Rivalry or Not, Carrefour seeks protection from competition by local retailers

French retail giant Carrefour is seeking protection from competition by Kenyan local supermarket chains at the Two Rivers Mall.
Through an application to the Competition Authority of Kenya (CAK), the retailer wants exclusive rights of occupancy submitted jointly with the mall owners.
The Two Rivers Mall owners include Two Rivers Development Limited with a 50.0 percent shareholding and OMP Africa Investment Company with the other 50.0 percent shareholding.
Two Rivers Development Limited alone comprises of Centum Investments with a 58.0 percent shareholding, AVIC with 39.0 percent shareholding and ICDC with 3.0 percent shareholding.
In the application, “…the parties propose that the lessor shall not lease any part of the Centre to any hypermarket, supermarket, butcheries, green grocers or fruit or vegetable stores or permit the expansion of the leased premises without the written consent of the lessee,” said CAK director-general Wang’ombe Kariuki in a gazette notice on the agreement between the two parties.
The application, if approved, will bar other hypermarkets, supermarkets, butcheries, green grocers or fruit stores from setting up shop at the 67,000 SQM mall based in Runda along Limuru Road.
This however only relates to new businesses and excludes existing players at the mall such as Chandarana Supermarket.
In addition, the application will free CarreFour from a previous agreement barring it from opening another branch within 5 kilometers from Two Rivers Mall.
Read: Tuskys Supermarket to manage Nakumatt’s operations
According to Cytonn Investments, CarreFour may have had to make certain concessions to obtain support from the mall owners for exclusive retailer rights.
“While such an arrangement would prevent healthy competition among retailers, some of the benefits would be: Creation of a conducive environment for the retailer having begun its operations at the mall in February this year, thus maximizing sales, and, optimization of sales will also benefit the mall owners who get rent as a percentage of the sales made.”
CarreFour is the anchor tenant occupying approximately 10.7 percent of the total lettable area of the mall with 7,200 SQM of space, and is thus a significant source of income for the mall owner.
Kenya’s retail sector has continued to attract international retailers driven by the rising middle-class with higher purchasing power, robust macroeconomic growth with an average GDP growth of above 5.0 percent over the last 5-years, thus increasing per capita wealth and a relatively higher formal retail penetration rate at 30 percent given that Kenya’s informal retail is at approximately 70 percent.
This has made Kenya the 2nd largest retail economy after South Africa with an estimated 60 percent penetration, according to Nielsen Research Firm.
The move by CarreFour, however, highlights the competitive nature of Kenya’s retail sector and local dominance making it difficult for international retailers to gain traction.
Other international firms that have set up shop in Kenyan malls include Game by Walmart, with presence at the Garden City Mall along Thika Road, and Botswana’s Choppies after acquiring 10 branches of Ukwala.
“In our view, local retailers will maintain dominance of the market in the short to medium term due to a strong brand heritage, visibility and customer loyalty as the international brands are perceived as ‘pricey’ by the middle class compared to local brands. There is however great opportunity as seen through an increase in Kenyans retail spending by 13.0 percent to USD 17.6 bn from according to a survey by Proctor & Gamble,” notes Cytonn.
source: Cytonn Investments
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