Organisational ambidexterity- the way forward to conquer retail in Africa - CNBC Africa

Organisational ambidexterity- the way forward to conquer retail in Africa

Special Report

by Girland Chibaya 0

Africa's largest mall opened today in Midrand, the Mall of Africa. PHOTO: Waterfall City

Retail in South Africa is regarded as a growth sector of the economy and a major employer. Statistically, it is a sector which is more volatile to cyclical changes and global economic conditions than many other sectors.

It is the fourth largest contributor to Gross Domestic Product (GDP) with a contribution of around 13.3% and employs around 19% of the total active workforce of the country. Expansion within the country has reached a ceiling in some of the retail sector. Malls are being built every day in South Africa at a fast rate.

Research has shown that South Africa has more than 2 000 shopping centers covering 23 million square meters. The country now has the sixth-highest number of shopping centers globally which is a concern for retailers because opening up more stores will not necessarily add more sales but cannibalize sales from existing stores.

The solution has presented itself in the form of growth opportunities into the fledging Sub-Saharan African. These emerging market economies offer a plethora of new growth opportunities for South African companies in the retail sector.

Some companies such as Shoprite Checkers, Mr. Price and Spar, to list a few, have already begun to entrench their operations in African countries with burgeoning retail sectors. Despite the recognition of the uniqueness of doing business in emerging markets such as Africa, there has been no major strides by South African retailers to formulate coping strategies for these new markets.

South African retailers expanding into Sub-Saharan Africa have encountered enormous challenges in their quest for more revenue and bigger market share. Although some have done well there have been notable disappointments on the retail front in Africa.

In 2013 Woolworths, a South African middle-class retailer, got out of Nigeria less than two years after opening its first store in Lagos. The “Bottom of the Pyramid” customers make up most of the African markets and is part of the more than 65 percent of the world’s population, a total of 4 billion people (worldwide) with purchasing power of less than $2000 per year, whose buying needs remain amazingly unfulfilled because most of these markets are largely untapped and unserved.

South African retailers still do not fully understand emerging markets and are not fully equipped to deal with the complexities encountered when they start operating. They lack strategy to tackle these markets and have been in some cases using the wrong approach with failures being recorded in this regard. They still haven’t grasped the concept of ambidexterity and the need to adapt themselves to new economic circumstances while keeping their identity as a brand.

Retail companies have wrongly assumed that customers in emerging markets have very low incomes and therefore have very little to spend and buy beyond food and shelter. They obviously are clearly devoid of strategy to deploy in these markets and hence hide behind excuses that the inadequate infrastructure, illiteracy, currency fluctuations, corruption, bureaucratic red tape and other barriers make it difficult for them to build a profitable business serving poor communities.

The behavior of these retail companies is explained by research on marketing in emerging markets which point out that these markets can be intimidating as retail companies must confront a range of unfamiliar conditions and problems. For South African retailers to confront some these conditions don’t need to shy away but to use ambidexterity as a strategy through formulation hybrid channel models that leverage on market partnerships to provide more value to customers.

Customer demand in Sub-Saharan emerging markets is driven by the need to get value for money as purchases are driven by the money they have available to spend. Competition for existing retailers comes from unbranded products or services sold at a lower price.

Many beliefs that are fundamental to marketing, such as market segmentation, market orientation, and brand equity, are at odds with the realities of emerging markets because what drives customers to shop through a particular channel does not confirm to research done in formal markets. By being ambidextrous retail companies adjust to the challenges presented in these markets through adapting to new economic circumstances.

The heterogeneity of Sub-Saharan Africa markets is compounded by large skewness towards “bottomof-pyramid” consumers. These markets tend to have very large variance relative to the mean across almost all products and services. This is because markets are local, informal, fragmented, low scale and mostly served by owner managed small enterprises.

The complexity in emerging markets has pushed retail companies to explore a myriad of coping strategies, but none of them have specifically applied ambidexterity in retail format application as a solution. Some notable failures have been due to the fact that many retail companies still do not understand this market. Both retail and supplier retail companies have tried to adapt to emerging market complexities through adapting to the marketing mix. Supplier retail companies are at an advantage when they deal with the complexities on the African continent because of their ability to amend product form and shape unlike the retailers.

Some suppliers in Africa have used a multi-channel distribution approach to match product to the right channels that serve their consumers. Retailers in the developed world have always identified that there is a form of differentiation between the segments of customers that shop online and those that do not. A lot of articles written on online businesses is mostly focused on how to integrate the two sides of the same coin (online-offline) for the retail businesses to be successful.

There has been rarely any focus on looking at the African market from a formal-informal perspective. The formal-informal perspective looks at creating new shopping channels that differ in format and shape to cater for customer needs. Although differences within the Sub-Saharan Africa economies are more complex than what is assumed by the online-offline research, some of the findings can be used by retailers expanding to tackle market complexity. The ability to serve two or more markets at the same time demands a form of organizational ambidexterity and very few retail companies in South Africa are willing to take this risk.

The biggest risk in doing this is compromising the company’s brand image by operating through diversified formats in different countries. Emerging markets are too dynamic and hence demand a different focus from the traditional retailing approach. In partnership with other players in the market retail companies should strive to ensure that the retail market does not remain untapped through tackling barriers created by the lack of structure in these markets. Some notable applications of ambidexterity within South Africa by retailers include the retailing concept by Cambridge foods which combines a partially wholesale model with a supermarket. Pick n Pay also started a new concept of converting a Spaza into a store by combining a partially franchise model and a Spaza model.

There is nothing that stops South African companies of being creative when they go into Sub-Saharan Africa. In conclusion, South African businesses should stop being unwilling to take risks when they expand into the difficult African terrain. They should adopt an ambidextrous approach which allows their brand to still serve the South African customers while changing form, format and shape in other African countries. 

Girland Chibaya is a retail professional with vast experience in retail management, supply chain management, strategic planning and general management spanning over 18 years. He has also worked for some big companies in South Africa such as Woolworths, NIKE SA and Edcon. He is studying for his MBA with GIBS.