Blog: Hard discounting set to grow in importance in Africa

Pioneered by Aldi and Lidl in Europe, the hard discount format has become a strong presence in a number of North African markets over the past decade: Turkish chain BİM now has a total of more than 800 outlets in Morocco and Egypt (opening 75 last year alone), while Groupe Slama’s Aziza chain has more than 250 stores in Tunisia. Until recently, this format was conspicuous by its absence in sub-Saharan Africa (SSA), but this is beginning to change, particularly in West Africa.

No frills retailing

Characterised by relatively small sales areas with no-frills merchandising and a relatively limited number of SKUs compared to a traditional supermarket, hard discounters also lean heavily into private label (accounting for more than two-thirds of BİM’s sales, for example).

Some, like Supeco, offer discounts for bulk purchases, making them an alternative to wholesalers for traditional traders. They also tend to differ from supermarkets in terms of location, often eschewing suburban shopping malls and prime locations in urban centres in favour of more accessible (and cheaper) sites in residential areas.

Carrefour and Mega lead the way

Carrefour’s Supeco banner in Francophone West Africa and Angola-based Mega Cash & Carry’s Arreiou banner have been at the leading edge of this trend. Supeco, which is franchised in the region by CFAO, currently operates three stores in Dakar and one in Abidjan and is set to enter the Cameroonian market in the near future.

During August, Mega Cash & Carry’s Arreiou opened its tenth outlet in Luanda – less than a year after the first. The fact that this banner has expanded rapidly at a time when the Angolan economy remains mired in recession (leading such rivals as Shoprite to close some stores) is particularly impressive.

“Hypermarkets and supermarkets are for the middle- and upper-class”

In late 2018, Jean-Christophe Brindeau, head of CFAO Retail signalled a shift in its strategy away from supermarkets and hypermarkets and towards a new “hybrid” banner – Supeco. He asserted that CFAO was pivoting away from hypermarkets in West Africa because even smaller hypermarkets of 4,000m² could not attract enough customers to be profitable.

He added that “Hypermarkets and supermarkets are for the middle- and upper-class, which represent 15% of the population. But these groups are not growing quickly enough, so we had to develop a new format” – stores with a sales area of 700-1,000m² and carrying no more than 2,500 SKUs that are positioned as a hybrid of the discount supermarket and cash-and-carry formats.

Please add Jara!

Another example of this trend is Jara, a banner operated by EDLP Nigeria Ltd. Billed as “Nigeria’s first discount supermarket,” it aims to “offer Nigerians a basic, but modern, clean, convenient and friendly store with good quality goods at low prices in order to enable the consumer to save money on their basic food needs.” Like Supeco, it offers discounts on bulk purchases.

“Jara” is a widely used slang term in Nigeria. According to website Pulse.ng, it “is a noun derived from the Yoruba language and it means to add extra or give a freebie after something has already been bought or paid for, at the seller’s discretion e.g. ‘Please add jara’” – in other words, a term with strong connotations of value. EDLP is owned by a group of Nigerian investors and led by Dutch national William Snollaerts, an Aldi veteran who also spent five years working in Russia before his appointment as Jara CEO in 2017.

It currently operates just two stores – in the Lagos suburb of Ikeja (opened in December 2019) and Benin City in Edo state (March 2020). In August, Isoken Omo, executive chairman of the Edo Development and Property Agency, told local media that EDLP was planning to open three more outlets in Edo by the end of this year. He commented: “The patronage has been so good that it has encouraged the company to expand its operations to other locations across the state. The mall (sic) is always busy and full.”

Economic stress plays to discounting’s core strengths

Covid-19 could act as a catalyst for the development of hard discounting in SSA. “Our Supeco format exploded with Covid-19,” CFAO’s Brindeau told magazine Jeune Afrique in June. “In these stores, average monthly turnover has risen by 80% since March … Wishing to limit the risks arising from coronavirus, many people have abandoned traditional markets and grocery stores to go to our stores,” he added.

Meanwhile, restrictions on movement introduced as a result of Covid-19 in such markets as Kenya and Nigeria, significantly impacted footfall at many malls and the supermarkets and hypermarkets that anchor them. More consumers are now shopping locally – either by choice or necessity – playing to one of hard discounting’s strengths.

More broadly, many have seen their livelihoods decimated over recent months, making them more value-conscious than ever. For example, a SagaPoll survey conducted in Kenya during May 2020 found that 26% of local consumers were buying less packaged food in the wake of Covid-19, while 41% had reduced their consumption of non-alcoholic beverages.

Supply chain and scaling remain problematic

However, there remain two significant challenges to be overcome before discounting can become established as a significant presence in the SSA grocery retail landscape. Firstly, economies of scale are particularly important to this retail model, and discounters in SSA face a huge challenge to grow their store networks to the point where they become profitable. For example, it took BİM almost a decade to open 300 outlets and turn its first operational profit in Morocco. Similar rates of growth will be very difficult to replicate in SSA, where retail infrastructure is frequently very underdeveloped.

Secondly, supply-chain management is notoriously difficult in SSA markets, where imports are often slow to arrive at their destination, heavily taxed, and subject to bureaucratic whims. Such impediments can quickly eat up the already-thin margins of hard discounters. Moreover, sourcing goods locally is often challenging enough in SSA, but sourcing private label is almost impossible in markets where FMCG manufacturing capacity is very limited.

It may take hard discounters a decade to become established in SSA

While hard discounters in Africa are not in a position to replicate the rapid growth of their European counterparts, this format’s prospects are nonetheless bright, and it could evolve into a significant element of the modern retail landscape over the coming decade. With its ambitious growth plans and experienced management, Jara will be a particularly interesting test case. If it can flourish in a difficult marketplace like Nigeria, retailers and investors may attempt to replicate its success elsewhere.