Kenyan Consumers Prefer Local Brands to Foreign Ones -Cytonn Report

Growing population, a rising middle class and improved technology are some of the factors driving Kenya’s retail market as demand for quality outlets and a broader range of shopping options drives the construction of floor space.

Cytonn Investments Management Limited report, “Kenya’s Real Estate Retail Sector Analysis” themed, ‘Investor’s Perspective on Kenya’s Retail Sector’ released on Monday says, Kenya’s retail market is attractive for investments especially in regional malls which are recording high yields of up to 11.7%.

“Opportunity for development in the sector exists in Kilimani, Karen and Mombasa City due to low mall supply, high yields and lack of upcoming malls whereas Mombasa road is the least viable location, with high retail space supply at low yields and low purchasing power,” says Johnson Denge, Real Estate Services Manager.

However, in terms of consumer spending habits, an online survey on consumer habits between 24th and 27th June 2016 which was on a weekend falling on an end month’:

“63% of shoppers prefer local brands for most goods and their preference is mostly influenced by affordability of the products, this is as a result of brand loyalty that has played a role in products that are not locally produced especially electronics, and the local chains have large distribution network exclusivity,” according to Nancy Murule, Cytonn Research Analyst.

On the hand, the entry of international retailers is driven by the increasing spending power of Kenyan consumers and rising demand for overseas brands

Last year, according to Oxford Business Group saw a near tripling of Nairobi’s modern retail space, with close to 170,000 sq metres of new leasable area coming on-line.

“There is a great opportunity for growth considering the fact that the penetration of retail market is still low  close to 70% of Kenya’s retail segment is informal with the formal retail market which is dominated by local and family-owned brands constituting 30% of the market,” according to Ndege.

“Key industry players believe that the retail market is on a high growth path with increasing revenues. They believe that the local retailers will continue to dominate the food sector while facing competition from international retailers on the other sectors especially fashion. They believe that the entry of international retailers is not a challenge as the market is big enough to accommodate all the players,” said Ndege.

The report further cites in the long run, the key retail chains in Kenya plan to increase financing through listing in the NSE and regional expansion as they focus on client retention through pricing, customer service, and product differentiation in the short term, most of the mare focusing on increasing distribution channels through organic growth, partnerships.

To tap in to the emerging opportunities, the analysts say, “The ideal stores in this market are community malls with supermarket anchors and encompassing restaurants, entertainment joints and small convenience retail stores.”

Currently, Regional malls are the best performing with yields of 11.7% and occupancy of 94%, neighborhood malls account for 42% of retail space in Kenya, Community mall 50% while Regional/Destination malls account for 8%.