SEYMOUR SLOANIDEAS THAT MATTER

OvERcOMINg THE cHALLENgES Of DOINg buSINESS IN AfRIcA

THE TIME TO ESTAbLISH A fOOTHOLD IN AfRIcA IS NOW

Heineken beer is sold in more than 170 countries, but when the world’s third-largest brewer does business in Africa, It accepts that it must pay by different rules and also find different way to do business. One of the main areas that Heineken have had to overcome is failing infrastructure, which has necessitated them building their own power plant as well as their own water treatment plant. Their example shows that such issues need to be obstacles to success and can be over-come.

It is worth noting that these issues are no unique to Africa and are faced by operators I other emerging markets. Global players are likely to have approaches to dealing with them, but Africa will present a sterner test. At Seymour Sloan we looked at the five areas we thought were the ones organisations must be aware of when entering Africa:

• Underdeveloped infrastructure • Disorganized and fragmented retail landscape • Lack of reliable market research • Unclear and ever-changing government regulations and a severely • Limited talent pipeline.

Through our research and discussions with market leaders, we have identified a range of effective approaches for companies to navigate this potentially tricky landscape.

bEINg cREATIvE AND INNOvATIvE IN OvERcOMINg INfRA-STRucTuRE ISSuES AND kEEpINg cOSTS LOW

African economic growth as well as life in general is hampered by frequent power cuts. In Nigeria, Africa’s largest economy, they experience around 26 power outages in a typical month. In addi-tion to power issues, there is a poor road system and a lack of adequate transport. Outside South Africa, the transportation network is insufficient, even against other emerging markets—less than 100 meters of road per square kilometre of land area compared with 400 meters in China or 1,500 meters in India.

Successful companies understand that they must find ways to overcome Africa’s infrastructure without incurring costs. They invest in their own infrastructure in order to offset potential increases in risk and cost. They purchase power generators, install solar panels, build water tanks and even occasionally pave roads. In Ghana, which experiences frequent water shortages, one beverage company overcame the unreliable municipal service through installing its own water tanks, guaran-teeing water supplies for its factories.

They key to remaining competitive is balancing the high costs of infrastructure solutions with rig-orous cost and cash management. As an example, Heineken’s local subsidiary in Nigeria, Con-solidated Breweries places cost management at the heart of its business. Salaries are in line with regional and local companies rather than with multinationals. To further curb costs, Consolidated Breweries substitutes second-hand equipment where possible for expensive new machinery to cut out inefficiency and repair costs.

Innovation is a tool that can overcome the infrastructure issues associated with Africa. One suc-cessful example is Cowbell, a milk powder provided by Promasidor, an African dairy company. Promasidor substituted the animal fat in its milk with vegetable fat, giving its product a longer shelf life and diminishing the dependency on a cold supply chain. African children pour the powdered milk directly on their tongues, which avoids concerns about finding fresh water. Promasidor is now a leader in the powdered milk market in Nigeria.

Poor infrastructure also affects the certainty around raw material supply, which can be a massive risk and cost to some businesses. Leading operators overcome this through building strong suppli-er relationships or vertical integration to guarantee their supply line. Heineken aims to buy 60% of its raw goods from local suppliers to guarantee quality and reliability. All parties benefit: The brew-ery avoids disruptions at local operations and the local economy benefits from new jobs, generat-ing income that may spur consumer spending. The company also provides farmers with agricultur-al education to increase crop yields— another move that helps establish a robust supply chain. Coca-Cola Company, in collaboration with the non-profit TechnoServe and the Bill & Melinda Gates Foundation, has successfully partnered with local governments and farmer associations in Kenya and Uganda to improve the quality of locally grown fruit, which it uses in its fruit juices. As demand was rising, it was becoming challenging to maintain quality levels consistently.

DEvELOp MuLTI-TIERED MODELS TO MAxIMISE vOLuMES THROugH AfRIcA’S uNIquE DISTRIbuTION cHAIN

Informal retail is still 80% of the market within Africa as a whole. From street hawkers to shebeens, retail is still very much traditional. With the exceptions of South Africa and Nigeria, modern retail, as understood in developed economies, is a small proportion of the market. This means that op-erators must know their ideal distribution footprint to maximise reach and sales. There are certain product categories that are prone to sale via informal channels such as; food, alcoholic beverages or tobacco, are particularly prone to being sold through informal channels.

Successful companies gain competitive advantage from the flexibility and adaptability needed to supply such a varied retail market. They can build partnerships with third-party distributors and wholesalers to maximize reach, work with traditional retailers at the point of sale and help informal retailers formalize and progressively develop capabilities required to grow alongside modern retail.

In Africa, many producers have a network of trusted third-party distributors and wholesalers that accelerate market coverage, teaming their own salesforce with distributors to maintain a degree of control. As an example, a leading food company assigns sales supervisors to each one of its sub-distributors—they have 10 to 30 of them per market. The sales supervisor works at the sub-distributor, managing inventory and brand image while the sub-distributor handles logistics and accounting. Similarly, another food producer relies on its distributors to replenish products and collect cash, but its local sales employees will remain on the ground to identify new outlets, place product displays and help distributors build their capabilities.

