Ethiopia is the second-most populous country in Africa (after Nigeria) and one of the fastest-growing economies, with an average GDP growth rate of 10% (IMF) over the last eight years. When entering Ethiopia, there are several issues to consider when designing your Go-to-Market:
Infrastructure & Territories
Ethiopia has made significant progress in infrastructure development with the country spending $US 1.3 billion or 10% of its GDP annually on infrastructural development. However, as impressive as these numbers are, distributing products in upcountry areas remains a challenging undertaking.
Ethiopia lost its port in 1992 when Eritrea became independent. They now rely on the port of Djibouti where costs are high. It costs more to transport a container from Djibouti to Addis Ababa than China to Djibouti (The Economist). The Lamu Port-South Sudan-Ethiopia Transport Corridor (Lapsset) holds future potential.
Urbanisation and channels
In comparison to other African countries, Ethiopia has a low urbanisation rate (11% vs. 30%). Addis Ababa, the capital city, contributes the bulk of the volume in Ethiopia. Ethiopia’s second city, Dire Dawa, has a population of 274,000 (ESA) compared to Addis Ababa’s estimated 3 million. It is estimated that 38% of the population still resides five hours or more away from a city with a population of 50,000 .
Modern trade is in the very early stages of development, and there are currently no international supermarkets operating in Ethiopia. In a very fragmented trade market, souks/kiosks remain the largest trade channel in Ethiopia.
The Mercato market in Addis Ababa is one of the largest markets in Africa and the largest in Ethiopia. Wholesalers dominate the market. Some companies generate more than 70% of their sales from Mercato. Wholesalers make low margins (2-5%) and most tend to be passive, waiting for customers to collect. While the role of Mercato wholesalers cannot be overlooked, they are not always a good option for building a relationship with retailers and building brands.
Most MNCs (Multinational companies) we talked to highlighted the importance of direct distribution, as it remains difficult to build a brand through a wholesale system.
Go-to-Market models focus on small retailers
MNCs are entering Ethiopia through distributors, as they lack the required knowledge, scale, and product portfolio to build their own distribution network.
However, beverage companies with local bottling operations also make use of direct distribution focused on key accounts and bigger sales outlets. Companies such as Coca-Cola, also uses micro-distribution to serve customers in the Mercato market, Ethiopia’s largest market.
It is important to note that legislation prevents foreign companies from distributing imported finished products, whether sourced directly or from local importers.
Most MNCs are still operating out of their Nairobi offices. However, companies are increasingly opening new offices in Addis Ababa. Ethiopia is significantly different from the other East African markets, and care should be taken to understand the cultural aspects. Including when displaying role models for advertising purposes. Foreign investors increasingly recognise the consumer goods potential in the country, as recent acquisitions from Diageo, Heineken and Tiger brands have demonstrated.