Africa's retail landscape is set to change, driven by demand from young, urban and digitally savvy consumers, increasing mobile phone penetration, the creation of digital payment and shopping networks, favourable governmental regulations and spending initiatives, and significant investment by both foreign and domestic companies, the latest Global Retail Development Index by management consulting firm Kearney shows.

Retailers and central banks in various countries are working toward developing and facilitating digital ecosystems by reducing transaction costs on electronic payments. However, gaps in e-payment infrastructure supply, logistical inefficiencies and trust issues are slowing down existing and future growth opportunities, with Africa accounting for about 50% in mobile money transactions globally, says Kearney partner Prashaen Reddy.

"In the face of increasing competition and margin pressures, Africa’s retailers are focusing on return on investment, adopting franchising and other new business models and rationalising store footprints. This follows Massmart's announcement that it would close the 8% of its stores that were underperforming, although this includes plans to double down on African countries, and focus on price, private label and building customer loyalty."

Understanding consumer attitudes, situations and dynamics is the basis of all retail success and the world’s consumer spending centre of gravity is slowly shifting from the US and developed European markets to emerging markets in Asia, Africa and the Middle East, albeit slowly, Reddy says.

"The pace of this development is directly linked to the innovation, penetration and acceptance of consumer and retail technologies, from simple mobile phone connectivity to sophisticated and secure electronic payment systems.

"In the most stable times, retailers expanding their global footprint face a series of difficult decisions. Yet in the wake of Covid-19, the market forces are transforming the face of African retailing and providing a blueprint for the development of other emerging markets," he notes.

The global population is expected to increase by two-billion by 2050 and Africa will be home to the majority of these new lives. The population of sub-Saharan Africa alone is expected to double by 2050, with Nigeria expected to be the third most populated country in the world.

“This is one of the reasons we will see the growth in Asia begin to slow and Africa emerge as the next big retail hotspot. It is also predicted sub-Saharan Africa will enjoy the highest rate of disposable income growth on earth, achieving about 9% compound annual growth rate,” he says.

“The main challenges facing retail in Africa are corruption, widespread poverty, security concerns, supply chain issues, lack of infrastructure, active conflicts, archaic governmental retail policies and practices, and isolation. At 18%, for example, sub-Saharan Africa has the lowest rate of intra-regional trade on the planet,” he adds.

Further, there are four classes of sub-Saharan Africa retail, namely informal, traditional, modern and illicit. Modern retailing is dominated by regional players, primarily South African operators such as Shoprite, Mr Price and Pick n Pay, and a few international players.

“South Africa did not make the top 30 [out of 35 developing countries studied]. South African consumers are used to modern retail, discretionary spending is high and there is a fierce competition from local and foreign retailers. This segment is where investments are ripe for acquisitions,” Reddy says.