Mike Simpson

Retailing Ethiopia’s retail market shows growth potential Ethiopia has a low urbanisation rate Sagici expects that grocery sales via modern retail outlets in Addis Ababa will increase to around 1,5% by 2018, driven by the opening of more outlets, ongoing economic growth and the emergence of an Ethiopian middle class. At present 24% of the city’s households (about 200 000 homes) have monthly incomes higher than US$500 – a threshold that makes them attractive consumers in the main product categories, the researchers say. Ten percent of Addis Ababa households earn more than US$1 000 a month. With government investment restrictions being eased and Walmart waiting in the wings, is there a new dawn on the horizon for Ethiopian retailing? RIGHT: Markets dominate the retail landscape. BELOW: Ten percent of Addis Ababa households earn more than US$1 000 a month The sprawling city of Addis Ababa has little formal retailing T HINGS MAY BE ABOUT TO change in Ethiopia’s almost nonexistent formal retail sector, with the release of new studies that claim there is potential for 15-20 modern supermarkets and 5-10 new shopping centres in the capital city of Addis Ababa by 2018. Sagaci Research, a market intelligence firm dedicated to African markets, recently released two reports focused on the nation located in the Horn of Africa: ‘Grocery retail in Ethiopia (Addis Ababa focus)’ and ‘The Addis Ababa Consumer’. 34 strategicmarketingafrica These reports highlight an attractive and dynamic market in the early stages of development and, claims Sagaci, should serve as a guidebook for multinational consumer goods and retail companies looking at expanding their operations into Ethiopia. Passive wholesalers wait for customers Fourth quarter 2013 In Addis Ababa, a city of more than 3,0-million people, modern retail is in the early stages of development compared to other sub-Saharan African countries. At present, eight Western-style businesses are operating 15 stores covering a total sales area of 15 300m². All are midsize outlets operated by locally based companies, but their sales account for no more than 0,5% of total grocery sales in a city whose retail landscape is dominated by markets, co-operatives, small convenience stores and gulits (micro-sellers). PHOTOS: thinkstock, supplied Restrictions being eased At this stage, no international retailer is active in the country due to long-time government restrictions on foreign investment, but these are now being eased and global retail giant Walmart is rumoured to be considering a market entry with a ‘cash and carry’ format in 2014. According to Tielman Nieuwoudt of The Supply Chain Lab, a consultancy that specialises in supply chain management for emerging market economies, modern trade in Ethiopia “is in the very early stages of development and there are currently no international supermarkets operating. In a very fragmented trade market, souks and kiosks remain the largest trade channel”. In a recent report on the country, he notes that the Mercato market in Addis Ababa is one of the largest markets in Africa and the largest in Ethiopia. “The market is dominated by wholesalers [and] some companies generate more than 70% of their sales from Mercato. Wholesalers make low margins (2-5%) and most tend to be passive, waiting for customers to collect,” he says. “While the role of Mercato wholesalers cannot be overlooked, they are not always a good option for building relationships with retailers and building brands. Most multinational companies we talked to highlight the importance of direct distribution, as it remains difficult to build a brand through a wholesale system.” According to Nieuwoudt, multinational businesses are entering the country through distributors as they lack the required knowledge, scale and product portfolio to build their own distribution. However, beverage companies with local bottling operations do make use of direct distribution (via key accounts) and micro distribution (such as through the Coca-Cola micro distribution system). “It is important to note that foreign companies cannot distribute imported finished products, whether sourced directly or from local importers,” he says. While most multinationals are still operating out of their Nairobi, Kenya offices, they are increasingly opening new offices in Addis Ababa. “Ethiopia is significantly different from the other East African markets and care should be taken to understand the cultural aspects – such as displaying role models for advertising purposes. Foreign investors are increasingly recognising the consumer goods potential in the country, as recent acquisitions from [multinational alcoholic beverages company] Diageo, [beer giant] Heineken and [FMCG company] Tiger Brands have demonstrated.” Also of relevance to potential retailers is the reality that, in comparison to other African countries, Ethiopia has a low urbanisation rate (11% vs. 30%). Addis Ababa contributes the bulk of the urban populace, while the nation’s second city, Dire Dawa, has a population of only 274 000 compared to Addis Ababa’s approximately 3,0-million. It is estimated that 38% of the population still resides five hours or more away from any urban centre with a population of 50 000 people. “Ethiopia has made great progress in infrastructure development, with the country spending US$1,3-billion – or 10% of its annual GDP – on infrastructural development. However, as impressive as these numbers are, distributing products in upcountry areas remains a challenging undertaking,” Nieuwoudt points out. > Fourth quarter 2013 strategicmarketingafrica 35