Entrepreneurship Zone: 08 February 2023 :: Three trends shaping Africa’s informal retail sector

Wed Feb 8 09:44:55 CAT 2023

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Entrepreneurship Zone: 08 February 2023 :: Three trends shaping Africa’s
informal retail sector

·          

It is estimated that in Africa, over 70% of food, beverage, and personal
care products are sold through informal channels such as open-air markets,
kiosks and table-top sellers. However, despite their importance, informal
shopkeepers have been held back by a host of challenges, including frequent
stockouts, limited access to capital, and difficulty receiving goods from
suppliers. In this article, Tridiv Vasavada, chief technology officer at
Wasoko – a company that connects informal retailers to manufacturers of
consumer goods through digital channels – explores three trends shaping the
industry.

1. Smartphones: A new normal for informal retailers

Over the past decade, the supply chain of Africa’s informal retail sector
has undergone a gradual process of innovation, with retailers becoming more
accustomed to new methods of ordering products via SMS and sales agents.
However, 2022 marked a turning point for customer readiness towards
tech-enabled solutions, with smartphone and app adoption reaching
unprecedented levels, particularly in Kenya, Côte d’Ivoire and Tanzania,
where smartphone adoption rates are projected to reach 68%, 67%, and 61%,
respectively.

This trend, which has mainly been concentrated in tier-one cities, is
expected to accelerate into smaller cities and potentially rural areas. One
potential obstacle could be the affordability of devices, but given the
significant economic benefits of mass smartphone adoption, there is growing
interest from governments, NGOs, and telecom operators in delivering
subsidised access. Over the coming year, this will play a crucial role in
driving a new level of convenience and efficiency in Africa’s $850 billion
informal retail space.

2. An emerging class of market leaders

Traditionally, informal retailers in Africa have offered a limited range of
essential goods in small quantities to accommodate for the size of their
stores, which can range from as little as 1m2 to 30m2. However, with the
growing availability of credit from fintech platforms, we can expect to see
more retailers expanding their businesses, resulting in an emerging class of
market leaders, similar to what we’ve seen in more mature markets like India
and Vietnam.

It’s important to note that these expansions will also need to be driven by
a rise in consumer demand. This transition will likely be more gradual, due
to factors such as rising food prices and challenging economic conditions
throughout the continent. Therefore, it may take a few years for the market
to fully evolve in this area, but a growing cluster of informal retailers
are still expected to make significant strides in building more competitive
businesses.

3. The evolution of logistics networks

Currently, millions of retailers are being constrained by a heavily
fragmented logistics industry characterised by unreliable deliveries and
unpredictable prices, which can often be dependent upon relationships.
However, as informal retailers expand their businesses, they will naturally
require faster and more efficient supply chain networks to keep up with
their demands, opening the door for more standardised and efficient service
providers to cater to their needs.

With this in mind, it is anticipated that there will be a stronger drive
from digital platforms – which have been at the forefront of innovation
within the logistics sector in recent years – and wholesalers to fill this
gap in the market. In 2022, wholesalers began to increasingly expand into
areas such as docking (handling of the goods at the port) and last-mile
delivery, providing their customers with a more holistic service offering.
As Africa’s informal retail sector experiences greater consolidation, it is
expected that there will be even more competition between these different
players in the logistics industry, which will ultimately benefit local shop
owners.

Howwemadeitinafrica

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