The $2-a-day consumer
Cultivating the $2-a-day consumer: The African continent’s lower middle-class – those with $2-a-day to spend – are set to swell, presenting fertile ground for brands to expand. P&G, PJ Cussons and SAB Miller are among the pioneers laying the groundwork.
- SAB Miller attributed 80% of its profits to emerging markets in Africa and Asia, click here to read how beer brands are cracking the continent’s market
- Opportunity International specialises in the microfinace industry, click here to read about how it wants to offer specialised loans to African businesses
- Jennifer Roberti is the group marketing executive at South Africa based telecommunications and mobile finance brand MTN. Read about how they have positioned themselves in the African market
Hopeless Africa was famously the title of a cover story in The Economist in May 2000, spelling out a network of countries that seemed in a state of irrevocable disrepair. Business opportunities were somewhat alien in that hostile environment, with many countries plagued by famine, civil unrest and a lack of basic infrastructure.
But Africa’s middle-class population surpassed 300 million last year, according to an African Development Bank (ADB) report released last month. A unique economy has arisen, where products and services have evolved specifically for this low-income consumer, typically living on between $2 and $20 a day.
The segment of the population that lives on $2 to $4 a day has been classed by the ADB as the “floating” or bottom of the continent’s growing middle class. Last year this was about 21% of the population, up from 12% in 1980.
Procter & Gamble, PZ Cussons and SAB Miller are all at various stages of introducing specialist branded goods and Walmart has just bought retailer Massmart, which has nearly 300 stores on the continent.
Sales of refrigerators, televisions, mobile phones and cars have surged in virtually every African country in recent years. Possession of cars and motorcycles in Ghana, for example, has increased by 81% since 2006.
In Kenya, 18% of consumers are using mobile banking compared with 6% in 2010 – a 200% increase in just a year, according to TNS figures.
There are valuable opportunities for more brands to enter the space.
P&G’s ’$2 a day’ initiative was widely publicised, with a spread in Fortune magazine earlier this year detailing the company’s unprecedented research and development investment into this consumer category. Its R&D centre in China will provide insight to Africa, where the company’s strategy is to expand by adapting popular products from traditional markets as well as creating new ones.
Products being tested for the $2-a-day consumer include shampoos and bath and laundry soaps that require reduced rinsing because of a restricted water supply; low-cost and low-rinse razors and hair dyes, as well as a bag that uses the sun to heat water for bathing.
Sources say that in some markets new product development efforts will extend even further towards consumers who have just $1 a day of disposable income.
P&G is targeting 1 billion new consumers via a strategy that involves distributing items such as single-serve sachets of laundry powder to market vendors that act as distribution agents. The company is also introducing products and brands previously unknown to much of Africa, such as Pampers and Always, by employing nurses to demonstrate the products within their health and hygiene education programmes.
Targeting a market based on affordability has become significant for drinks firm SAB Miller, brewer of global beers such as Peroni and Grolsch, and local lager brands such as Nile Special and Eagle in Uganda. It also set up South Sudan’s first local beer two years ago, White Bull.
The brewer’s Africa marketing director Dave Carruthers says the low-cost market has been traditionally served by “informal” home brew drinkers, as well as the Chibuku Shake Shake brand of beer which costs about half the price of mainstream beer and comes in a pack in which the product self-ferments.
Part of SAB Miller’s expansion plan across Africa is to halve the price of beer; introducing more affordable brands by sourcing cheaper brewing ingredients (see New Opportunities in Africa’s Beer Market, below).
New opportunities in Africa’s beer market
Beer brands are arguably some of the most recognisable to the expanding consumer market in Africa, with local bars decked out in their paraphernalia and people demonstrating loyalty to a particular brew.
South African brewing company SAB Miller, which distributes 45 beer brands across the continent, reported in May that emerging markets including Africa and Asia accounted for more than 80% of its profits, which grew by 26% last year.
Social drinking might be seen from the outside as a decadent extra that precludes many of Africa’s lower income classes, but SAB Miller is working to change that by extending its brand and product portfolio to address what it describes as the “informal drinking market”, or people consuming affordable home brew concoctions.
