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Retail: Foreign and local chains grab a piece of the Kenyan market

By Gilbert Nganga in Nairobi
Posted on Friday, 14 August 2015 10:05

Modern shopping has become the norm for middle- and upper-class consumers in cities like Nairobi and Mombasa, with most big local retailers having extensive store footprints across the country. For the dozen employees of One Stop Barbers located on the mezzanine floor of Gilfilian House along Nairobi’s busy Kenyatta Avenue, lunchtime is no longer the dreaded hour it was a year ago.

Almost half of Kenyan shoppers use formal
retailersSource: Nielson

For them, the fact that they work at one of the busiest executive barber shops in Nairobi has meant that getting time to go out and eat is almost impossible given that most of their clients use the same break to get a quick haircut, a manicure or a pedicure.

Until last year, the barbershop employees brought food from home because the business is located in one of Nairobi’s most expensive neighbourhoods as far as eateries are concerned. Since then, Tuskys Supermarket – Kenya’s second largest by volume and branch network – introduced ready-made food.
For $1.50, workers can purchase a takeaway meal at the retail chain located next door to Gilfilian House. “There is variety and the meals are served hot,” says one of the barbers.

This is a new revenue stream for most of Kenya’s supermarkets, which have now expanded their product line beyond traditional items, and is the next frontier for growth among the chains, with Tuskys, Naivas and Uchumi the main players in this segment.

Analysts expect more change and innovation as the competition between firms increases. “To facilitate consumers with erratic working hours, all supermarkets have had to rethink their options, most of them operating 24-hour stores, which has been very successful,” explains David Gitau, an investment analyst based in Nairobi.

“Retailers who will win this battle for customers in the next decade will have to be accessible throughout, with easy payment options beyond cash and cards, and offer a one- stop shop for an affordable variety of goods and services.”

Local players dominate Kenya’s retail market and are expanding into East Africa as large supermarket chains launch a new drive to increase their domestic market share. Many of the Kenyan firms are family-run companies, with some of the smaller ones facing management problems and takeover bids. This comes at a time when international retailing brands are showing a great deal of interest in the opportunities that the growing middle classes can bring.

Family-owned Nakumatt, which is the Kenyan market’s largest supermarket in terms of sales and network size, opened its 53rd shop in East Africa with a $2m outlet in Nairobi’s Garden City Mall in May. Tuskys and Naivas, which are grappling with family feuds, are also seeking to expand further. Tuskys is bidding to take over some of the stores of Ukwala, one of its rivals.

Auditing the books

On the other hand, Uchumi, Kenya’s third-largest supermarket chain, is in big trouble. It has gone from crisis to crisis, and the company board sacked chief executive Jonathan Ciano in June.

Auditors are now examining the books for improprieties, and officials say that the company will have to sell off its assets and pull back from expansion plans in East Africa. The supermarket chain reported a loss of KSh336m ($3.3m) for the year ending 30 June 2014.

Informal markets still dominate the consumer retail spend since a large segment of the Kenyan population is to be found in the lower income bracket.

With continued economic growth, there is significant potential for retailers to serve lower-income shoppers, a trend that is also attracting global players.

In June, South Africa’s Massmart launched its first Game branded shop in the $250m Garden City Mall. During the same month, Botswana supermarket Choppies announced it had signed a deal to buy 10 outlets from Kenya’s Ukwala Supermarkets for $10m.

France’s Carrefour also has plans to launch its inaugural supermarket in Kenya when a new mall at Nairobi’s Two Rivers development is completed in 2016.

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