Making adjustments: Retail and automobile growth exposes a wider logistics issue

Broad economic recovery, with real GDP growth at 8.7% in 2013 — albeit from a low base — bodes well for Côte d’Ivoire’s retail sector. According to the IMF, the country’s current positive macro-economic outlook is supported by “sustained strong domestic demand”, aided in part by low inflationary pressure of 1.2%. The forecast, combined with a gradual rise in household income, is set to encourage consumer confidence and, eventually, bring about a significant uptick in spending.

The early signs of a sustained long-term increase in retail activity are encouraging, with fast-moving consumer goods sold by official outlets, in particular neighbourhood stores, supermarkets, and shopping malls, seeing average annual growth in revenues of around 7% over the past two years.

Market Dynamics

As in most African markets, the informal sector dominates the local trading scene, accounting for more than 80% of retail activity. However, with recession impacting traditional core markets for multinational retailers in Europe and North America, a number of larger firms have been looking to Africa to help boost exposure to high-growth markets.

In mid-2013 French retail conglomerate Carrefour announced its entrance into the country with plans for the opening of its first hypermarket in 2015. While no official opening date had been set at the time of writing, the move marks a return of the group’s international growth strategy, which it rescinded in the 1990s when it withdrew from foreign markets such as Greece, Indonesia, Malaysia and Colombia, and will be the company’s first location in sub-Saharan Africa.

Carrefour’s Africa expansion is part of a partnership with CFAO, a French trading company with automotive, information technology, pharmaceutical and industrial subsidiaries, who has a 55% share in the venture. After the inauguration of its first store in Abidjan, CFAO expects to open another Carrefour commercial centre and four standalone locations across the country in the next few years. The move should significantly increase competition in the modest-sized formal retail sector, but should also bring benefits for local supply chains via sourcing. “We will be focused on local sourcing as much as our standards allow for it, in particular in areas of agriculture and livestock,” Xavier Desjobert, CFAO’s director of business development, told local media.

Other Players

The entry by Carrefour has triggered renewed spending plans by Côte d’Ivoire’s two largest distributors, Prosuma and Compagnie de Distribution de Côte d’Ivoire (CDCI), albeit in different niches. Both companies serve the middle and lower echelons of the market through a variety of retail chains. Prosuma, the country’s leading distributor, oversees 130 stores nationwide, ranging from general convenience to dedicated furniture, electronics and grocery retailers. Prosuma’s grocery store chain, Bonprix, accounts for a large number of outlets with 56 stores nation-wide at the start of 2015, of which 19 are in Abidjan, and 60% of total revenues for 2012. The number of stores is set to increase to 90 in the near term, according to company estimates, primarily driven by growth opportunities in small-sized towns across the country.

Miniprix, Prosuma’s minimarket brand, is also undergoing rapid growth. The company estimates that it will be operating at 168 locations across the country by the end of 2015, up from a total of just eight at the time of writing in early 2015.

CDCI also has a footprint in the general convenience and grocery segments. The company’s flagship chain King Cash, with 120 stores throughout the country, targets low-middle income households, although store footprints are typically smaller than those of Prosuma. The company announced a CFA3bn (€4.5m) investment plan in January 2014, primarily focused on nationwide expansion. “Our footprint of 120 shops today will have reached 200 within five years,” Yasser Ezzedine, CDCI’s owner, recently declared to local media.

To increase its reach, CDCI signed an agreement with Afrimarket, an e-money platform competing with traditional players such as Western Union and MoneyGram. The deal lays the groundwork for the instalment of Afrimarket’s terminals in CDCI stores allowing local shoppers to pay for their goods with money transferred from overseas sources, such as family and friends. At the time of writing, the service was available in Abidjan and some secondary cities such as Toumodi and Daloa. “Our ambition is to be present in at least 50% of our partner’s points of sale nation-wide,” Rania Belkahia, Afrimarket’s president, told local media.