The brewer wants create a range of cheaper ’sub-mainstream’ brands as well as more premium offerings.
SAB Miller Africa marketing director Dave Carruthers says the company estimates the ’informal’ market could be up to four times the size of the mainstream market.
“Creating affordable, high-quality beers that are accessible to this section of the population is an important part of our strategy in Africa,” says Carruthers. “They are already drinking informally, so we’re not talking about consumers who aren’t already participating. Rather, it is a case of bringing them into the formal market – and away from a segment that is not only unregulated but has products that could be potentially dangerous.”
Carruthers explains how this affordability strategy began in Uganda in 2002, through the development of Eagle lager, which is made
from the plentiful local crop sorghum.
Eagle was launched after a process of determining the right variant of sorghum for brewing, as well as collaborating with the government and local farmers.
“Because all the sorghum was locally sourced, the government recognised the benefits to the local labour market and was willing to give us an excise break, which enabled us to make Eagle lager more affordable,” says Carruthers.
SAB Miller’s local sorghum suppliers are not only benefiting from a new income stream for which the company has set a guaranteed, often above market, price, but are learning more efficient farming practices.
Eagle Extra is now the company’s second biggest beer in Africa, priced at about 80% of the cost of products in the mainstream beer segment. SAB Miller has continued to look for cost-effective brewing ingredients and plans to launch its first cassava-based beer in Mozambique, priced at about 70% of the mainstream category.
Although the company has faced harvesting challenges because of the vegetable’s short lifespan once picked, the company hopes the initiative will provide an income to several thousand farmers in the country.
Commercial development comes with added responsibility on the continent. In the developed world this may be called ’corporate responsibility’ but Andy Wales, the company’s head of sustainable development, says that initiatives may have a social element, but ultimately are done because they make business sense.
On top of working with governments to develop responsible drinking programmes, Carruthers says the company arranges free HIV testing for all employees in Africa, with a take-up of 94%, he says. And 99% of those who test positive are receiving treatment.
“We have put them on managed health care programmes which we fund. We offer the same for spouses and dependents. In Uganda we offer testing in people’s homes to encourage them to participate by making it more discreet. We motivate them, too, by offering a free mosquito net if they agree to be tested. We need healthy employees and a healthy supply chain, so it’s not merely about philanthropy, but developing a thriving economy.”
By carrying out its commercial interests in a way that considers the often sensitive economic and social situations of the African markets, SAB Miller hopes it will become part of a sustainable African business environment.
Other brands in the food and retail sectors are also aiming to make their products more accessible to low-income consumers. PZ Cussons announced in December that it would invest £17m to introduce a branded range of edible oils and nutritional spreads to Nigeria. And Walmart is on the verge of completing its acquisition of South African retail group Massmart, which has a presence in Botswana, Lesotho and Zambia.
“Walmart’s buying power as the world’s largest retailer by sales is unparalleled, so the company can boost Massmart’s ability to buy products more cheaply, and so drive down prices,” predicts Euromonitor analyst Jon Wright.
Swedish mail-order cosmetics brand Oriflame is also expanding its operations beyond north Africa into the continent’s eastern regions, announcing late last year that it would introduce 24 products. The brand has adjusted its pricing to account for low income consumers but, unlike P&G, it has yet to commit to creating products specifically for this region. Oriflame senior vice-president Stefan Karlsson says the brand already has numerous products for black skin that would be relevant for this market.
“The long-term aim is to get the footfall to learn about and understand the market. We want to establish ourselves then we will be able to see what the market needs are,” Karlsson reasons.
In Kenya, 18% of consumers are using mobile banking compared with 6% in 2010 – a 200% increase in just a year, according to TNS figures.
“The big difference for skin in Africa is the heat and humidity, so creams have to be thinner and penetrate the outer layer of skin faster. I think we will begin developing products exclusively for this area in about three to five years.
“We try to price so we can reach more people. We have experience of entering Eastern Europe and we are in many emerging markets in Asia so we are experienced in how to attack this. We won’t have lower prices in Africa than we have in India, although the prices might be lower than, say, somewhere like Russia.”
