Urbanisation is driving huge investments in mall developments in Africa, but retailers may not have an easy ride in fragmented markets.
Set on the side of Nairobi’s newly renovated Thika Road Garden City is a glimpse of East Africa’s consumer future. The $250m development, with 50,000 square metres of retail space, opens in May, and will soon be joined by three others. The Hub, a 30,000 square metre development, opens in Karen in September, followed by the 62,000 square metre Two Rivers mall in Runda in October. A second Runda mall, the 11,000 square metre Rosslyn Riviera, is expected to open in May 2016.
Carrefour, the world’s fourth-largest retailer, has taken more than 9,500 square metres in two developments in the city, while Walmart subsidiary Massmart is one of the first tenants in Garden City. Others international players are circling, according to Mike Kingshott, director of Aspire, which is developing the retail part of Garden City.
This breathless rush into Kenya’s retail markets is driven, as Kingshott says, by “all those buzzwords”. The country’s demographics look like a developer’s dream – a young population that is rapidly urbanising, against a backdrop of sustained economic growth that is raising incomes and creating a new, consuming middle class.
“It’s pretty much untapped by the European or more international brands. The local Kenyans and the South Africans have pretty much had it their way,” he says. “Now you’ve got Walmart, their first store at Garden City, and Carrefour coming in. There are a lot of other brands assessing their position, and from an East Africa point of view, Kenya would be their first port of call.”
Large new mall developments, built to a standard that retailers have become accustomed to in Europe, North America and the Gulf, are vital to developing the market – but the developers themselves depend on retailers’ commitments.
“None of these new retailers in the market will look at it if there’s no retail space, which is the issue. There’s a lot of new malls coming up, and without those new malls there wouldn’t be any retailers coming in,” Kingshott says. “It is a finely balanced catch-22.”
Urbanisation is one of Africa’s most compelling socio-economic trends. In 1950, less than a quarter of the continent’s citizens lived in urban areas. By 2010, that was nearly 40% and accelerating. By the end of the decade, half of all Africans could live in towns and cities.
In parallel, average incomes have risen in the continent’s larger conurbations, and a putative middle class – which could be as large as 300m people, according to the African Development Bank – has become an attractive prospect for investors, and retail is the most obvious way to capture the opportunity.
Retailers and mall developers are gambling that expanding populations will adopt a more Western style of shopping, turning to supermarkets and other larger-scale retailers from traditional markets. However, new research from Nielsen shows that they may have over-primed their expectations.
“I think the promise of Africa is just undisputed. You have 300m middle class consumers. You’ve got a billion people, it’s growing dramatically,” says Allen Burch, head of Africa at Nielsen.“You’ve got six of the fastest-growing GDP countries in the world. You’ll see disposable incomes rise. As those rise, this kind of shop and the brands they’ll carry are going to be more tailored to that group.”
However, Burch warns, modern trade may be growing, but it is small and underdeveloped in most markets, except for South Africa. Even there, traditional retailers have a large – and growing – market share. In the 14 countries that Nielsen surveyed, there were more than 550,000 traditional grocery stores, which account for 50% of consumers’ total spend. The most common retail channel remains the table-top stand, and 80% of consumers shop from these stalls.
African retail is, generally, a fragmented market which Western-style businesses may struggle to succeed in. While the ‘if you build it, they will come’ model may be working for the mall developers, it may not be enough for their tenants,.
“It’s a demographic and economic tsunami; that is going to happen, but it’s not going to be enough to make a success for any brand or retailer.” Burch says.