Structural Issues

While the effort to increase formal retail should boost sales volumes and bring a measure of new competition to the sector, there is still plenty of scope for further growth. Large outlets, such as the 18,000-sq-metre store planned by Carrefour, account for only 6% of total annual sales, while the wider formal segment represents up to 20% by most estimates. The remaining share is in the hands of informal traders operating in outdoor and local street corner markets.

This is hardly unusual in West Africa, as Ghana, Nigeria and Senegal all demonstrate very similar dynamics. However, structural supply-side issues also constrain activity. Local distribution is largely reliant on road networks, which have suffered from under-investment during the years of unrest (see Transport chapter). The trucking segment is also heavily fragmented, dominated by single-vehicle owner-operators, and uneven distribution of production activity means that trucks will often only carry a full load one way.

Bottlenecks at the Abidjan port and border-crossings – through which more than 90% of retail goods enter – push up processing and delivery times. More recently, the transition of the outsourcing of port-based Customs clearance procedures to private contractors, such as UAE-based Webb-Fontaine in 2013, temporarily slowed handling. By May 2014 more than 600 cargo-carrying trucks were blocked at various ports due to alleged non-compliance. Daouda Doumbia, general manager of Soudure Industrielle et Pétrolière, told OBG, “Customs has slightly improved but it still remains a burden in terms of price lists and items valuation.”

The situation climaxed in May 2014 when the National Traders Federation announced a two-day strike in protest of the reforms, urging the government to step in. A resulting temporary compromise on inspections allowing for the entrance of much of the backlogged imports caused traders to resume their activities. “Margins have already been affected due to a multitude of new fiscal pressures on distribution and retail companies; this is causing much frustration among players which are likely to continue to be expressed through collective action,” Maher Safaoui, deputy-general manager of Société Abidjanaise d'Importation et d' Exportation, a local trading company, told OBG.

Car Sales

While the preponderance of informal sales contributes to the opacity of most consumer segments in Côte d’Ivoire, one area of clarity is car sales, as well as being a useful measure of household consumption among middle and upper-income segments. While informal secondary and grey market sales — a common practice in West Africa — are an issue, the number of formal car distributors has seen a significant jump in recent years. Following the resolution of the 2010-11 political crisis, new car sales jumped by more than 60% from 5246 units in 2011 to 8548 in 2012, according to the Interprofessional Automotive, Material and Equipment Association (Groupement Interprofessionnel Automobiles, Materiels et Equipements, GIPAME). Much of this demand derived from replacement of material and vehicles damaged or looted during the preceding aggressions. Similar restructuration activity across other sectors led to growth of close to 10% that same year.

In 2013 new car sales observed a slight drop over its 2012 performance, totalling 8159 vehicles. GIPAME calculates 2013’s figures “based on real demand and an indication for years to come”, according to a recent report from the association. By 2015 it predicts total annual car sales will have reached 9000.

Two main dealers dominate the automotive segment. CFAO Motors, a subsidiary to the earlier mentioned French conglomerate, sold 2462 vehicles in 2013, representing about 30% of local market shares. Its main competitor is Africauto, part of the Tractafric Group, a pan-African vehicle and equipment dealer, which managed sales of 1972 vehicles, equivalent to 24% of the year’s total sales. The remainder of the market is divided between four smaller players, including SOCIDA, which accounted for 12% of 2013 sales, ATC Comafrique (11%), SETACI (7%) and RIMCO Motors (6%).

Strong fundamentals and a return to political stability bode well for the retail sector’s near-term outlook. This is supported by the fast-paced rollout of investment plans of formal retailers looking to capture some of the large market share owned by a highly fragmented network of informal traders.

Despite structural supply-side issues, formal playersare also challenged by the lack of transparency on their target audience, in particular outside of the upper-middle and high-income segments. A significant proportion of the Ivorian labour force currently work in the informal market, especially agriculture, thus undermining the effectiveness of obtaining reliable national statistics on disposable income and consumer spending.