Investing in Food Processing – New Consumption Trends, Changing Tastes

Priya Shah

food stall_tanzania3 cropped

The food processing industry in Africa is an exciting and fast-growing space.  Africa has historically been known for a wealth of fertile regions where fresh produce is grown, harvested and distributed both for local consumption and exports.  Now, this sector is being closely watched by private equity funds keen to maximise investment opportunities across the continent.  The African market has recently seen a trend where companies are moving away from solely producing raw consumables and increasingly investing in value-add processing units and branded food products.

When food products are sold to wholesalers, supermarket chains and organic food retailers, the highest margins are captured from adding flavours, food colouring, packaging and branded labels (comprising the second half of the value chain).  For example, fruit juices, pastes, syrups, purees and concentrates are more expensive than raw fruits and vegetables.  Ice cream, yoghurt and cheese are priced higher than milk; and the same is true for biscuits, pasta and bread when compared with raw grain and flour.  This trend has subsequently repositioned food processing as a manufacturing  and Fast Moving Consumer Goods (FCMG) sector rather than an agricultural sector.

In recent years, this shift has been fuelled by three key changes in the African market: the growth of supermarkets chains; changing consumer incomes and tastes; and the emergence of consolidated firms such as food conglomerates.  Supermarket chains such as Shoprite, Carrefour and Pick n’ Pay are increasingly popular across Africa, expanding aggressively across urban centres on the continent.  The ability to stock food products in cold storage and provide multiple varieties of domestic and international brands allows for an easy and convenient experience when buying household food items.  Nevertheless, in many African countries, open markets, local vendors and butchers are still the main source of grocery shopping for the average consumer.  Furthermore, a change in consumer tastes and incomes has increased aggregate demand for processed goods, as higher disposable incomes allow for a greater ability to spend on packaged, branded products which are generally of a higher quality.  Lastly, the move towards consolidation has allowed for much smaller players to be acquired by large food conglomerates such as Tiger Brands, Remgro Limited and Foodcorp.  These food conglomerates have reliable distribution networks (a key advantage in Africa) and can provide consistently higher quality food products as they are vertically integrated.  They also offer higher margins by achieving economies of scale, and are better positioned to compete with international brands such as Nestle and Coca Cola.

One of the key success stories in the food processing sector is Fan Milk International (FMI), a manufacturer and distributor of frozen dairy products and juice company in Ghana, which was acquired by Abraaj Capital and Danone in 2013.  With a strong brand heritage and a well-developed cold chain distribution network across West Africa, Fan Milk attracted international attention and is now well-poised to become a market leader in high-quality dairy products and logistics in the food processing sector.  Another key example in Southern Africa is Zambeef, the publicly listed Zambian beef company which has established production in poultry (Zamchick) and edible oils (Zamanita) along with many other food divisions.  The company has taken advantage of its vertically integrated model and operates fast-food chains and a trucking company, including a fleet of refrigerated trucks.  By controlling the supply chain, Zambeef has reduced its exposure to logistics challenges for perishable foods and allowed for direct access to end-consumers.

In summary, the food processing sector will be a vital component of the FMCG industry in Africa in the next decade.  There are larger opportunities for these companies to grow in the private sector as compared with the public sector, both by capitalising on changing market dynamics and by catering to changing consumer tastes, as trends point towards new and innovative food products.


Priya Shah ([email protected], MBA 2013/14, CABN Committee)

Priya is from Mumbai, India and has worked as an equity analyst at Bloomberg; a Programme Manager at Asia House; and a development consultant in India. She holds a B.A. in Modern European History from Brown University and is currently pursuing an MBA at Judge Business School.  She has a keen interest in social enterprise and impact investment, and will be spending her summer working with Acumen’s Impact Team in India.







Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.