Heineken beer is sold in more than 170 countries, but when the world’s third-largest brewer does business in Africa, it knows it needs to play by some different rules. In Africa, Heineken not only operates breweries but also its own power and water treatment plants. That’s how the company overcomes a major African obstacle: the continent’s notoriously weak and undependable infrastructure. Heineken has learned that, while Africa poses substantial operating challenges for consumer products makers, those hurdles are not insurmountable. And finding innovative ways to clear those obstacles can pay off. In 2011, the company passed the €2 billion milestone for annual beer sales in Africa and the Middle East, and its EBIT margins there were 26 percent.
While many obstacles in Africa are similar to those in other emerging markets, our research shows that five of these challenges are more pronounced, requiring Africa-specific solutions: an underdeveloped infrastructure, a disorganized and fragmented retail landscape, a lack of reliable market research, unclear and ever-changing government regulations and a severely limited talent pipeline.
Through our research and experience working with market leaders, we’ve identified a range of effective approaches for companies to navigate this thorny landscape.
- Consider creative ways to bypass Africa’s poor public infrastructure, reduce operating costs and innovate to compensate.
Successful companies develop strategies to invest in their own reliable support systems when necessary and to offset the additional expenses. They buy power generators, build water tanks and even occasionally pave roads. They remain competitive by balancing the high costs of infrastructure solutions with rigorous cost and cash management.
Another creative infrastructure solution: product innovation. Promasidor, an African dairy, beverage and food enhancement company, developed Cowbell, a milk powder packaged in small sachets, in which they replaced the animal fat with vegetable fat to give it a longer shelf life, thereby diminishing the dependency on a cold supply chain. African children put the powder directly on their tongues, to overcome obstacles about finding sanitary water. Promasidor now is a leader in Nigeria’s powdered milk market.
The poor infrastructure also contributes to an uncertain supply of raw materials. Market leaders surmount this challenge by building strong supplier relationships or even becoming vertically integrated to stockpile critical materials, better manage costs and mitigate supply unpredictability.
- Develop multi-tiered models to route products to market and reach the largest number of consumers.
Leaders win a competitive advantage by having the flexibility and adaptability to accommodate a varied retail market. The vast majority of consumers still buy from traditional trade– small stores—and from informal retailers, unregistered sellers such as “hawkers” (street vendors) and “spaza shops” (run out of homes in South Africa). While modern retail is growing, it’s still is a fraction of the formal retail landscape.
To accelerate market coverage, many companies establish a network of trusted third-party distributors and wholesalers, teaming their own salesforce with distributors to ensure a measure of control. Some companies collaborate with traditional outlets directly to increase sales and improve distribution, and in the process, professionalize the way shopkeepers work.
In some categories, players bolster sales by encouraging unauthorized sellers to formalize their businesses. Brewer SABMiller helped illegal taverns in South Africa convert into licensed outlets, transforming off-the-books sellers into a thriving new retail segment.
Finally, winning players in Africa are proactively preparing for modern trade growth by investing in category management, joint shopper research and integrated supply chains.
- Gain a competitive edge by compiling your own information about Africa’s fast-evolving consumer or trade landscape.
There’s a dearth of data and insights about Africa’s diverse consumers and the retail environment. Leading consumer packaged goods makers gather their own information on Africa instead of depending on limited and not-so-reliable data from public research firms.
Olam, a global leader in agricultural products with a packaged foods business in Africa, is investing heavily to analyze the extreme differences among West African consumers, helping Olam tailor products to local needs and preferences and identify possible categories for new growth.
- Partner with local stakeholders—governments, businesses and communities—to establish credibility.
Market leaders collaborate with local business networks to deal with a business environment often hindered by bureaucracy, corruption, ever-changing regulations, as well as multiple currencies and protectionist measures.
To earn the right to influence local agendas and effect change, they appoint local business leaders to their board of directors, get listed on the local stock exchange and invest in community development.
- Out-invest in recruiting, developing and retaining local talent, especially mid- and top-level management.
Africa’s critical shortage of skilled professionals is mainly due to the population’s low education level and a troubling brain drain of the continent’s highly educated workers.
Leading companies make a substantial commitment to create a rich talent pipeline. They leverage their corporate reputation, brand strength and presence. Some companies also launch graduate recruiting and training programs and provide clear career development paths to increase skills and retention.
They ensure that salaries are correctly benchmarked not just against local competitors, but against companies in other fast-growing sectors that could raid their talent.
In addition to these solutions, pioneering companies have discovered that winning in Africa requires an entrepreneurial mindset, allowing them to easily adapt to unexpected roadblocks and opportunities, take higher risks than elsewhere and follow gut-level instincts to make less-informed decisions. To win in Africa, you don’t need to throw out everything you’ve learned, but you do need to foster a culture of boldness, agility and resourcefulness.
Culled from Bain.com. See original article here: http://www.bain.com/publications/articles/how-companies-can-overcome-africas-five-great-challenges-the-economic-times-corporate-dossier.aspx