Despite competition from low-cost local and Asian cosmetics brands, Karlsson says a crucial ingredient of Oriflame’s success in Africa is its direct selling model, much like Avon’s. He says the sector’s market leaders have made no move on Africa, giving Oriflame a word-of-mouth advantage, which still dominates as the main means of growing consumer awareness.
“It works as a kind of microfinance model where our agents can place their orders on credit and earn income by being a very local retailer of cosmetics to their peers in their own communities,” Karlsson explains.
“That avenue is key for us, as the possibility of earning money is not great in developing countries and that’s why our distribution model is so strong. It also helps that our main marketing tool is word of mouth, alongside our catalogue.”
Word of mouth has evolved in mature markets to be something that happens not just on a personal level but within the global networks that exist on the internet. But as Karlsson suggests, news that often spreads verbally across communities where access to digital media is limited is something that can be harnessed by brands in Africa.
The same principle applies for new markets, namely microfinance and mobile money, which are not only growing exponentially but still offer huge opportunities for existing and new players.
Mark Kingston, communications manager at microfinance organisation Opportunity International, says word of mouth that has stemmed from a high focus on customer care and education is largely to thank for its global customer base of 3.2 million. It will also play a large part in its continuing expansion strategy to offer more loans, savings and insurance products to rural African customers in the $2 a day category (see The Microfinance Market, below).
The microfinance market
Opportunity International’s first loan was $50 to an Indonesian farmer who wanted to buy a sewing machine to start a tailoring business, in 1979.
Co-founder David Bussau’s ideas made him one of the pioneers of the then burgeoning microfinance industry. Today the organisation serves 3.2 million clients in emerging markets worldwide, with low-income consumers in Africa being its key market. It provides microfinance services such as loans, savings accounts, insurance and financial education to what its UK communications manager Mark Kingston describes as “the poorest of the working poor”.
And in a similar vein to mobile operators such as MTN, which also offer savings accounts that work much like a prepay top-up account, Opportunity International is looking to creating niche insurance products. Agricultural insurance for farmers, for example, or insurance that helps people retain stability in the event of civil or economic breakdown.
Kingston recalls that one of the earliest purposes of the industry was simply to prove that the poor could be credit worthy. Success in doing so has seen more global corporate brands, such as Barclays, join the microfinance game. But Kingston says there is a clear distinction between commercial businesses and social entrepreneurship.
First, the likes of Barclays aim for slightly higher income customers than Opportunity International, he claims. And the charitable element of organisations such as Opportunity International means there are no shareholders collecting dividends – any profits are ploughed back into expanding services and even reducing fees and interest charges.
“There was a small town in Mozambique that had a Barclays, but it closed and we then took over the branch. That reflects it was the kind of demographic that would have been better served by us,” Kingston notes. “So we don’t look at Barclays as competition. That’s not to say there isn’t room for commercial players; the market is so big that a purely philanthropic approach would not be enough to serve everybody.”
Commercial players tend to focus on urban areas, Kingston adds, while Opportunity International uses urban branches as a springboard into rural communities to reach the larger, poorer population.
Thus lies the key to his company’s continuing expansion and fulfilling its goal of reaching a further million customers within the next two years. While the microfinance market is estimated to be around 130 million customers worldwide, Kingston says its potential for growth is still immense.
Opportunity International’s first loan was $50 to an Indonesian farmer who wanted to buy a sewing machine to start a tailoring business, in 1979
“The figures don’t take into account the people who could potentially benefit from microfinance. There are various statistics on the number of people who live on $1 or $2 a day and it’s into the billions, so it’s a big market,” he says.
While offering free financial education is a key brand-building tool, it also ensures that Opportunity International customers are aware of the purpose and commitment of a loan. It appears to be working – the company’s current loan repayment rate stands at 96%.
An active education agenda is also coupled with a focus on customer care to facilitate the good word of mouth that so many brands in Africa must utilise.
