Is Kellogg Too Late To The African Consumer Boom Party?

Is Kellogg Too Late To The African Consumer Boom Party?

Kellogg, the world’s largest cereal-maker, last week announced that it had partnered with  Singapore’s Tolaram Group to expand its business into West Africa with a particular interest in Nigeria’s fast growing consumer market.

The deal will see Kellogg pay $450 million for a 50 percent stake in Lagos-based food sale firm Multipro, that owned by Tolaram and has distribution networks in Nigeria, Ghana, Congo Ivory Coast, Cameroon and Ethiopia, Reuters reported.

The cereal-maker now joins other global consumer firms like Wal-Mart, Unilever and Diageo that have gone big with their African expansion plans in an effort to capture the continent’s growing middle class.

But there are warning signs that Africa’s boom years could be coming to an end and its middle-class allure could be fizzling out.

Africa’s fastest growing middle class has tripled over the last 14 years, and the African Development Bank estimated that over 300 million people have joined this consumer group as the continent witnessed a high growth rate of over 5 percent for more than a decade.

This growth was mainly on the back of a commodity boom fuelled by industrial growth in the region’s top trading partner China and lower interest rates in the US.

But with the US Fed hinting on a possible interest rate hike amid a slowdown in the Chinese economy, Africa could be headed for difficult times.

Already some companies are discovering that the continent’s consumer class is not as strong as initially thought.

In June, international food and drinks company, Nestle, which has invested more than $1 billion in Africa, announced plans to cut 15 percent of its workforce in 21 countries on the continent for what it said was an overestimated middle-class in the region.

The food and drinks company is not the first foreign company to run into such headwind in its search of the continent’s elusive middle class.

Barely one and half years after South Africa’s Woolworths expanded into Nigeria, it called it quits and shut down its three stores in the West African market in November 2013.

Household income

Industry experts attributed Woolworths failure to its inability to crack the Nigeria’s consumer market that is characterized by heavy spenders.

According to McKinsey, the number of Nigerian households with an annual income of more than $5,000 will increase to 27 percent of the 170 million population by 2020, from 20 percent currently, putting the country within the target customer base of formal retail chains.

The Africa’s largest oil producer has however been hurt by falling crude prices on the international market and a slump in its local currency, the naira, has sliced consumer spending, creating a tough business environment for consumer goods companies, Financial Times reported.

Unlike other emerging regions like Asia and South America, getting Africa’s emerging middle class to buy is a totally different game plan. It seems Africans have ‘peculiar habits’ and tapping into these behaviors is the key to breaking into this consumer market.

“No one can deny the current challenges, but all emerging markets are volatile … if you understand their (consumer) needs and develop the right brands at the right price, there is huge untapped potential in a fast-changing market,” Bruno Witvoet, head of Unilever Africa, told Financial Times.