Producers can also collaborate with traditional outlets directly to increase sales and improve distri-bution, and in the process, improve the way shopkeepers work. Diageo helps traditional retailers improve their business by teaching them category display and customer management.

We are also seeing producers encourage unauthorized sellers to formalize their businesses. Brew-er SABMiller helped shebeens in South Africa transition into licensed outlets by providing support, including assigning employees to assist with the application process. In addition, all license appli-cants were eligible for training in customer care, stock management, bookkeeping, credit control and responsible alcohol use. SABMiller’s initiative, launched in 2002, transformed off-the-books sellers into a successful new

Retail segment. The company has trained 12,400 tavern owners. The number of newly licensed retailers has increased sales by an average of 31%.

gAIN A cOMpETITIvE EDgE by cOMpILINg yOuR OWN INfOR-MATION AbOuT AfRIcA’S fAST-EvOLvINg cONSuMER OR TRADE LANDScApE.

Africa is a very fragmented and complex market, more complex than the retail environment in developed economies. Added to that is the lack of information available around customer habits, behaviours and tastes. There is a competitive advantage to be gained by the organisation that can gather meaningful data and then act on that data. Currently, Africa is a very complex market and its customers still largely remain a mystery to retailers and producers.

Some companies establish research programs to identify consumer preferences and behaviour in each African market. Olam, a global leader in agricultural products that also operates a packaged foods business in Africa, is investing heavily to analyse the extreme differences among consumers in West Africa. Its investments aren’t simply to help them tailor products to local needs and pref-erences, but to also help identify possible new categories for growth. They are seeking to move away from seeing customers as ‘African’ and adding layers of sophistication to the data in order to draw out meaningful insights.

pARTNER WITH LOcAL STAkEHOLDERS—gOvERNMENTS, buSI-NESSES AND cOMMuNITIES—TO ESTAbLISH cREDIbILITy.

Often the debate is around how external producers can influence key stakeholders in moving the agenda towards where they would like it. Following our discussion in Africa, the main message is that Africa refuses to be dictated to. Like other governments, African governments require the freedom to define their own objectives. Where International provides and retailers can add value is in offering their expertise in order to help governments and other stakeholders achieve their am-bitions. There has to be a shift towards collaboration in a meaningful way before the potential for Africa can be truly expanded.

Market leaders will typically collaborate with local business networks. They appoint local business leaders to their board of directors or get listed on the local stock exchange. They also invest in community development. They seek to form mutually beneficial partnerships with local govern-ments. These all serve as signals that the relationship is friendly and not exploitative.Kenya, facing high illicit alcohol consumption and the associated side effects, including blindness and even death, from consuming poor-quality alcoholic beverages worked with Diageo to support a new product offering a safer and legal alternative. The product was, regulated beer in a sanitary keg. The government helped make the offering affordable to consumers by providing reduced tax rates.

cREATINg, DEvELOpINg AND RETAININg yOuR OWN SkILLED STAff IS ESSENTIAL DEvELOpINg A SuccESSfuL AfRIcAN STRATEgy

Accepted thinking is that Africa lacks talented and skilled staff. However, this is an incomplete view as Africa has been struck with a brain drain that has resulted in a critical shortage of skilled professionals. More than 70,000 students leave Africa each year, with only half returning. Lead-ing companies understand that, with these factors considered, their strategy must encompass an approach for building local talent as well as creating opportunities for the African diaspora to return to Africa.

To attract top local talent, leaders leverage both brand reputation and experience from other emerging markets to drive recruitment. From graduate recruiting and training programs to provid-ing clear career development structures and paths brands are using tried and trusted techniques to build their talent pipeline. Among the lures include: offering attractive transfers and sought-after job rotations. Successful companies correctly benchmark salaries, not just against local direct competitors, but also against companies in other fast-growing sectors, such as financial services or telecom, that could steal their talent.

For one leading fast-moving consumer goods company, a well-crafted talent plan was one of the pillars of its strategy. The company hired more than it actually needed—creating a buffer against future shortage. To develop its staff, the company developed training programs and put in place a mentoring system with quarterly feedback and guidance.

To retain talent, it realigned remuneration, rewarding strong performers differentially. Finally, to address immediate capability gaps, the company repatriated talent working in other markets and temporarily introduced additional layers in the organization to make spans of control manageable. Though talent shortage remains a key issue for the company, these actions ensured it could suc-cessfully fill a portion of the gap and make strides toward closing the gap.

Above, are examples of how leading organisations conquer the specific challenges of doing busi-ness in Africa. These pioneering companies have also discovered that one critical capability re-quired in the African market is an entrepreneurial and flexible mindset. This requires adapting to the unexpected issues and opportunities, being comfortable taking the kinds of risks that aren’t required when doing business in other parts of the world, and trusting gut-level instincts to make decisions based on incomplete information. To succeed in Africa it is essential to foster a culture of boldness, agility and resourcefulness.

SEyMOuR SLOAN

Seymour Sloan deliver great ideas that drive progress. We help companies do things differently, delivering market changing solutions.

We use the brightest and bravest minds to challenge convention and successfully deliver innovative solutions. We believe in short-term engagement and long-term support. This is cost-effective for our clients and serves as a basis for their continued growth.

© SEYMOUR SLOAN 2014

IDEAS THAT MATTER

SEYMOUR SLOAN