"If I have ever seen magic, it has been in Africa.” John Hemingway's eulogy to the world's most diverse and beguiling continent certainly rings true today; Africa is now playing a role of increasing significance in the world economy, at a time when many emerging economies such as Brazil are slowing. It is now the second-fastest-growing economic region behind Asia, and is rapidly becoming an attractive magnet for international capital and investment. “Many African economies are now transitioning from resource exporters to consumer markets. Where wealth has historically been concentrated within the elites, prosperity is starting to find its way to the broader population,” observes Nigel Wixcey, lead partner, Consumer Business Deloitte LLP.
He continues: “While it is too early to call Africa's recent growth the ‘African miracle’, a view held by many is that Africa, especially Sub-Saharan Africa, is where Southeast Asia was 30 years ago – on the cusp of a boom.”
Why Africa?
According to Deloitte, the evidence that consumer brands should be investing into Africa is compelling. Their report, Africa: A 21st Century View, suggests that the overall African economy is expected to grow by 7.7% annually until 2019, about double the rate of advanced economies. They explain that rising consumer demand is likely to add around $1.1 trillion to African GDP by 2019, and by 2017 Africa is expected to become the second-largest market for investment by European consumer business.
More exciting still is Deloitte's assertion: “Africa's population is increasingly clustered in large urban centres and by 2030 over half a billion Africans are projected to be middle class. Younger Africans form a large share of the rising middle class and will seek access to a wider choice of food, consumer goods, entertainment and connectivity.”
Just some 20 years ago, African markets would have been seen as embryonic at best, but over the past five years, major conglomerates like Diageo have done serious legwork in key emerging economies, and enjoyed the subsequent awards. Diageo recently decided to invest in the “Cube” – a micro-distillery within a brewery in Ghana's capital Accra, to gauge local demand for Gilbey's Gin. “Africa is a big beer region – Guinness – and we’re leveraging our beer distribution network to grow our spirit business,” says Camille Dor, Diageo’s global press officer. She adds that to the 12 months to 30 June 2016, spirits net sales grew 4% across Africa, with reserve brands (their luxury portfolio) up 35% “on the back of Cîroc vodka and Johnnie Walker scotch reserve brands.”
But if global beer and spirits brands are increasingly finding favour with African consumers, can the African palate – discounting nations where Islam forbids consumption – learn to love imported wine?
Volatile prospects
According to the IWSR, Angola was showing great promise in this regard, with consumption of imported wine growing consecutively for several years, as the nation experienced phenomenal economic growth and rising prosperity on the back of rising oil prices. In 2015, Angola consumed over 8m 9-L cases of imported wine.
However, while many of Africa’s economies are going through an impressive transformation, growth on the continent remains both fragile and capricious, as the recent Angolan economic disaster shows. With the majority of its export revenues based on petroleum reserves, the dramatic collapse of crude oil prices in 2016 sent the nation into financial panic, with a subsequent decline in consumer spending.
“Angola was a promising market for Codorníu in Africa, but the market has now completely collapsed for our products and we have withdrawn from the country,” explains Juan Castell, Africa brand manager for the Spanish sparkling wine company Codorníu. His sentiments are echoed by other brands that had formerly invested in Angola, including several South African wineries.
In addition, it is not simply commodity prices that can undermine a brand’s prospects. “Instability is a fact of life in Africa, and many of the nations we do business with are are still politically volatile,” says Lise Chapelier of Meridian Wine Merchants in Cape Town.
Responsible for managing a portfolio of prestigious brands including Meerlust, Chapelier has spent the last five years attempting to build an export presence in key African economies. “Our sales of leading brands and the consumption of premium wine is increasing in key African markets, yet things can change very quickly. A sudden change of government or a new law – for example in Tanzania this year the tourism sector is now being taxed 20% extra – can affect our business very badly.”
Nonetheless, Deloitte’s research paints a vivid picture of a continent generally experiencing dynamic and sustained growth, with emerging economies such as Morocco, Kenya and Ivory Coast classed as (relatively) politically stable nations that are not solely dependent on petroleum exports. Deloitte identifies the key “large and fast economies” as South Africa, Egypt, Nigeria and Algeria, while Kenya, Ivory Coast, Uganda and Ghana are among the most promising small- and fast-growing economies. “Although there are 54 countries in Africa, 80% of Africa's GDP is concentrated in just 11 markets,” notes Deloitte's Nigel Wixcey.
