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Rise of e-commerce : The resilience of retailers

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Rise of e-commerce : The resilience of retailers

The traditional retail market continues to be a vital aspect of Africa’s socio-economic framework. Despite the emergence of online sales, this sector exhibits resilience and is poised to play a crucial role in shaping the continent’s commercial environment going forward.

Strong Traditional Retail Dominance

Africa’s traditional retail sector boasts over 2.5 million outlets, projected to contribute between 65 % to 75 % of sales by 2030. This dominance varies across countries, as evidenced by studies in Nigeria, Morocco, Egypt, Kenya, and South Africa. The retail landscape is evolving at different paces across the continent.

The report highlights that retailers tend to be young, with an average age between 31 and 39 years old. Moreover, approximately 70 % of traditional retailers exhibit higher levels of education and digital literacy compared to the general population. However, financial inclusion levels vary significantly. For instance, 85 % of store managers in Kenya have bank accounts, while only 40 % of their Nigerian counterparts enjoy the same level of financial inclusion.

Resilience of the African retail market

The resilience of traditional stores in the retail market stems from their proximity to consumers and their flexibility in meeting customer needs. Unlike modern supermarkets, traditional stores often offer credit options, making purchases accessible to shoppers with limited incomes. Additionally, their operating hours are typically designed to better suit the needs of their local communities.

For example, in Morocco, traditional retailers hold an 82 % market share, with 90 % of them providing credit options to customers. This aspect explains their ability to withstand competition from modern retailers like Marjane, Carrefour, and BIM. Interestingly, the wealthiest 15 % of the Moroccan population contributes approximately 65 % of sales in the modern retail sector.

Key drivers of e-commerce growth

E-commerce is swiftly emerging as a solution to modernizing traditional retail practices and bolstering the viability of contemporary retail markets. The burgeoning growth of the e-commerce sector is predominantly propelled by three key factors:

Demographic and middle class growth

Africa boasts the world’s youngest and fastest-growing population. Among the 20 cities with the most rapid population growth between 2000 and 2020, only Abuja represents a capital city. Notably, five of these cities have populations exceeding 1 million inhabitants. Additionally, Africa’s burgeoning middle class, comprising approximately 330 million individuals, is expanding rapidly. A significant 70 % of this middle-class demographic is concentrated in Egypt, Nigeria, South Africa, and Algeria.

Mobile connectivity and the rise of fintech

By 2023, Sub-Saharan Africa is projected to boast 489 million subscribers, with a significant reliance on financial technology (FinTech). Transactions conducted through mobile platforms are expected to soar, reaching a staggering 490 billion USD in 2020 alone. However, it’s essential to highlight that despite this digital surge, the 3G network remains the predominant technology in the sub-Saharan region, with only a modest 5 % adoption rate for 5G. Moreover, it’s noteworthy that mobile data prices in this region are among the highest globally.

Secondary cities and supermarkets on the rise

Local retailers remain pivotal in driving e-commerce growth in Africa, while the steady expansion of local supermarket chains further bolsters this sector. Notably, 70 % of Africans rely on local vendors for their basic needs, underscoring the significance of these retailers in the market. This consumer behavior is fueling market development in regions with less developed retail infrastructure, with a notable emphasis on regional preferences.

For instance, Nigerian supermarket chain Marketsquare has capitalized on this trend by strategically establishing 24 stores across the country, particularly targeting the growth of secondary towns. This approach highlights the importance of catering to local consumer preferences and tapping into emerging markets to drive retail expansion in Africa.

Prospects for Retail Modernization

The future of retail in Africa is increasingly centered around modernization, with a notable emphasis on digital solutions and digitalization. A growing number of retailers are embracing digital services, with nearly a third now offering options such as online ordering, remote delivery, and pay-on-invoice facilities. Notably, mobile money adoption is widespread in Kenya, with 97% of small retailers accepting mobile payments, whereas digital adoption remains comparatively low in Morocco.

Affiliate or franchise models are also gaining traction across various African countries:

  • Approximately 40 % of businesses in both Morocco and Kenya operate under affiliate or franchise models.
  • In Egypt, this figure stands at 50 %.
  • South Africa leads the trend with 60 % of businesses adopting affiliate or franchise models.

While traditional African retailers express mixed sentiments about market development, many remain optimistic about the prospects for their businesses:

  • In Kenya, 79 % of retailers are optimistic about their business prospects.
  • Nigerian retailers show even higher optimism, with 88 % expressing confidence.
  • In Egypt, 43 % of retailers feel positive about their business outlook.
  • Moroccan retailers exhibit slightly lower optimism, with 32 % expressing confidence in their business prospects.

Projections in numbers based on current trends

For the remainder of this decade, traditional retail is expected to maintain its dominance in Nigeria, with minimal changes in the assortment of products and services offered. In 2030, the market share of modern retail is projected to remain below 5 %, contrasting with higher figures in other African countries. Specifically, modern retail is anticipated to account for 30 % of sales in Morocco and 25 % in Kenya by 2030.

However, Egypt stands out with the expectation of rapid growth in the modern retail sector, potentially reaching up to 45 % of total sales. Meanwhile, South Africa is experiencing steady progress in modern retail, with a penetration rate of 75 %. This growth can be attributed to the ongoing modernization efforts within traditional shops in the country.

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