Today the Kenyan consumer is demanding a greater variety of high quality, less expensive products with availability across multiple channels.
They are looking at convenience, dependability, quick availability, and they expect their chosen retailer to meet these requirements across multiple channels.
However, major retail chains in the country are yet to have a supply chain that is efficient with adequate processes and infrastructure to produce consistent, cost effective service to meet consumer demands.
Instead, most of the retailers have opted to leverage on supplier’s cash to grow.
Retail trade plays a significant role in Kenya’s economy as evidenced by its share in Gross Domestic Product (GDP), which is estimated at 8 percent, including the wholesale trade component.
The significance of the retail trade as an engine for Kenya’s economic growth is further evidenced in Vision 2030 where the government targeted to raise the share of products sold through the formal retail channels, such as supermarkets, from 5 percent in 2007 to 30 percent by 2012.
Kenya’s retail sector is the second most formalized sector in Africa according to a report by Oxford Business Group which is a global consultancy.
According to the consultancy, the formal retail sector in Kenya accounts between 30 and 40 percent of the market with South Africa leading with 60 percent but Kenya emerges as the fastest growing in terms of consumer spending on the continent.
A survey of Kenya’s retail sector indicated a 13.0 percent expansion of the retail sector in 2016 compared to 2015, according to Procter & Gamble (P&G). Expenditure in the sector amounted to 1.8 trillion shillings (USD 17.6 bn) in 2016 across different channels.
The success of the retail sector has so far been driven by a robust supply chain, tapping from a vibrant manufacturing sector for locally produced goods and liberalized trade regime form imported products. According to suppliers and manufacturers, the future of the retail sector in Kenya is now at a cross road due to late payment culture, which is traced to the past two years.
The significance of this challenge is manifested in the estimated over 40 billion shillings outstanding payments for goods delivered, with some payments having been delayed by between 180 and 240 days.
This is a view that is shared by the Retailers through the Retail Trade Association of Kenya (RETRAK). “The Suppliers have complained of unfair trade practices perpetrated on them by Retailers due to imbalance in the bargaining power between the Retailers and the Suppliers. The sum total of these practices is late payment to the Suppliers, which is estimated at KES40bn.”
Association of Suppliers of Kenya (ASK) says retail chains have been trading on credit whose terms they never honour. “We are in this situation because supermarkets have been growing on suppliers’ money. Most supermarkets do not honour verbal or written agreements, “said ASK chair Kimani Rugendo during the Kenya Trade Week.
According to a study termed ‘Kenya Retail Sector Prompt payment’ by the State Department of Trade, Retailers tend not to abide by the agreed terms of payment with suppliers, some taking as a long as over a year whereas the agreed period was 90 or 120 days.
The study revealed that by December 31, last year, some five supermarkets accounted for 92 per cent of the total debt owed for more than 60 days. Suppliers want the number of days taken to pay reduced particularly for the small and microentrepreneurs who supply less than Sh100,000.
Late payment was cited by the Suppliers association as a key factor to closure of businesses, uncompetitive products due to high finance costs associated with borrowing as they await to be paid, loss of goodwill with other players in the supply chain who the Suppliers are not able to be due to cash flow constraints associated with later payments.
The Trade ministry is currently refining draft regulations which proposes that retailers face closer scrutiny to protect suppliers from exploitation.
This is through the newly launched National Trade Policy which aims to introduce regulations within the retail sector, including giving guidelines on access to trade information and unfair competition.
“We had allowed them to self-regulate but that has failed and that is why we have retailers owing suppliers up to KSh48 billion now and because it is attributed largely to one retailer, many suppliers are affected at the same time,” said Trade Principal Secretary Chris Kiptoo during the launch.
“The new Trade Policy articulates provisions that are geared toward promoting efficiency in the growth of domestic trade through transformational measures that address the constraints impeding against the development of the wholesale, retail and informal sectors,” said National Treasury Cabinet Secretary, Henry Rotich.
However, issues on delayed payments to suppliers vary.
Tuskys Supermarkets CEO Daniel Githua, says, “We see this as contractual issue between parties. Not be a matter for legislation as there’s already enough existing law to enforce contracts.”
He is of the view that parties who have not enforced their existing rights to payment under existing contracts, “You hear parties are afraid of losing market share, therefore, continue supplies despite failed payments …. I would call that greed,” he says.
We see this as contractual issue b2n parties. Not be a matter for legislation as there is already enough existing law to enforce contracts
— Dan Githua (@Githuz) July 11, 2017
“A government bureaucrat to regulate payments between mutually contracting parties equals to more cost to businesses and more rent seeking. Bad!,” says Githua.
“One of our core beliefs at Twiga is that supplier experience equals customer user experience (UX). Grocers should be a marketplace, not a retail outlet,” Grant Brooke, the CEO of Twiga Foods Limited.
One of our core beliefs at Twiga is that supplier experience equals customer UX. Grocers should be a marketplace, not a retail outlet.
— Grant (@GrantBrooke) July 11, 2017
According to the policy document, “The large supermarkets are setting up branches in small towns and as a result of their bulk procurement they receive substantial trade discounts that enable them to offer lower prices leading to unfair competition with the small-scale retailers.”
Govt is set to draft new regulations within existing legal framework to add sanity in retail sector
— Trade KE (@Trade_Kenya) July 11, 2017
Govt is not interested in stifling trade, but some form of regulation is required, says Geoffrey Mwau, Director General Budget.
— Trade KE (@Trade_Kenya) July 11, 2017