Yet, as with most things in the African landscape, appearances can be deceptive. Codorníu’s Castell underlines the point that economic status is never the sole criteria for entering a market, and advises brands to look beyond GDP figures. “On the basis of economic prowess alone, Egypt and Algeria might seem like a great investment for wine brands,” says Castell. “But it is never that simple in Africa; the severe restrictions on alcohol consumption in Egypt mean that a tourist hotspot like Sharm el-Sheikh account for a lot of demand, which is highly unstable due to falling tourist numbers and ongoing terrorism concerns.” He adds that Egypt levies a 3,000% customs tariff on sparkling wine imports from the EU. “Codorníu is present in Algeria, but again there are religious restrictions and growing resistance to liberalising alcohol consumption – demand is largely restricted to western hotels and expats.” He says that by contrast, Morocco’s economy is currently half the size of Algeria’s, but “the growth of the tourism and the nation’s relatively liberal laws regarding alcohol consumption mean that Morocco is increasingly an important market for Codorníu in North Africa.”
Where opportunity lies
Castell describes Morocco as a “good opportunity” for brands willing to do the legwork and source a good distributor. He reports that demand continues to come from a reasonably dynamic on-trade sector, primarily designed to meet the needs of more than 10m visitors per year. “The premium on-trade is the natural home for Codorníu, and that is where we have focused our efforts in Morocco,” says Castell.
As expected, the tourist hotspot Marrakech continues to be a key driver for demand, receiving the lion's share of Morocco's visitors. Casablanca, an important cruise ship destination, is also very important.
Moreover, the country remains one of the most politically stable in Africa and boasts a generally efficient and organised infrastructure.
However, Castell also issues the following cautionary advice: “In my experience, taxes on alcohol in African nations are generally high, making imported wine an expensive proposition for consumers, although Morocco, for example, does have free trade agreements with nations such as the USA and Turkey, and tariffs on sparkling wine imports are relatively modest at under 25%,” he says. “But more problematic is the extensive bureaucratic regulations imposed on imported brands regarding label information – this creates a significant cost.”
“The import regulations and taxation frameworks are generally very complex and change frequently in Africa – make sure your distributor knows how to deal with it,” agrees Chapelier.
Meanwhile, brands continue to debate Nigeria’s longer-term future as a sustainable and key market for imported wine. IWSR data suggests that the potential is there: the consumption of imported wine reached over 4m 9-L cases in 2015, and Nigeria remains one of Africa's richest nations, despite the decline in petroleum revenues.
In addition, the government has sanctioned ongoing investment in the country’s relatively well-developed infrastructure, including a new rail network to link central Lagos with the wider urban sprawl. “Lagos is becoming a promising market – it is one of the continent’s largest, fastest-growing and wealthiest cites,” notes Castell. “The city’s emerging generation of younger consumers want access to Western pleasures and the market is currently full of cheap, budget products and there is definitely a niche for quality wine brands, if you can find a good distributor.” A number of Western hotel chains have also opened franchises in the city, including the Hilton, Intercontinental and Sheraton.
Moreover, Lagos’s growth continues to nurture an unprecedented level of investment in both retail and on-trade channels, according to insiders. However, specialist wine stores are not yet a strong feature of the overall African retail landscape, South Africa excepted. “In nations like Nigeria you are targeting the local population, not tourists generally,” says Chapelier. “Basically, you have to think that the people from these countries want exactly the same as us: choice. They get bored of drinking the same thing, having only access to a limited range of drinks.” She says their habits are changing because the countries are changing fast: two of the biggest malls in Africa are opening this year with new access to international brands such as Carrefour.
“African consumers in emerging world economies like Nigeria and Angola are very aspirational. Informal on- and off-trade remains the biggest channel, but formal retail is increasing its share of the market,” agrees Stephan Rautenbach, Africa brand manager for KWV.
However, Rautenbach adds an important caveat: “Africa can become a bottomless pit for investor funds. It can be very expensive to do business, especially in Nigeria and Angola. The key is to find the right distribution agent – one that can take care of all the legal issues and make sure you are well represented in the destination market. Availability of foreign currency is the biggest issue in nations like Nigeria, and getting money out of the country can be difficult.”
