Robust growth woos local firms to Africa

The newest frontier ripe with growth opportunities is an ocean away but several Northwest Arkansas-based companies are poised to benefit from these burgeoning economies within sub-Sahara Africa. 

Earlier this week, Wal-Mart’s South African business unit known as Massmart Holdings, confirmed it is in talks to take a majority stake in the Kenyan grocer Naivas and 28 stores. Wal-Mart paid $2.4 billion for a majority stake in MassMart Holdings just two years ago.

But as other retailers like Carrefour have been making deals to carve out their own African territory along the Ivory Coast, analysts said it’s likely Wal-Mart will pull the trigger on more acquisitions in the grocery arena in the next year or so.

Wal-Mart does not comment on pending deals. But it’s business partner MassMart did say the firm met recently with several important players in Kenya about building relationships in that region.

RIPE OPPORTUNITY
Economists agree that strong economic growth rates across multiple African economies are creating a new middle class of consumers and possibilities for retailers, supply chain experts like CaseStack, and agricultural food companies like Cobb-Vantress, owned by Tyson Foods.

Over the past decade, six of the 10 fastest growing economies are in Africa, which has already prompted some of country’s largest firms like Wal-Mart, Procter & Gamble and General Electric to invest in sub-Saharan regions. Kenya, home to Naivas, is expected to post economic grow of 6% this year on top of 5% gains from 2012.

Massmart Holdings released a sneak peak of its six month earnings on Tuesday (Aug. 13). The company said its first-half earnings rose by as much as 57%, lifted primarily by favorable exchange rates. The retailer expects headline earnings between $2.18 and $2.34 per share for the 26 weeks to June 23. This compares with $1.49  earned a year earlier. The firm said it would give greater details on the results when it releases the full report Aug. 22.

Dan Sanker, CEO of Fayetteville-based CaseStack, recently traveled to South Africa to meet with retailers and product companies like Procter & Gamble about the challenges they face in the highly fragmented markets across sub-Sahara Africa. Sanker sees real possibilities for his third party logistic firm to provide supply chain solutions to both retailers and suppliers doing business in Africa.

“There is tremendous potential on the large continent but most of the retailers began with a focus on a particular region, working with partners if necessary to navigate the fragmented supply chain,” Sanker said.

The status quo for the retail supply chain gaps that exist in Africa mean products are “usually” available,” he said.

“This isn’t up to the standards American companies have come to expect.”

Sanker said the barriers to entry into Africa are lower than in China and other parts of Asia. However, Africa’s growth rates often rival those in Asia, grossly outperforming the U.S. and Europe rates over the past several years. He cited a 2012 global retailing report compiled by Deloitte and STORES Media, that shows the top 250 retailers based in Africa and the Middle East posting composite growth over 15% for the past five years. This compared to a 6% average of the top 250 worldwide retailers.

SUPPLY CHAIN GAPS
Sanker said if CaseStack has a client that wants to “hit go” tomorrow on an African retail or product sales expansion, his firm is ready to help.

“In talking with several retailers in South Africa, it was clear that visibility within the supply chain is lacking. Our technology and warehouse hub system used in the U.S. is a good fit for smaller suppliers and retailers and could work quite easily in South Africa.”

He said the technology piece includes seamless language and measurement translations to facilitate users on either end of the communication link.

Sanker said forecasting tools, like those his firm provides, also helps shore up product inventory discrepancies. And the final mile piece of the supply chain which can wreak havoc with online sales could be addressed with a trusted carrier system. In many parts of Africa the postal service is unreliable and some retailers commented that up to 50% of packages are lost (likely stolen) or are otherwise never delivered. He said this has prompted retailers to experiment using multiple carriers and charging the buyer with a delivery fee of out $4.

As Africa has quickly adopted mobile technology, those retailers and suppliers who can conquer the home delivery are poised to win favor and market share among the continent’s 800 million or so cell phone users. In a nation of 1.08 billion, cell phone penetration is expected to surpass 80% this year, according to ABI Research.

FOOD DEMAND
With the economic conditions in Africa improving, there has been a huge increase in the demand for poultry throughout the sub-Saharan region.

This has not caught Siloam Springs-based Cobb-Vantress by surprise. The Tyson Foods subsidiary has been a breeding stock distributor in central Africa since 1962 through a partnership with the Irvine’s Group, based in Zimbabwe.

“It is our belief that poultry production will increase tremendously over the next decade and to tap this market a new organization, Cobb Africa, was formed in June 2009 to export parents and hatching eggs to developing African countries,” the company noted in an internal newsletter earlier this year.

Cobb is also busy in southern Africa. With southern African countries importing substantial volumes of chicken meat, there is great potential for their own production to double or even triple over the next few years, according to Pieter Oosthuysen, regional manager for Cobb.


There are about 150 million people in the developing countries of southern Africa and most are not self-sufficient in chicken production and competing with imports, This affects local meat prices through oversupply, Oosthuysen said in March.

“If the same rate of chicken consumption of South Africa is applied to Namibia, the current production would need to increase three fold over the next few years to meet the demand. The biggest limiting factors in developing these markets are lack of infrastructure, shortages of raw materials such as maize and soybeans, and availability of water,” he said.

Oosthuysen said there are Cobb grandparents operations with Hybrid Poultry in Zambia, Irvine’s in Zimbabwe and Pioneer Foods and Rainbow Farms in South Africa. Cobb Africa, based in Johannesburg, South Africa, supplies most of the sub-Saharan countries directly from its operation in Zimbabwe or from Europe. They are involved in supplying hundreds of thousands of day-old broiler chicks in Africa per week.