Analysis in brief: As a leading indicator of the health of national economies, the retail sector has been doing well throughout Africa. Stores and now online businesses increase in numbers in proportion to the growing urbanisation of the continent.
Each African country’s retail sector reports its own accumulative annual revenues and possesses its own particular share of its nation’s GDP. However, every African nation is reporting rising sales, signalling that retail is a well-performing economic sector on a continental scale. By definition, the retail sector is made of all businesses that sell goods through stores and virtually through the internet. In other words, every company that sells goods to the public, through outlets ranging from vending machines to luxury car showrooms, is retail (as opposed to wholesale, which is businesses selling to other businesses).
Because each nation’s retail sector has its own characteristics, this paper focuses on Sub-Saharan Africa’s two largest retail economies, Nigeria and South Africa. Business innovations and consumer trends originating in these markets have historically been adopted by neighbouring countries. Nigeria has 600,000 small-scale retailers, mostly food stores, and these account for 97% of the Nigerian retail sector’s annual revenues, with large retail outlets earning only 3% of revenues. The same trend is evident in South Africa, where small stores also drive retail sales. More than 10,000 branded retail food outlets, including supermarket chains and petrol stations’ convenience food stores, and more than 143,000 independent stores account for over 80% of all South African grocery sales.
Data source: Statistics South Africa
It is the retail sector rather than GDP measurements that accurately reflect the wealth of a citizenry. Because of economic inequities, GDP cannot reveal the affluence of any individual; however, consumer spending shows the financial robustness of a population. In a healthy economy, the public is spending, resulting in stores earning more revenue, with more stores expanding or opening and offering more employment. When economies contract, people hoard their money, and the retail sector is the first to suffer with concomitant job loss worsening recessionary times. Emergency situations like war and disease outbreaks also rebound on the retail sector. In order to recover from such emergencies, retail operations may find themselves in unfamiliar territory, as happened following the Covid-19 pandemic. Consumers confined to their homes during the pandemic relied on smart phone apps to place orders and arrange deliveries. The proliferation of smart phones in the preceding years made this possible for many Africans. A habit was born, and in the post-pandemic era, the retail sector has been defined by ever-increasing online sales and services.
A breakdown of the retail sector finds food items as the largest section of products sold to consumers. The food and beverages sector grew at a compound annual growth rate of 7.1% between 2018 and 2023, ending that period with a value of US$1.4 trillion. Consumer goods are items sold by the retail industry and are divided between durable consumer goods that are long-lasting products like appliances, furniture, cookware and cars. In terms of products sold by Africa’s retail sector, the largest is fast-moving consumer goods. These are items used daily by consumers. Food and beverages dominate this category with a share of 49%, followed by cigarettes and alcohol (17%) and home and garden care products (11%).
Retail outlets are placed into six categories: fixed location retail, supermarkets, discount stores, vending machines, temporary shops, and internet retail. Fixed location retail are all the shops and stores that sell products wherever they are located, from isolated rural stores to stores lining large airport malls. As the second unique category of retail outlets, modern supermarkets sell consumer goods and food. Discount stores sell goods at lower prices, while vending machines are the only category whose operations are fully automated. The smallest group of retail outlets is temporary shops, which are open for a limited amount of time to introduce goods or services.
The sixth category is internet retail, which is a widespread 21st century innovation. Smartphone use has been responsible for the existence of virtual shopping on internet platforms that are extensions of the first category of retail outlets. Instead of going to a shop, the buyer interacts with the store through messages or chats, places orders using credit cards and receives goods through a delivery service. The retail delivery market in Nigeria is expected to earn US$416 million in 2024 and, with annual growth projected at 19%, is predicted to be earning nearly US$1 billion by 2029. This remarkable growth comes despite harsh economic conditions endured by Nigerians, including high inflation that lessens consumers’ purchasing power.
Image courtesy: Bangui Shopping District
The greening of the retail space
Growth in fast-moving consumer goods sales reflects the growth of the African retail sector as a whole because it is tied to urbanisation. The movement from rural lands to urban centres is propelled by a need for employment. Once a job is secured, the urban environment gives access to retail outlets in which to spend earnings. Noting the rate of Africa’s urbanisation is a worthwhile barometer for how the retail sector will fare in the coming years. In 2000, 35% of Africans lived in urban areas. In 2021, the demographic rose to 44%. Two-thirds (67%) of South Africans live in urban areas and are responsible for the country’s thriving retail sector. In Nigeria, the urban population stands at 54%, growing by 4% per year.
As Africa’s middle-class grows, so do Africans’ awareness of issues through technology and education, such as fair labour practices and the environment. They are making their desires known in their choices as consumers, and so, retail outlets are adapting according to trends. One study found that 42% of South African consumers follow a vegetarian lifestyle. They prioritise health considerations that include environmental awareness. South African companies are responding and marketing to these responses as reduced energy is used to lessen carbon footprints, biodegradable packaging, reduced chemical additives in food and cosmetics and product sourcing that avoids companies that engage in child labour or other malpractices.
The second major trend in the retail sector is the growth of e-commerce. Nigeria is projected to achieve revenues through e-commerce activities of US$6.4 billion in 2024 and is expected to hit US$10 billion in e-commerce sales by 2029 based on an annual growth of 6.4%. In South Africa, the launch in early 2024 of two e-commercial platforms, SHEIN and Temu, has spurred a burst of e-commerce activity. The two giant Chinese firms offer low-cost products and marketing innovations that are affecting both the offerings and sales methods of South Africa’s other e-commerce platforms.
Africa’s retail sector will continue to grow as predictably as Africa’s urban migration trend to which it is tied. This is no guarantee that all retail companies will benefit. Awareness of trends and sensitivity to consumer preferences remain essential in the evolving African retail landscape.
The critical points:
- Africa’s retail sector continues to grow and evolve, with e-commerce reshaping how products are sold and consumer preferences influencing the products themselves
- The retail sector remains the most reliable indicator of a national economy’s robustness or softness
- Africa’s retail sector growth is tied to the growing urbanisation of the African population, a phenomenon that has no end in sight