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Key factors for multinationals to succeed in Africa

June 2014

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Goals and strategy of the survey

XXXXX is a major player in the North African food industry, with an especially strong presence in Algeria

and Morocco.

The sub Saharan area is significantly less known by XXXXX. The latter would like to use the best practices

of the successful multinationals in this area as a reference.

Therefore, Infomineo helped XXXXX:

• Selecting companies based on their Sub Saharan results

• Conducting a search for each actor in order to pinpoint the most differentiated practices

– Press

– Web

– Annual Reports

• Deepening some transversal issues

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Executive Summary: main key factors for multinationals to succeed in Africa

After studying published reports about the subject and analyzing the strategy and the marketing positioning of 5

multinational companies in Africa (Diageo, Nestlé, Imperial Tobacco, Unilever et Beiersdorf), Infomineo identified 3

categories of success factors:

After several years of presence with their international standard products, leaders developed specific offers for Africa:

• Appropriate products for vitamin deficiencies, like the Blue Band margarine of Unilever, fortified with A vitamins, or the

Maggi Cube, enriched in iron

• Introduction of « small unit packs/low price », like the Nescafé single dose sold at 1/20 of the big glass jar price

• Launch of « entry price products » targeting the BOP category like the Senator Keg beer, sold at 1/5 of the standard

brand price

The road to market investment and marketing are also both crucial to deliver districts and areas with obstructed

access:

• RTM adaptation to the local market

– Microfinance model that enables product distribution to unserved rural areas, as Unilever does in Kenya

– Door to door communication campaign in Soweto made by a specialized agency

• POS with promotional offer (Beiersdorf in Ethiopia)

Finally, these leading companies invest in local assets:

• Development of the product offering and of the market access thanks to acquisitions (ex of L’Oréal with Nice and

Lovely)

• Setting up of an integrated value chain

– Use of local raw material, for instance, using corn instead of barley in beer

– Local production of the products – 27 Nestlé factories in Africa

• Investing in local human resources and knowledge transfer

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UNILEVER: A success based on the strategy of product differentiation (1/2)

Product and Pricing Adaptation

• Blue Band and Rama margarines are fortified with 7

vitamins, especially A vitamins

– 33% of the people in the African region, including 43 million

children, have a vitamin A deficiency

– A argument which Unilvever capitalized on at sales premises

• Standard products adapted to a wide public and used by

the entire household

– The Cacao Butter Vaseline was created specifically for

Africa and is adapted to black skin.

– Unilever recommends this Vaseline for both men and

women and with no age restrictions which enables an entire

household to use it.

• Knorr differentiates itself with its "Baking Bags", special

culinary seasoning, particularly popular in Latin America

(Rustic Mediterranean, Paprika…)

– A higher range product (1,4£ per unit) adapted to the middle

and high social class (revenues greater than 700$/month)

• Establishment of "small unit packs/low price concept"

sales of small OMO and Blue Band bags for less than 10

cents (USD)/bag.

Identity • Biggest consumer goods

provider in Africa.

• 7,3% of annual growth from 2010 to

2011 for the Emerging market area

(Including Africa)

• An annual turnover growth of 400

millions of Euros

• 57% of its business is done in this

area

• Unilever generates annual sales

volume of 5 milliards of euros just

in Africa

Cacao Butter Vaseline

PLV Blue band

30g Packaging

Cooked product in a bag

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UNILEVER: A success based on the strategy of product differentiation (2/2)

• Unilever conducts targeted activities in schools to educate

about nutrition

– Raising awareness on the importance of healthy nutrition for

parents and children at school level by presenting Blue Brand as

a major asset for their growth

– « Blue Band puzzle Challenge » in Uganda: a 500 piece puzzle

to raise children awareness about nutrition in 700 different

schools

– Children’s day under the theme « Every Child Has Potential »

in Nigeria. The winners of « Blue Band essay competition »

received Blue Band products, promotional T-shirts, and Blue

Band backpacks and pens

Marketing & Sales

• Unilever brought from India the microfinance Shakti "direct to

Customer distribution scheme", a system consisting of door

to door sales.

