July 26, 2016 / by Rajiv Nambiar / Retail Industry Dynamics / No Comments

Kenya’s growing Retail

Most of us are conversant with Kenya as being a destination for classical savanna safaris but little are we aware of their upcoming retail sector.

Our goal with this piece is to let you know what’s exactly going on there.

Challenging and encouraging opportunities

The Kenyan retail sector is booming with many local and international investors surprised by the lucrative market. Nielsen, a New York based research firm, ranked Kenya as the 2nd biggest market for retail investors in Africa. More than 40% of all Kenyans shop in supermarkets. Kenya is certainly one of Africa’s most interesting markets with 55 million wealthy people comfortable with organized retail and doing their shopping in malls and supermarkets. In Africa, the average shopping cart carries about $20 worth of merchandise.

Euromonitor International, a UK firm recently published a report stating the growth in this sector is accredited to the following factors:

  1. a strong economy,
  2. a stable political environment,
  3. a broadening middle class, and
  4. a passionate inclination for convenience

Retail Landscape

Unlike the western and southern regions of Africa, East Africa works much more in harmony. The comfort of doing business in East Africa is much higher than any of the other large economies in Africa. For Kenya’s Nakumatt Super-Market Chain, Africa’s “long-term game” has yielded great success. More than 20 years after it opened, Nakumatt is now one of Africa’s leading retailers.

The Kenyan economy continued to grow, backed by increasing foreign investment and stable political leadership, as well as a growing focus on the development of youth entrepreneurship. The rise of the middle class, as well as the improved infrastructure, which lowered transport costs for businesses, were key in promoting retail growth. Another key factor was the rising property boom, allowing retailers to take up prime locations near residential areas for customer convenience, as well as the decentralization of services to rural areas, encouraging the foot mark expansion of retail outlets nationwide.

Let’s have a look at the top trends in the retail sector in Kenya. We will also focus on some of the main areas that retailers must look at and what investors can expect from the industry.

  • Era of big supermarkets and malls

Kenya has now entered the era of big supermarkets and malls, which is changing the way people shop. Some of the most notable malls that are being developed are Two Rivers (by Centum Investment), Garden City (by PE firm, Actis), Unicity (by Kenyatta University), and Juja City.

Chris Kirubi, Director at Centum Investment has stated in a television interview of his desire to make Nairobi the next Las Vegas with exclusive shopping malls. Centum is in the finishing stages of developing the 70,000sqm Two Rivers mall in Nairobi’s high-class area of Ruaka.

This trend is also being experienced in smaller towns such as Mwea, Naivasha, Nakuru, and Meru where mega developments are lined up. The middle-class has always preferred doing their shopping in malls. Unfortunately, these malls were only available in big towns such as Nairobi, Kisumu, and Mombasa whereas with the new shift to large-scale mall construction, Kenyans will have the chance to shop in high-end malls.

  • Appetite for International brands vs Trust in Domestic brands

International brands are now eying the Kenyan market because of the stable economic and political environment. Some of the major brands that have entered the market are France’s supermarket juggernaut, Carrefour, Massmart Supermarket (owned by Walmart), Game (a South African brand), and Zara (a Spanish fashion giant). The entry of these brands will upturn the level of competition in the industry. This will lead to the endurance of the strongest brands. Some local brands will be forced to close shop or be acquired. A good example is Uchumi Supermarket which has suffered losses in the last 3 years due to competition and expensive bank loans. It would benefit the Kenyan Government if they adopt firm policies like “Make in India” to promote and save the Local brands out there.

But in contrast to that, local companies led the retail market in 2015, mainly as a result of their strong brand heritage built over time through strong advertising and their long-term presence in the market. Also, the expansion of modern retail outlets to the residential areas facilitated a wider consumer reach. The roll-out of private label ranges allowed consumers to enjoy quality products at affordable prices, further fuelling the revenue growth of local companies. The limited success of foreign companies in Kenya’s retail environment can be attributed to strong competition, insufficient and expensive suitable locations and inadequate market entry strategies.

  • Mobile Network and Online Shopping

It’s an opportunity to buy at the comfort of their homes for Kenyans. Unfortunately, this was not a welcome idea in the nation a few years ago due to the difficulties which retailer faced with utilizing geo-location features as it was harder to locate the customer’s location and still is. This led to the ultimate closure of some of the premier online shopping companies in the country such as Kalahari and Mocality. However, today, with the improved mobile network and internet connectivity, Kenyans are comfy to this idea.

Safaricom Ltd is a leading mobile network operator in Kenya, formed in 1997 as a fully owned subsidiary of Telkom Kenya. Vodafone Group Plc of the United Kingdom acquired a 40% stake and management responsibility for the company in May 2000. It employs over 1,500 people mainly in Nairobi and other big cities, in which it operates retail outlets. Currently, it has nationwide dealerships to ensure customers across the country have access to its products and services.

A good number of online shopping sites have come up and the industry is now valued at more than $10 million. Industry leaders have taken note of this and are coming up with online strategies to boost their sales. Companies such as Bata, Nokia, Samsung and LG are now partnering with online retailers such as Bid or Buy and Jumia to retail their products to the masses. In addition, supermarket chains such as Naivas are now banking on the internet to offer their products.

  • Assortment

Assortments are becoming an important driver of retail success in the country. All the major retailers are incorporating new sections in their malls. For instance, it is now possible to buy ready-made meals, perishable goods such as grocery and meat in supermarkets. In a bid to retain their earnings and remain competitive, grocery retailers in Kenya continued to widen their non-grocery product portfolio, predominantly in modern retail outlets, to include homewares, apparel, footwear, consumer electronics, home furnishings, and kitchen and cooking appliances; thereby offering a variety of products to their customers over and above grocery items.

Many people who shop in the supermarkets are the middle class who want things done fast. As a result, supermarkets are doing the best to ensure that they have everything stacked in their stores. Driven by “one-stop-shopping”, in addition to offering consumer convenience, grocery retailers used floor space to accommodate a variety of products aimed at growing sales revenues and maintaining customer loyalty. Retailers are also joining hands with other brands to provide their customers with the best services. A good example is the partnership between Nakumatt, the biggest supermarket in Kenya and Clarks, a global fashion brand.

  • Big data and analytic’s

Globally, big data is changing the way businesses run. All the major supermarkets in the country offer their customers loyalty cards where one gains points whenever they shop. In exchange, the retailers pick the customer data which is found in the national ID cards. As a result, they are able to analyze the customers and their trends which they use to tailor services to them. Big data is also established through the use of online and mobile modes of payments, which also give the retailers the data they require to make projections and analyze their clients. With this data, retailers will be able to make competent predictions and customers can expect to benefit from the massive deployment of the systems.

With the growing retail space, retailers can expect massive competition, which might force others out of the market. The real benefit of the retail war will be felt by the customers. This is already starting to manifest with many retailers now offering their own branded items which come at a discount. Developers will also benefit via the development of applications and platforms to aid buying and selling of goods in the retail malls.

The Challenging and promising opportunities along with the changing landscape of exciting trends encourage Retailers and Investors equally to invest in making Kenya the next big thing in retail.

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