A changing market for appliances

The continent's awareness of electronic devices is being driven by the increasing use of smartphones

It is a known fact that sub-Saharan Africa is showing strong signs of economic growth, partly driven by the demand for raw materials and resources, but also, which is critical for appliances markets, driven by a growth in population and the rise of the middle class. This is not only a fact, it is by its very nature a long-term given.

Though currently thin, sustained infrastructure investment and a subsequent increase in the service sector are adding to these accelerating factors.

As a consequence of this positive economic trend, market demand and changes in consumer behavior mean that the African appliances markets are an opportunity in volume as much as in market segments. This is further accelerated by the increasing level of awareness of appliances driven by the rapidly increasing use of smartphones: Africa is the second-largest mobile technology market after Asia and the fastest growing one.

Hence, despite the major challenges faced in the region - be it structural such as the prevalent weakness of the power grid, or temporary, such as diseases or political problems - we must point out that the International Monetary Fund is forecasting growth of 4.3 percent for 2015, sustained by a rapidly changing local market.

What do we see in Africa? It is clear that smartphones are driving the market in numbers, but other home and personal equipment, such as home appliances or consumer electronics, are performing well throughout the whole region, boosted by the rapidly expanding number of households and the rise of the middle class.

The home appliances market remains dynamic, if very price sensitive, but there is also a change in product mix with the expansion of a range of high-end appliances. Contrary to assumptions often heard, we are not talking about cheap markets.

In terms of competition, there are of course the traditional presences, but the dynamics, nature and developments in African markets mean that positions and opportunities are changing rapidly.

In particular, distribution and channels are seeing an increased presence of organized trade that is complementing and targeting new pockets of opportunities and changing the African appliances retail market. These are not only in the capitals' shopping malls, but also are spread out to secondary and tertiary cities. Traditional retailers are important in rural areas, but new chain stores offer a wider and deeper range of products and competitive prices, which cater to the increasing consumer awareness.

Distribution strategies are always a delicately balanced tactic between marketing and branding control against direct investment. Traditionally, agents and distributors have helped brands reduce their financial risk and exposure while delivering a distribution service. These kinds of distributors in Africa are experienced and powerful.

However, at a time when market positioning and branding are essential to success - more so than pure pricing strategies - the balance has to be tilted toward more direct involvement of manufacturers into the final sale of the product to the end-user to ensure continuity in branding and image.

Generally speaking, Chinese brands in Africa have established a reputation as good "value for money", but in a rapidly changing environment, it is important for all actors in the retail space to ensure marketing consistency.

Apart from the cultural specificities linked to food and social interactions, sub-Saharan African market peculiarities are mostly related to specific local challenges faced by the consumer on a daily basis: products, usage and destinations.

The main problem for African customers remains stability in power supply, especially in rural areas where around half of the population is concentrated. Sub-Saharan Africa's situation is one of the worse worldwide on that front.

Around half of the global population doesn't have any access to electricity, but when there is availability, too often it is unstable. This explains the existence of thriving generators markets, as well as locally attractive solutions for 24-hour operative freezers. Products do exist to specifically target these issues, ensuring operations even during blackouts.

Another major topic is the water supply. For home appliances, this means that water consumption is of direct importance to the African consumer. In a roundabout way, Africa is drawing nearer to current and relevant issues of green technology and energy efficiency.

Africa's current situation - the state of its markets, distribution channels and products - is similar to China's in 1995, where there was a strong rise in sales of electronic devices, of TVs, followed by refrigerators and after some years washing machines.

Thus far, there is an imbalance massively geared toward smartphones, though that also reveals big opportunities. For each refrigerator sold in sub-Saharan Africa, customers purchase two TVs and 34 smartphones.

Import duties are sometimes high for some products, but currencies are fluctuating, making imports (either components or full units) increasingly expensive.

The author is head of Home Appliance Sub-Saharan Africa, GfK.

(China Daily Africa Weekly 04/03/2015 page9)