– Unilever is planning on hiring « tens of thousands » of sales

people, by starting with Nigeria and Kenya ( after seeing this

system’s success in India)

– The company is putting in place a microfinance system.

– They involve the vendors (men and women) by ensuring an

average profit of $15 to $22 per month.

– According to the EVP for Africa ”Informal sellers form the bulk

of Africa’s retail landscape and it therefore makes sense to sell

our products through them…. to the BOP consumer.”

• Establishment of a door to door sales system, in deployment

phase in South Africa for brands such as Knorr, Lipton, etc…

– Use of specialized companies with up to 10,000

representatives such as Soweto.

• Creation of a hairdressing school to train hairdressers and

test products

– 5000 hairdressers trained per year

– Initially in South Africa but planning to deploy elsewhere

« Every child… » Competition

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Identity

DIAGEO : A success primarily due to large investments in « route to market » (1/2)

• Present in over 40 African countries

with a sales volume of nearly 2.4

billion dollars and a 13% growth

(2010/2011)

• Diageo employs more than 5300

people in Africa of which 43% in

West Africa.

• Owns 13 breweries in Africa

• 65 % of raw material supplied from

Africa

Product and Pricing Adaptation

• Adapting product ranges and price levels based on different

population categories, Senator Keg : the beer from BOP

category

– Launch of beer in Kenya in 2004 along with the election of

Barack Obama as Illinois Senator : Senator Keg beer, known

simply by drinkers as "Obama".

– Use of local raw materials and production at a local

subsidiary "EABL" East African Breweries Limited

– Packing in jugs rather than in bottles (one bottle costs 10

pence) "I like the way it is served - from a jug, instead of a

bottle. Most people think you get a larger serving from a jug"

– Promotional plastic mugs put at the disposal of Outlets in

order to serve beer.

• The Johnnie Walker whiskey for the rich and middle

– Mainly sold in 12,20, and 35cl formats

– Sales growth of 34% in 2010-2011

• Adapting marketing revenues and positioning : The Guiness

beer consumed on Africa "Foreign Extra Stout" is different from

the original product.

– Originally made from barley, this one is made from maize

and sorghum.

– An alcohol content of 7.5% instead of 5% “Guinness brings

out the power in you!” A very masculine iconography,

inspired from international standards

Plastic glass ofSenator Keg beer

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Marketing & Sales

• Maintaining control over the "customer experience"

– In Nigeria, Diageo sells its products only to distributors, but

invests in the training of tens of thousands of retailers free of

charge

Corporate & Organization

• Licensed Production

– Brewing beet at third party operators in 16 African countries

• Establishment of an integrated value chain

– Sourcing in Africa : 70% of raw materials supplied in Africa

– Local Production: 13 breweries in Africa, 15 bottling plants, a

glass factory, a malt, and a glass fabrication factory.

• Investment in local HR : Over the last five years the rate of

African managers has increased from 30 to 70%

– Development of the "Global leadership graduate program" for

high potential in Africa: 140 candidates in this process

DIAGEO : A success primarily due to large investments in « route to market » (2/2)

Operating Models Nb %

License Brewing 16 36%

Subsidiary 7 16%

Associate 2 4%

Third party distributor 21 47%

Total 45

The beer called « Obama » stored in drums

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Identity

NESTLE : Innovating pricing strategy(1/2)

• Nestle has been present in Africa

for more than 100 years

• Products that seem well adapted to

Africa (Nido, Maggi …)

• From 2010 to 2011, sales in Africa

experienced a 20% growth rate

Product and Pricing Adaptation

• Maggi cubes, Nestle’s bestseller in Africa, are adapted to Africa

and to each of their

– Popularly positioned product (PPP)

– 16 billions cubes consumed annually in Africa (2012)

– Annual production of 16,000 tones for the only factory in

Dakar (2012)

– Affordable prices for local population, about 4

cents(euro) for 2 cubes

– Fortified cubes following deficiencies of the local population

(Iodine, iron, zinc, and vitamin A)

