Creating demand: Activity increases in line with a shift to the formal sector

Outside of Abidjan and the major population centres, goods are sold almost exclusively by small operators in the informal sector, often in open-air markets. In the country as a whole, the informal sector dominates retail, accounting for an estimated 70-90% of all sales. Supermarkets and high-street stores are more prevalent in Abidjan, with the Lebanese community historically playing a central role in the formal retail sector. The two largest groups, Prosuma and Compagnie de Distribution de Côte d’Ivoire (CDCI), dominate the formal grocery sector with large supermarket chains and sales of CFA123.6bn (€185m) and CFA118bn (€177m), respectively, in 2011.

There is something of a dichotomy within the formal retail sector between those outlets selling luxury goods to the very rich and those selling to the mass market. The emerging middle class, however, is not particularly well-served. At the luxury end of the market, Ivoirian operators and products can thrive, as customers are willing to pay a premium for high-quality, domestically produced goods.

SALES: Retail sales have been progressing strongly, up 45.7% year-on-year by June 2012 as the economy rebounded from the 2010-11 crisis. Sales were also up a still-robust 22.6% on their June 2010 level, outpacing GDP growth over the period. Petroleum products performed particularly strongly, up 88.2% in the year to June 2012 and 46% since June 2010. Other products were up 20.5% and 5.1%, respectively, over the same timeframe, while food sales increased by 8.3% and 8%, respectively. Strong, double-digit growth is expected to continue over the medium term.

LEADING GROCERS: According to some estimates, as little as 3-4% of grocery retail sales are accounted for by the formal sector, so even a small shift in sales distribution could entail strong growth in the formal grocery sector given the low base effect. Supermarket chains have been rapidly building up their presence in large urban areas. In effect, this part of the market is a duopoly, with little in the way of meaningful competition, foreign or otherwise. As a result, margins are relatively high. Established in 1966, Prosuma is the market leader and operates a range of retail brands serving different segments. It is predominantly present in Abidjan and operates specialist stores, such as furniture, household goods, and wines and spirits. Among its most important chains are Trade Centre, Sococe and Cash Ivoire. It also operates a large chain of smaller, local stores under the Bonprix brand. Sococe aims to serve the mass market, while Super Hayat targets the middle class, and Trade Centre stores are located in more affluent areas.

CDCI, by contrast, tailors its offerings to the mass market and also serves the hinterland of the country outside Abidjan to a greater extent. To keep costs down, it imports many goods from Asia. Its stores are typically smaller than those in Prosuma’s stable and include many convenience stores. Several years ago, another, smaller Lebanese-owned retailer entered the market. Although it still has relatively few stores, Lebanese grocer U has managed to prosper by offering a competitive price-to-quality ratio.

AUTOS: Car sales are starting to recover, but remain far from their 1980s peak, at least in the formal sector. In 2012 members of the Interprofessional Automotive Association (Groupement Interprofessionnel de l'Automobile, GIPAM), the national association for auto sales that represents most of the formal sector, sold 8500 new vehicles, while a further 500 may have been sold but were not declared. By contrast, retailers were selling upwards of 20,000 autos per year in the 1980s. By 2005, sales had slumped to 3350, only to recover some of that lost ground by 2012, the sector’s best year since 1997. Outside of the passenger segment, truck sales are also down from their levels before the economic crisis, according to Georges Vandenbrouck, CEO of Carrosserie Industrielle de la Côte d'Ivoire. “For the time being, demand for vehicles has not reached pre-crisis levels, as local transporters lack sufficient cash flow or access to financing. However, exports to other African markets remain strong, given the poor state of roads in Cameroon, Chad, Congo and elsewhere,” Vandenbrouck told OBG.

The decline in auto sales by the formal sector masks the true trend in auto sales, however, as the informal sector has come to play a much larger role. Accounting for some 23,000 auto sales in 2012, most of which were second-hand, retailers outside the formal sector represent its main competitor. One effect this has had is to reduce the quality of the stock of vehicles out on the road. Many cars and trucks are very old, highly polluting and less safe because informal auto retailers do not adhere to the relevant regulations. A further complicating factor for operators in the formal sector is the slow pace of change to regulations. Vehicles with tinted windows are prohibited, for instance, and some vehicle brands licensed for sale the world over are not allowed in Côte d’Ivoire. Competition from the informal sector is also fierce in the market for auto parts, while counterfeiting is common and tends not to be prosecuted.

CHALLENGES: The most striking aspect of retail in Côte d’Ivoire is the centrality of the informal sector, which ranges from street vendors to large open markets and small road-side stores. While it is impossible to gauge the exact size of this sector with any degree of accuracy, it can be estimated by examining the difference between tax revenues and social security contributions. By this measure, it is thought that it may account for as much as 90% of the retail sector, and even more in certain sub-sectors.

While the emerging middle class should support the growth of formal retail establishments in urban areas over the coming years, deep structural issues mean the informal sector is likely to remain dominant for many years to come. Lack of quality infrastructure and persistent security concerns make the distribution of products throughout the country, particularly in isolated rural areas and in the north, a challenge.

Vendors often cannot rely on steady supplies of goods, and what they can obtain is expensive, due to high transport and logistics costs. Therefore, many smaller villages must be self-sustaining to a large extent, as even farm produce cannot be transported reliably.

By contrast, supermarkets in Abidjan stock a wide variety of imported products.

OUTLOOK: As the quantity and quality of the country’s infrastructure improves, the formal retail sector will be better placed to gain a foothold, particularly in Abidjan and secondary urban areas. In the informal sector, cash payments are the rule, although with mobile banking and the use of prepaid cards becoming more common, this is slowly starting to change in the formal sector. Increasingly, retail outlets in the country’s large cities can facilitate card transactions, although this service is far from ubiquitous as of yet.

Retail has benefitted from the return of political and economic stability, and growth is set to continue.

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The Report: Côte d'Ivoire 2013

Industry & Retail chapter from The Report: Côte d'Ivoire 2013

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