Despite glassy skyscrapers popping up at a rapid pace in the
country’s commercial capital Dar es Salaam, and annual economic growth
averaging 7 per cent over the past decade, the country’s middle-class is
still relatively tiny and scattered, according to
PricewaterhouseCoopers (PwC)’s inaugural publication entitled ‘So Much
In Store’.
The report studied the make-up of retail and consumer goods
industries in Tanzania and nine other sub-African countries with
apparently improving economies amid rapid population growth and
urbanisation.
It noted that while all these factors were helping to drive the
emergence of the middle class, the size of Tanzania’s middle class was
still small compared to the overall population of 47 million-plus, hence
pitting global brands against locally-made goods in a fight for
consumers.
According to estimates by the Planet Retail consultancy firm,
Tanzania’s consumer spending could nearly double over the next three
years, the PwC report said, adding: “Planet Retail expects annual
consumer spending to increase from $24.3bn in 2014 to $40.2bn by 2019.
However, for many local consumer goods manufacturers the market is too
small to only sell one product, which is why they tend to have sizeable
portfolios.”
“Home-grown consumer goods companies effectively compete with international brands.”
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Mohammed Enterprises Tanzania Ltd (MeTL Group) last year launched
its own soft drink, Mo Cola, pitting itself against the likes of
Coca-Cola. Its competitor Bakhresa Group, a diversified family business,
also sells its Azam Cola.
Similarly, a local firm, ChemiCotex, which is active in a variety
of categories, including oral care, cosmetics and food, competes with
global giants in toothpaste and other products.
Most international brands manufacture their products either in Kenya or South Africa and export to Tanzania.
PwC notes that although the shopping mall culture is slowly picking
up in Tanzania, there is still a big shortage of modern shopping
centres in the country.
“One of the first modern malls was the 19,000 square-metre Mlimani
City that opened in (Dar es Salaam) in 2006,” the report states, adding:
“Due to the limited number of A-grade malls, many international and
local brands trade out of smaller shopping centres and office blocks
with a retail component.”
Global and continental retail outlets such as KFC, Subway, Game
(South Africa), Mr Price (South Africa) and Baby Shop (Bahrain) are
already tapping into Tanzania’s middle-class population.
Local business leaders in Tanzania have mixed perspectives on the expansion of the country’s middle class.
A local tea company, Chai Bora, says that while there has been a
rise in incomes among the population, it has not had a material impact
on its business. “For the last 10-15 years there has been some growth in
the middle class, but there are almost 50 million people in this
country. If we had a middle class of one million ten years ago, now it
is 1.2 million,” Chai Bora’s Managing Director, Kapila Ariyatilaka, is
quoted as saying in the report.
“On paper that looks good because it’s 20% growth. But in reality
that growth is negligible compared with the overall population,”
Ariyatilaka adds.
“The shift from mass market brands to premium brands is very small.
For instance, our numbers don’t show that the person drinking our mass
market tea brand has now moved to the luxury brand. The volumes show
very marginal changes.”
For other Tanzanian companies, spending growth is, however, more tangible.
“If you look at our premium spirits business you will see it is
doubling every six months, and that really is an indication of an
emerging middle class,” notes Steve Gannon, managing director of
Serengeti Breweries which is majority-owned by Diageo subsidiary East
African Breweries Ltd (EABL).
“People’s awareness of premium brands is increasing ... From our
perspective, there is a group of people who are now learning about
luxury brands, and spending on those brands, and they are generally the
so-called emerging middle class,” Gannon adds.
Compared to some other countries in the region, Tanzania is less
developed and presents a far more challenging environment in which to
succeed in business, according to the study.
“However, not everyone has found success in the Tanzanian market.
In 2012, Kenyan retailer Deacons pulled out of the country citing
expensive rentals, long supply chain lead times, a small upper-middle
class and the generally high cost of doing business as the major reasons
for its exit,” said PwC.
“South African chain Shoprite also sold its three outlets to Nakumatt, describing its operations in Tanzania as unprofitable.”
Distribution is a major challenge for consumer goods manufacturers,
given Tanzania’s vast size, poor transport infrastructure and
predominantly rural population. Companies wanting to reach the mass
market have to invest heavily in their route to consumer systems.
“The consumer culture here will change significantly in the next
few years. The small mom-and-pop stores will exist, but the emerging
middle class, which I think is growing deceivingly quickly, will not
want to shop at Kariakoo market. They will demand a more comprehensive
retail experience,” says Farouk Jivani, CEO of office supplies and
electronics distributor DESPEC.
Correct product pricing is critical for success in Tanzania.
According to local retail business experts, price generally trumps brand
in Tanzania.
“I would say about 30% of the population is brand conscious, but
everybody is price conscious. You cannot overprice your products
otherwise the consumer will move to the next available option. You may
have a strong brand and excellent quality, but still price has a place,”
said Ariyatilaka.
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