– 35% of the African population has an iodine deficiency

and 30% have a deficiency in iron "Frits Van Dijk" EVP

Nestlé.SA

– In the Republic of Congo, Maggi cubes are fortified with

Iodine

– In Nigeria, the cube is fortified in Iodine and Iron ( 15%

daily intake for a family)

– Adapting recipes and tastes based on local population

– Standard, tomato spices, onion spices, shrimp …

– Maggi gives the illusion of eating meat for those

customers who cannot afford it (effect of sodium

glutamate)

• Packaging Nido powdered milk and Nescafe coffee in small

sachets accessible to the poor

Nido 26g bags

Coffee pods

Unit Maggi Cubes

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Marketing & Sales

• Diversification of distribution methods

– Nestle has installed 1,500 ice cream vendors on the streets of

South Africa ( bicycles, advertising aprons …)

– A network of 5,500 door to door vendors in West and Central

Africa

– Establishment in Thailand of a micro-credit system managed by

the "Bank of agriculture & agricultural Cooperatives"

– Obtained a loan for the acquisition of a coffee cart "Nescafé

Street Barista"

• A major advertising presence in Africa

– The Maggi Logo is present in shops, it covers the tables of

eateries, adorns plastic bowls and is seen everywhere in street

markets.

NESTLE : Innovating pricing strategy (2/2)

Corporate and Organization

• Three year investment plan of 893 millions euros between 2010

and 2013

– Encourage local production

– Move from 30% to 40% utilizations of local raw materials in

three years ( 2013 declaration made by Jose Lopez, No. 3

Group )

– Development of a better quality cocoa plan (provide

operators with 1 million plants per year over a period of 10

years)

– Establishment and strengthening of production units in

Ghana, Angola, Nigeria, Mozambique and DRC

– Lighten the logistics and costs

– Establishment of « finishing factories » for the performance

of the last stage of production namely packaging.

Maggi advertising aprons Restaurant sign-board accompanied

with Maggi Logo

Maggi Logo on the walls

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Identity

BEIERSDORF : Leading POS and marketing pioneers 2.0 (1/2)

Product and Pricing Adaptation

• In 2014, launch of the « NIVEA Cocoa Butter »

– A product range enriched in cocoa butter (Vitamin E)

– An « affordable luxury » positioning, broadening the middle class

target

• A very affordable price for the basic range (Nivea Care soap 35 cents

)

• A variation of products in small sizes (100,200, and 400ml)

• The frequent use of moisturizing cream by the African population

induced the creation of a pocket-friendly packaging, well appreciated

by the consumer

Marketing & Sales

• Major advertisement at sales locations

– Displays, posters, distribution of samples bearing the Nivea

brand logo

– We will add pictures of this in the final deliverable

• A « Road Show » campaign in the major cities of Kenya

• Very active on the internet and especially on social networks

– A flash MOB was organized in Nairobi, Kenya, resulting in

positive feedback from the residents of the city

• Growth of 19% (2010-2011) in the

emerging market area (including

Africa). They are known for their

innovative pricing strategy and product

offerings.

Skin Massage to a guest

at the event « flagship

rebrand »

Crème Nivea Pocket-

Friendly

100 years Nivea Skin care -

Kenya

Nivea Cocoa Butter Cream

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Example of products and prices in Ethiopia

Nivea Cream 150 ml

• @ 50 ETB (1.9 Euro)

• Best seller: very popular,

available, affordable, very

good quality

Nivea Body Milk 200 ml

• @ 65 ETB (2.5 Euro)

Nivea Soft 200 ml

• @125 ETB (4.8 Euro)

Nivea Deodorant 150 ml

• 65 ETB (2.5 Euro)

• Popular product and

affordable

BEIERSDORF : Leading POS and marketing pioneers 2.0 (2/2)

A significant presence on shelves One of the only brand massively

found on sales locations

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Identity

IMPERIAL TOBACCO : Significant M&A and an adaptation of packaging and flavors

Product and Pricing Adaptation • Product adaptation to the tobacco produced in Africa

