]. The majority of firm operate as franchises but others are owned by independent entrepreneurs. SA is also culturally diverse [50m people using 9 official languages thus offering diverse meals for those willing to try exotic foods]. Operators need to enhance meal offerings, speed up order taking and processing, promote customer care and friendliness, customer satisfaction and loyalty and retention; superior speed in serving long lines of customers, convenience, product consistency, food safety; wide choice of flavours. Menus may serve different socioeconomic, religious, ethnic and cultural groups. Increases in dual income households, demand for meals by school children. South Africans are now more health conscious and demand better hygiene. Preferences are shifting towards lighter meals, leaner diets, low salt, fat-free, no sugar, low carbohydrates; more natural, organic, wholesome and unprocessed foods. Thus there are shifts towards salads, fruits etc as well as concerns about obesity. Drive through, home delivery, family friendliness, flexible operating hours, convenient locations, customer care, legislation to ban smoking in public places. Demands for recreation from a growing middle class; focus from customer acquisition to customer retention. So there are customer loyalty programmes e.g. free drinks for kids, special meals, recognition of customer holidays, free desserts. Provision of coupons that qualify customers for free meals or pizzas. With 40% of South Africans under the PDL there is considerable room for expansion into the “second economy” by providing affordable meal solutions, improved location and access 2009: 186 103 employed in restaurants, coffee shops, fast food outlets and other catering services. Total Income [R millions] 11 030 In the USA, menu diversification strategies include integration of genetically modified foods to meet nutritional needs of aging baby boomers. Some SA fast food franchises have expanded into regional and global markets:
Multinationals compete with local groups. The main ones are:
They also compete with supermarkets chains which sell mostly hot meals to urban consumers:
Supermarkets offer increasingly popular ready-to-eat meals in their deli sections for urban consumers There is also a trend towards consolidation e.g. the Famous Brands label now covers Steers, Wimpy, FishAways, Debonairs, Mugg & Bean, House of Coffee, Brazilian Coffee and Black Steers. Famous Brands also has a global footprint in Africa, UK, and Mauritius. There are also informal traders selling prepared food directly to consumers e.g. individual street vendors along roadside markets and major local and regional bus stations [including non-designated places]. Informal traders rent space from local municipalities to sell hot foods and beverages to passersby. These form part of a so-called “second economy” “Mr Delivery” is an example of an initiative by individuals who have collaborated with local fast food chains to deliver meals. They serve time stressed individuals, local consumers and professionals or even tourists who are unfamiliar with local cities and towns. They are the counterparts of “dabbawalas” in Mumbai, India. QSR are quick to respond to changes in taste and food preferences for healthy diets e.g. offering salads and vegetarian options and other distinct culinary experiences. There are also examples of backward and forward linkages into agriculture and retailing [growers, retailers, wholesalers, manufacturers and distributors e.g. specialist retailers such as bakeries, butcheries, green groceries]. The QSR uses contracting & ICT to coordinate product and information flows up and down the value chain. This allows operators to meet targets on quality, freshness and delivery. Supermarkets may sometimes purchase directly from farmers or fruit & vegetable markets. Co-branding:
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