OBG talks to Laurent L Philippe, Group President of Central and Eastern Europe, Middle East and Africa region, Procter & Gamble

Interview: Laurent L Philippe

What can be done to improve formalisation in distribution and retail chains?

LAURENT L PHILIPPE: The shift of fast-moving consumer goods’ (FMCG) geographic footprint in emerging markets is driven by rapid social, economic and demographic development. Modern trade in sub-Saharan Africa is rapidly developing with recent entrants to the formal retail landscape like Walmart and ShopRite. However, the informal sector remains a significant component of the FMCG market in this region. A progressive FMCG producer can support the formalisation of the distribution chains in many ways by investing significantly in the country with state-of-the-art factories that produce flagship brands. Industry players can invest in the sustained training of distributor and partner networks. Effective distributor operations not only effectively serve the burgeoning formal sector but also transform the informal sector through deeper penetration into remote areas outside of larger cities, coupled with sustained training and development of owners of small and medium-sized businesses.

How challenging is it to understand consumer habits in countries with large informal sectors?

PHILIPPE: Consumer insight is pivotal for any FMCG business model across the globe and a deep understanding of consumers is crucial to winning in this market. A marketing strategy based on local consumer insights coupled with macro-economic factors and indices enables innovation for the African consumer. With a population of over 160m, the Nigerian market is the largest in sub-Saharan Africa. Furthermore, with over 12m children under two years old, this market is dynamic. In an environment like this, consumer understanding is even more important and requires a focus on data quality, nationally representative population samples, data validation, analytical depth and insightful qualitative understanding. A dedicated team of young market researchers located on the ground in Nigeria is key to staying in touch with consumers and market trends.

Given the price sensitivity of emerging market consumers, how much of a factor is brand loyalty?

PHILIPPE: Price sensitivity and brand loyalty are important factors in emerging and developed markets alike. Our experience in emerging markets reveals that brand loyalty is built on superior product performance rather than price. Our lower-income consumers tell us that they cannot afford to make mistakes with cheaper, poor-performing brands. In many ways quality products and good value become even more important when discretionary spending power is lower.

It is important to cater to the entire range of consumer segments by offering different product tiers that provide the best value for each segment. This tiered approach for a low-income buyer in Africa often calls for innovation around unit sizes and packaging. Examples include low-count diapers or small sachets of detergent. Working in these markets requires more than an understanding of spending power. Serving communities effectively can have larger societal impacts.

How do you assess the relative challenges of local procurement versus importing raw materials?

PHILIPPE: Local procurement of raw materials is a prerequisite for long-term business growth in Nigeria, and this strategy is two-fold. First, international suppliers can invest in a more sizeable on-the-ground presence and make bigger commitments to the country. Second, the FMCG industry can work with various Nigerian firms to localise materials. However, bringing this plan to life requires several enabling factors, such as investment incentives, affordable energy generation and adequate infrastructure. Also, not all materials can be sourced locally in any given country, depending on the availability of natural ingredients and other factors. For importation of these externally sourced raw materials, we need to have an efficient port, clearance system and reduced trade barriers. We recognise the steady improvement on these fronts in Nigeria and expect this positive trend to accelerate to strengthen supply chain efficiency.