Adapting to succeed in Ghana’s disparate retail landscape

Achimota-Retail-Centre

Ghana’s headline-grabbing GDP growth rates fueled by an oil boom since the late 2000s have contributed to an increase in disposable income of the country’s consumer class, and spurred substantial investor interest from multinational companies (MNCs) keen to capture rising demand. As a result, certain parts of the country have witnessed a rapid transformation in the retail scene, with a dramatic improvement in the choice of goods now available to consumers. However, substantial differences remain between the retail landscapes of Accra and the rest of the country, indicating both the scale of the opportunity for MNCs but also the challenges facing foreign companies when trying to target certain segments of Ghanaian society.

MNCs should note that both in urban and more rural settings, consumers across the country remain price-sensitive, and therefore shopping at large South African supermarkets for most of their consumer products remains out of reach for the majority of Ghanaians. While Ghanaian consumers generally prefer western brands because of their perception of quality, price sensitivity among consumers means western brands face fierce competition from goods produced in emerging markets such as Brazil, China, and India, which are lower-cost and of increasing quality. As Ghanaian consumers become wealthier and more discerning, competition in the market will only increase.

However, the scale and convenience of informal markets in the country means that MNCs looking to capture a broader cross-section of Ghanaian consumers need to develop a distinctive informal market strategy, rather than relying on the growth in the formal retail sector to drive rapidly rising opportunities. While not every firm can and wants to sell on the informal market, companies should take this constraint into account when setting targets and expectations for the market.

The differing nature of the retail landscape across Ghana affects MNCs’ route to market strategies   

Accra offers by far the most varied and sophisticated choice of retail outlets in the country – in addition to ubiquitous informal markets and smaller scale mom-and-pop shops, several small to medium sized shopping malls have opened in Accra—including West Hills Mall, the largest in West Africa. This means MNCs can more easily pursue a strategy of setting up a presence in the formal market and their range of options is increasing as new outlets open up.

Most Accra malls are anchored by one or two large supermarkets, most commonly South African supermarket giants Shoprite, and Game, as well as other upmarket supermarkets stores include Marina and Palace. These chains offer a very large range of high quality—and often expensive—products and bear a very close resemblance to western style supermarkets; Marina Mall supermarket notably has a very large range of expensive French cheese, for instance.

These supermarkets also offer a large range of high quality durables Nevertheless, the price of products vary according to their country of origin, with more expensive items typically well-known western brands, while lower cost products are normally Turkish, Brazilian, or South African. This means that even as MNCs establish a presence in the outlets where more wealthy consumers shop, they will continue to face competition based on price.

Despite this wide choice and the boom in formal retail offerings in Accra, middle- to upper-income Ghanaians have not embraced western, mall-based shopping wholeheartedly.  Most consumers—even wealthier people with high paid, salaried jobs—will not buy clothes in a formal shopping mall, mainly because they perceive the products available as overpriced. In contrast, informal markets offer them a better balance between price, choice, and quality when it comes to clothing.  Most consumers also continue to buy fruit and vegetables from informal markets because they are much cheaper in supermarkets markets, and there is a widely-held view that the quality and freshness of food on offer at informal markets is superior to imported and refrigerated fruit offered for sale in large supermarkets. This can be a challenge for multinationals hoping that modern retail formats will draw consumers in, increase brand recognition, and drive sales. Without sufficient traffic into malls and other shopping centers, MNCs’ products could end up underperforming expectations, emphasizing the importance of companies working with distributors and wholesalers who can also tap into the informal market where appropriate.

Beyond Accra, MNCs need to adapt their route to market to suit less formal retail settings

The formal retail scene beyond Accra is much more limited. Kumasi—Ghana’s second largest city—saw the opening of its first formal shopping mall this year.  While on the surface, this represents a radical step forward for the city in terms of retail offerings, on closer inspection it seems that the city has a much further to go before consumers embrace culture of shopping in malls. During my latest visit to the new Kumasi city mall in May 2017, it became clear that, with the exception of the two (common) anchor stores of Game and Shoprite, at least half of the store units were empty, while most other stores were mobile phone shops or minor boutiques. One of the reasons for the lack of activity at Kumasi’s first mall is the fact that Kumasi has a vast informal central market, where consumers can buy most of their products.

The range of products in Kumasi’s central (informal) market is good, but in contrast to the formal retail scene, especially malls, for most products the offering is usually divided into two categories. Firstly, cheaper goods usually of Indian or Chinese origin are on offer. Often the quality of these products appears to be relatively poor. Secondly, consumers can also purchase more expensive, commonly-known western brands will be on offer with a typical price premium of 30-50% over the cheaper Chinese or Indian products. MNCs with access to the Kumasi central market are more likely to build broader brand visibility, especially if their products offer reliable high quality.  Our research finds that Ghanaian consumers resist buying second-rate products, and instead are willing to spend more on a product if they view the purchase as an investment in a high-quality product that is meant to last.

Going more remotely, into rural villages, similar principles to Kumasi Central market apply: the choice of basic, but high quality, consumer goods was fairly good, with cheaper, Indian or Chinese products available at lower cost. Even though most retail settings are quite rudimentary, and most products are available at stalls, it is relatively easy to find most common western brands, especially when looking for cleaning products and toiletries – this suggests that only the most sophisticated and large scale FMCG firms have been able to crack this segment of the market. Overall, the formal retail scene in these locations are in their infancy, with the lack of formal retail really limiting the range of products that can be sold – especially if they are perishable or need to be kept protected from the elements.

Conclusion

The disparate nature of the retail landscape across Ghana means that MNCs need to adapt their route to market structures in order to succeed in the market.  Following the transformation of Accra’s retail scene with the opening of several shopping malls over the last decade, companies are increasingly able to succeed in that city by relying on route to market structures that suit the formal retail landscape.  However, because Ghanaians retain a preference for informal retail settings, it is crucial for firms to adapt their route to market strategies accordingly in order to ensure they can capture larger shares of the enticing consumer market in Ghana.

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