_What trends are shaping Retail in Africa?

Q: Over the next 10 years, a fast-growing middle-class technology adoption and the African Continental Free Chain Area Agreement are expected to drive a boom in the continuous retail sector. And while traditional retailers are resilient in Africa, emerging market trends are challenging the norm. Marc Du Toit, Head of Retail at Knight Frank Uganda joins us with greater perspective on the retail sector trends in Africa. Thank you so much for your time, Marc. Now talk to us about what stands out and what really characterizes the current retail landscape in Africa.

A: The current retail landscape in Africa, when one talks about the formalized retail landscape is pretty much a blank canvas, and that's what stands out. You've got a couple of factors that impact the future for the next 10 years, as you've mentioned, is you've got a very young market. You've got 50 %, 52 % of your population under the age of 18. So that's going to generate great consumer growth in the near future. You've also got a transition that's happening from your informal retail into your formalized retail. And that's happening because of a number of factors. You've got, first of all, the brands historically haven't been in the market, whether it be in the grocery, the fashion brand context, et cetera, and they're starting to enter the east, west and Central African markets. You're also having a lot of development happening in the formal shopping center sphere. When we talk about Southern Africa, your shopping center and your mall community is large because people are weaned up on shopping centers and malls, whereas in east, west and Central Africa, there's a dearth of malls. If you look at a country like Uganda with a population of 50 million people, you've really got 20, 22 formalized shopping centers, which would be known as community type of shopping centers in South Africa.

Why has that happened historically? You didn't have great arterior routes and reticulation of traffic that governments are starting to implement in local councils, and they're creating better transport junctions around the cities. And you're finding that developers and even the Southern African developers are entering up into the market and now starting to develop formalized shopping centers. So you have the space being made available for the brands to enter the supermarket chains, that sort of thing. And you're having a transition in the consumer utilization, moving away from informal type of retail into more formal type of entities, but it is slow traction. It's not happening overnight, and it will take probably the better part of a generation of having the product available for the market to fully become more rats as we are in Southern Africa.

Q: Challenging idea for me is that for there to be development in the retail space on the African continent, that the sector would then look similar to what South Africa is like, for instance, with all the malls that we have and supermarket culture. I'm wondering if the east and the west and the north African consumers and retail sectors might not be able to carve out a different identity that is a bit of a mesh between possibly what is formal and maintaining their informal, especially as that might be a preference rather than an issue of underdevelopment.

A: Look, there is definitely each market on its own has its own different niche. And there's also the lifecycle of retail. If you have a look at shopping centers within the East and West Africa nodes, they are predominantly anchored by cinemas. Now, if you look at the Southern African scenario, the cinema industry is on a huge wave. It's not what it was 15 or 20 years ago. Internet is far cheaper in Southern Africa, homes are built differently to encompass home theater and home entertainment and that thing. I was in Cape Town a week ago, and it surprised me driving around a lot of these informal shanty areas to find a satellite dish on every informal shanty. It was quite surprising for me. So the culture, the growth of retail is different. South Africa, where it's on the wane, it's on the growth phase here in the rest of Africa. So the culture will have a different impact on it. Also, you talk about the green fragment of retail that's coming in with previously owned products and commodities, et cetera, that is new into the Southern African and even the European market. But in Africa it's been predominantly the street because the brands didn't exist here.

So now you're finding a transition away from that. And governments even putting legislation in to stop the import of second-hand product into the market, and you're seeing a growth in new product. So the life cycles are different in the retail environment, and therefore you will see a different type of transition. The reality, though, is that shopping centers in suburban area with proper arterial routes, egress and ingress into them will be the transition and the change as people decentralize out of central business districts and become more suburban-orientated because it's all about convenience and access.

Q: Marc, we talked about this demographic dividend that we have on the continent where there's an increasing number of young people, and of course, you know that that also comes with technological advancements. Let's also talk about online. Our retailers, and particularly even the informal, smaller retailers, now forced to be omnichannel because of the demand pressures that are coming from changing consumer behaviors and tastes? But also are we going to start to see a growing penetration of fintech on the supply side of these retailers as well?

A: Without a doubt, there's a growth in the omnipresence. There's not a dramatic growth in the online trading, and that has a couple of difficulties when you talk about the Central African market. Simply because of logistics, the last mile, how do you actually get access to people because they don't necessarily have street addresses and that thing. So it is difficult. There is also the issue of marketplace and the informal trading online, which is also having difficulties in terms of penetration because of the scams that are involved and the con artists that are involved in that. So it is moving forward, but the traction is very, very slow in terms of the market. What is happening, though, is the consumer is becoming far more and a lot more intelligent. So they are doing a lot of their homework online. They understand their pricing. It's put an end to price gouging because now the consumer, before entering a physical establishment, he knows the product, he knows the background to the product and he knows what he should be buying the product at. So the level of consumer is becoming far more astute. Down the line there will definitely be a growth in e-commerce.

I've been very vociferous on this in various different conferences and even on your own channel, is to say that the two will co-exist. And it's probably an 80-20 rule at the end of the day when it reaches full penetration, that your bricks and mortar shopping will still have 80 % of the total retail trade, simply because people are sociable by their nature and they want to touch, they want to feel, they want to try on the product. In markets like Central East and West Africa, where your product range and the logistics of getting product to market is not as first world and is sophisticated in South Africa, online retail becomes very difficult because today the retailer has the product he might not then have the product for the next two weeks. And specifically in the food and supermarket industry, it hasn't found the traction it has in more first world markets. It will happen though. It's just a matter of time.

Well, Marc, an absolute fascinating conversation with you this afternoon. Thank you so much for chatting to us. Very insightful. That was Marc Du Toit, Head of Retail at Knight Frank Uganda.