– African tobacco has a bitter taste

– Creation of flavored cigarettes to mitigate the bitterness

– This adaptation concerns average and upscale cigarettes

• Adapting the packaging size to the purchasing power

– Fortuna and Gauloise launched packs of 10 cigarettes

– Sales per unit are the major growth vector for this industry

– In 2014 launch of new products in Morocco

– Marquise rolling tobacco 11g (1 euro) for 20 cigarettes

– Marquise tobacco pot 55g (5,5 euro) for 110 cigarettes

– Gauloise tobacco pouch 10g (1,2 euro)

– Future launch of MQS (fusion between Marquise and Parker

& Simpson), 1,5 euro the pack of 20 cigarettes

Marketing & Sales • Effective communication and marketing campaigns

– Distribution of free cigarettes to young people

– Sponsoring of cultural and sports events

– Funding of student scholarships

Corporate & Organization • Significant M&A activities

– Acquisition in 2001 of 75% of Tobaccor SA ( "Tobaccor")

– Involved countries include : Central African Republic, Chad,

Congo, Gabon, Burkina Faso, and Senegal

– Acquisition in 2008 of Altadis (Morocco)

• An average growth of 8% in Africa and

the Middle East (2010-2011)

• Revenues from 2001 to 2011 multiplied

by 5

• 11 factories in Africa, one transformation

plant, and 2 printing facilities

• Directly employs more than 12,000

people in Africa

The main brands of the group

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Some cross-functional issues(1/2)

Questions asked Response Example of an entry-level product : 1/5 of the standard product’s

price

- Product Entry Price Point (EPP) : Senator Keg Beer $0.2

- Product StandardIndex: Tusker Beer $1

Example for Small unit packs (Nescafé, Omo, Tide…)

The products sold in « small unit packaging » represent an average of

1/5 to 1/20 of the standard format price.

Weight of this business entry point on the

total company turnovers

No relevant information was found via secondary research

It was noticed that multinational companies that set up in Africa first

start by offering their standard products and subsequently adapt their

products, packaging, and pricing.

Example of the Senator KEG beer in Kenya

- Market saturation for « Tusker Bier » in Kenya

- Launch of Senator Keg in 2004 to expand its market share

- Through the introduction of Senator Keg, Diageo was targeting 60%

of the Kenyan consumers, who only drank illegal alcohol.

Example of l’Oreal with Nice and lovely

- L’Oreal’s presence in Africa dates back to the 1960’s, with its

standard range of products (L’Oreal Paris, Gemey etc)

- Acquisition of Nice and Lovely in 2013 to develop entry-level products

Positioning selling price to the consumer VS

subscript basic offer

Development phase : « premium » offer or

entry price ?

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Some cross-functional issues (2/2)

Questions asked Response

Use of door to door system on regions already

covered by traditional RTM ( shops… ), in

capital cities, or in non accessed regions?

Double role of door to door system coverage

- Urban areas : Focus on product promotion and brand awareness,

little or no direct sales

- Rural areas : Focus on direct sales

Role of vendors towards total sales strategy? No relevant information was found via secondary research

What weight do capital cities have in the

business ? Construction history of

geographical coverage within a country ?

We observed that most multinationals first developed their business in

major cities. It is only when they were able to find the right « route to

market » that they started developing in rural areas.

- P&G in Nigeria focused on Lagos, Abuja and Port Harcourt

- Danone’s Danimal product is mainly sold in large cities and regional

centers in South Africa, rather than in rural areas.

No statistics available for turnover shares in rural VS urban areas.

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Annex

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Summary of the BCG Winning study in Africa

Reach the African

Consumer

Anchoring Africa in its corporate strategy

Engaging towards Africa

Invest in African

potential

Master the African

diversity

• Put into place a strategic

vision for Africa

• Keep a good watch on

business

opportunities(M&A)

• Commit to and strengthen links with

local partners

• Align with African growth

• Move towards local production and

the « Made in Africa » as well as

social inclusion

• Develop a product offering that is

adapted to Africa

• Create generator brands with added

value

• Master the distribution channel • Segment and prioritize African

markets

• Focus not just on one segment but

rather organize as to focus on

various opportunities

• Adjust the business models

• Significantly invest in market

intelligence

• Anchor risk management into

business management

• Significantly invest in local human

resources

Success

in Africa