Two possibilities
Rautenbach also cites Kenya and Ivory Coast as two emerging markets with potential, an observation supported by Meridian Wine Merchants. Kenya’s economy, while far smaller than that of Nigeria, is nonetheless forecast to experience significant growth over the next five years, according to Deloitte. It is currently the biggest and most advanced economy in east Africa, and unlike Angola is not heavily dependent on oil reserves for its wealth. “Kenya's development can be seen most plainly in the fortunes of Nakumatt, a Kenyan supermarket chain that now has over 65 stores in Uganda, Tanzania and Rwanda,” says Rautenbach. He adds that formal trade, in particular retail, is developing at a steady pace and that Nairobi is a growing market for KWV, although tourism to Kenya’s key resort Mombasa has declined due to security fears over Islamic terrorism.
His assertions are borne out by Meridian Wine Merchants, who confirm that the opportunities are largely to be found in Kenya’s capital, with demand driven by the city’s new strata of middle-class consumers with higher disposable incomes. “The Nairobi on-trade is also highly developed with premium restaurants, hotels and services,” says Chapelier. “Also, I have observed that young Kenyan women are rapidly developing an interest in premium wines. But equally, at the moment consumers generally gravitate towards more sweeter styles, since they are the kind of flavours they are used to taste in alcoholic drinks.”
However, corruption is rife in the Kenyan economy according to many stakeholders; the nation boasts a reputation for being one of the bribe capitals of Africa. “Corruption is indeed one of the biggest risks inherent to doing business in Africa – potential partners will often promise the world and deliver nothing,” agrees Castell.
But Ivory Coast, despite its comparatively modest economic output, boasts a relatively high income per capita for the region (over $1,500.00) and plays a key role in transit trade for neighbouring countries. Customs tariffs on EU alcohol imports are lower than Kenya at 20%, and as one of the most important economies in West Africa, the IWSR had identified Ivory Coast as a market wine brands should watch closely – in 2015, the country consumed over 4.5m 9-L cases of wine, compared to just over 3m in 2013.
IWSR data is borne out by the experiences of Castell: “The Ivory Coast has been one of our most promising success stories, as the capital Abidjan has a dynamic on-trade/nightlife sector and the middle and upper classes continue to develop a taste for wine.”
Entering the market
These positive and cautionary statements from the wine companies surveyed answer some of the basic questions about key African markets, but also raise perhaps the most important unanswered one: what is the most important asset for a brand attempting to build an export presence in nations such as Kenya?
“Patience,” says Castell. “When I first started visiting Africa in 2013, I realised how little we understood about the markets across this vast continent. It took years of painstaking research to get anywhere, although I was helped with time and resources by the Catalan local government and our embassies oversees.” He says it took several years of attending seminars, shifting through statistics (reliable data is difficult to find) and reading reports from the IMF before he knew they could risk jumping – albeit tentatively – into Africa. “So we started shipping containers to South Africa in 2016, one of the most stable and prosperous nations in Africa to test the market there.”
For his part, KWV’s Rautenbach also advises companies to, “Do their homework, identify and appoint a good distributor, take out insurance, and get dust on your shoes. Learn the market, see for yourself, and take interest.”
But if there is one vital lesson brands should remember it's that a one-size-fits-all approach will never work in Africa, says Chapelier. She emphasises that countries potentially in the market for imported wine all have their opportunities and weaknesses, and brands should be wary of simply identifying the richest three or four nations as obligatory go-to destinations.
KWV is a classic case in point, Rautenbach reports that his key markets include Namibia, Tanzania and Rwanda, none of which are headline African economies. “An efficient and cost-effective route to market is of the utmost importance. We worked hard at establishing this in the 'smaller' markets and it paid off,” he says.
So the final picture that emerges in the complex African market is a contradictory one. On the one hand there is strong evidence that these markets will continue to develop and grow; distributors like Meridian confirm that their sales base across key African markets has widened, and shows no signs of immediate contraction. However, the unfortunate truth is that the risk and instability inherent in many parts of the African continent are not to be taken lightly. Several Western brands have enjoyed some success in Africa, but it has required patience and an investment of considerable resources.
Other brands would of course be willing to follow their lead, if analysts could prove that the unstable economies of Angola, and to a lesser extent Nigeria, would settle down and African nations will continue to tackle barriers to global investment such as corruption and poor governance.