“I can’t overemphasise the effect of word of mouth, and the reason it is so effective is it is based on trust,” Kingston explains. “If you’ve had a lot of experience of institutions being untrustworthy and authoritarian, then you would be suspicious of any institution that orders a loan.
“The way we have expanded our client base has been in no small part thanks to prioritising the relationships we have with our clients. Then when their livelihood starts to form and they see the benefits, people know about it and that news travels. Other means of marketing are important but word of mouth is even more so.”
In the thriving mobile money sector, well-known players such as South Africa-based MTN and Vodafone’s African divisions Vodacom and Safaricom are battling it out for their share of the low-income market by increasing offerings around what MTN group marketing executive Jennifer Roberti calls “a mobile lifestyle” (see Q&A, below).
Meaningful products
MTN’s Roberti puts her company’s success down to a combination of word of mouth and ubiquitous branding that “goes with trustworthiness and contributing to our communities; providing products and services that are meaningful to our customers”.
Meanwhile, a spokesperson from Vodafone, which claims 24 million mobile money customers across six African markets, says: “Traditional billboard marketing is important but to reach more rural areas you rely on word of mouth. Therefore the message needs to be clear, concise and easy to communicate.”
Economic growth in Africa is set to have a virtuous circle effect on brands with strong new product development insights. As more companies set up plants and distribution outlets, infrastructure and jobs are created that will increase the number of marketable consumers by improving people’s lives.
The ADB, for example, says that the expanding presence of global brands in Africa is accelerating individual access to electricity, the lack of which is a barrier to moving up Africa’s class chain. Its report says that by 2030 it is likely that Africa will make up about 3% of the world’s consumption. It may not sound like much, but translated to a figure of $2.2 trillion in annual expenditure, there’s plenty of room for brands to claim their stake.
Q&A
Jennifer Roberti, group marketing executive at South Africa based telecommunications and mobile finance brand MTN
Marketing Week (MW): Can you give an idea of MTN’s brand position in African markets and what it does there?
Jennifer Roberti (JR): MTN is the number one telecoms company in terms of share in the majority of our markets.
We have rolled out mobile money to about half our markets. But for the longer term we aim not just to be about telecoms but a whole mobile lifestyle. We want to give people access to banking and credit facilities, particularly in markets where they aren’t available to a lot of people. Things such as health insurance and the ability to pay for utilities through a mobile device are also being rolled out across our markets.
There is also a huge diaspora worldwide with people sending currency back home, so we want to develop ways to make it easier and cheaper to access those funds than it would be going through traditional routes.
MW: Who is your target audience and how do products and services differ for low income consumers?
JR: We want to be able to offer services at all ranges of the scale, from people with a disposable monthly income to those with a basic income. We want to make sure we bring in enough low-cost handsets to our markets and we are bringing in more low-cost smartphones so more people can take advantage of internet connectivity and applications.
In some cases we are dealing with corporate clients and we want to package things appropriately. In markets such as Uganda, the population is gravitating largely towards urban areas, and they’re the ones who have the jobs and are supporting people back home in more remote areas. So the mobile money product is relevant.
MW: Is there a challenge in communicating your offering to someone who might never have used a financial service before?
JR: There are some areas where the product has been available for a while so we are communicating the benefits of our product specifically, but there are some markets where we are communicating the benefits of the category as a whole.
What’s more critical is distribution; making sure the product is available everywhere. We have invested a lot in our distribution to make it more convenient for people to take advantage of our products and services. Being more widespread obviously increases the familiarity of our brand.
MW: What is different about brand building in African markets compared with Western markets?
JR: One of our biggest communication media here is radio, which is an advertising craft that is deteriorating in mature markets. Here, it is something we are quite good at. We have markets where there are numerous local languages, and radio is a great way to communicate in people’s own language, whereas print, TV and billboards are quite limited in what language you can communicate in.
MW: How do you see this market expanding in the future?
JR: We are looking at all the areas in which mobile can play a key role: health, learning, and agriculture.
We foresee a future where these are the mobile services people will come to expect. People will ask, can I get insurance or funeral cover through my mobile phone? Or even, can I get access to educational resources and textbooks?
