17 December 2012

Africa - a Premium Trend

Branded consumer goods companies have an opportunity to participate in Africa's growth.

The traditional picture which is often painted of Africa - poverty, political turmoil and dire infrastructure - is beginning to look outdated. Real signs are emerging of a continent which offers extraordinary growth potential and rapidly changing consumer dynamics.

Infrastructure is improving by the day, large investments are being made in education and the population is growing, becoming more urban and increasingly brand-conscious. For a brewer such as Heineken, active on the continent since the beginning of the last century, growth is very much linked to demographic and economic development, as well as increasing political stability.

Therefore the change which Africa is currently undergoing offers an enormous opportunity for our business - and, of course, for other consumer companies.

We have seen time and again in Africa and other emerging regions that beer market growth is related to GDP growth. Africa has the world's second largest population and is estimated to have over 2 billion inhabitants by 2050.

The African beer market is forecast to grow by almost 50 percent over the next 10 years and by 2020 is expected to represent 7 percent of the global beer market. Beer is the alcoholic beverage of choice throughout Africa. However, the vast majority of African consumers are still buying unbranded, home-brew beers. Only one in five litres of alcoholic beverages drunk in Africa today come from professional companies. With the improvement in income Africans are now moving towards branded beers, whether they are local, regional or international. Furthermore, the rise of the aspirational middle-classes is leading to a rapidly increasing appetite for premium beers, which is why this segment of the beer market is the fastest growing in Africa.

One of the main reasons why the premiumisation trend is emerging in beer is because Africa now has 52 cities with populations of more than 1 million people - that is as many major urban areas as there are in Europe. It is estimated that 50 percent of all Africans will be living in cities by 2030.

So how is that changing the African consumer? Generally speaking, city-dwellers earn more money and have more discretionary spend. This shift, together with the growth of the middle classes, has created a significant rise in the number of brand-conscious African consumers.

This is further amplified by improved lines of communications and technology that connect Africa to the developed world and its popular culture. The new African consumer is aspirational and is drawn to branded products. All of these developments are driving the trend we are currently seeing where consumers are "trading-up" from home-brewed beers to local and regional power brands, as well as international premium brands such as Heineken.

The International Premium Segment (IPS), in which the Heineken brand is the biggest player globally, has seen impressive growth in Africa in recent years. Since 2005, growth of the Heineken brand in Africa has far outstripped that of the beer industry as a whole at a compound annual growth rate of 21 percent versus an industry average of 4 to 8 percent.

While we are admittedly starting from a relatively low base, the opportunity in Africa for brands such as Heineken is big and exciting. It is estimated that the African IPS will represent 20m hectolitres of beer in 2020, almost double what it is today.

As Africa continues to develop, and economic and political stability increases, branded consumer goods companies have a fantastic opportunity to participate in the continent's growth. But, as the emerging middle classes support and grow our brands in Africa, we have a responsibility to support local communities to help ensure that Africa's development is constant.

Various economic impact studies that we have executed in markets across Africa, show the positive impact that Heineken has on society, for instance by creating many thousands of direct and indirect jobs and by generating tax income. Heineken's commitment to improving local communities is clear - we already have 26 health clinics across the region; the Heineken Africa Foundation supports numerous local initiatives; we currently source 48 percent of our raw materials in Africa locally and aim to increase that to 60 percent in the coming years; and we have invested over $2.2bn in Africa since 2005. This is an investment that we believe will enable us to develop a strong, sustainable business in Africa and, equally importantly, will also benefit the development of this exciting continent.

Siep Hiemstra is regional president for Africa and the Middle East at Heineken.

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