The Highs and Lows of the Kenyan Retail Sector in 2017

‘Cautious Optimism in the Face of Turbulence’ is what describes the Kenyan retail sector. A growing young upwardly mobile and affluent middle class, rapid urbanization and growing internet and smartphone penetration are among the many reasons for the driving force behind the growth of the retail sector.

This is seen in Nairobi, the country’s capital and in the sprawling shopping centers, multi-storied malls and huge complexes offering shopping, entertainment, and food all under one roof.

Sadly, the optimism has been followed by a long list of challenges and hurdles that have tend to impede the strong growth prospects in East Africa’s leading economy.

In 2016, retail in Kenya grew by 13 percent in 2016, modern retail grew by 18 percent, indicating the increasing importance of the supermarkets as a retail channel according to Procter & Gamble (P&G).

The sector’s potential has been explained well in the Economic Pillar of Vision 2030 that seeks to improve the prosperity of all regions of the country and all Kenyans by achieving a 10 percent Gross Domestic Product (GDP) growth rate by 2017.

According to the Vision 2030 Medium Term Plan 2013-2017, six priority sectors that make up the larger part of Kenya’s GDP (57 percent) and provide for nearly half of the country’s total formal employment have been targeted: Tourism, Agriculture, Livestock and Fisheries, Wholesale and retail trade, Manufacturing, IT-enabled services (previously known as business process off-shoring), Financial services, Oil and Gas.

“Growth in Kenya’s retail has been driven by the country’s constant steady growth,” Robert Tashima, Managing editor: Africa, Oxford Business Group. The Group ranks the sector as second-most formalized in Africa. This is due to the increasing urbanization with a rise in the levels of disposable income driving consumer’s preference for organized retail.

Cytonn Investments project the country’s retail sector to have a growth Compound Annual Growth Rate (CAGR) of 7.4 percent in the next 2-3 years.

Top Four Retail Trends in Kenya 2017

“Brand consciousness, green malls, entry of international retailers and online shopping are some of the key trends in the retail market in Kenya in 2017”

Brand Consciousness

Green Malls

Entry of International Retailers

Online Shopping

Mixed Fortunes for Nakumatt and Uchumi

However, 2017 witnessed mixed fortunes for the sector.

One, Nakumatt previously the leading retail store in Eastern Africa continues to undergo a severe cash crunch.

These have led to the closure of its flagship branches in the region due to accrued supplier debts that accumulated to Kshs 30 bn by 2017.

Tanzania (1), Uganda (3), Kenya (12) – Nakumatt Lifestyle, NextGen Mall, Westgate Mall, Nakumatt Junction, Ronald Ngala, Bamburi, Lungalunga, Thika Road Mall, Haile Selassie, Kisii (Moi Avenue), Kisumu Mega Plaza, Garden City Mall.

Uchumi Supermarkets suffered the same fate in 2016.  As per The Ministry of Industry and Trade, Uchumi and Nakumatt accounted for 73.0 percent of the total debt owed by Kenyan retailers to suppliers.

Further, Nakumatt has been unable to secure a strategic investor to pump in the capital , that would help replenish its dwindling stocks on the shelves beside plans to shut down several unprofitable branches under its accelerated restructuring programme aimed at cutting operational costs by KSh1.5 billion annually.

It’s proposal to merge with Tuskys Supermarket was rejected by the Competition Authority of Kenya (CAK) a deal that would have ended their financial distress and restore the retailer to full operations and inventory levels.

Unlike Nakumatt,  Uchumi Supermarkets banks on Ksh 3.5 Billion through sale of shares to investors to mark the completion of its recovery strategy.

According to Cytonn Investments “The retail sector is poised for more investments by foreign investors.”

“The retail sector is thus in Kenya is likely to experience a paradigm shift with international retailers such as Carrefour making inroads to the Kenyan market taking advantage of the gap caused by the crisis and malls replacing supermarkets
as anchors by other retailers such as fast-food stores which have high footfall,” they note.

Big wins for Tuskys and Naivas

On the other hand, it was not all gloomy for the sector. Other players continued to thrive and expand.

Tuskys Supermarket has emerged as Kenya’s most successful retail chain pushing up its branch network to 64 stores with 57 branches in Kenya and seven in Uganda.

Tuskys won Tuskys won the Kenya Supermarket Brand of the Year category during the World Branding Awards. The World Branding Awards is recognised as the ultimate global brand recognition accolade.

Mid this year it was named Best New Business of 2017  by Jumia Kenya in recognition of outstanding accomplishments across the e-commerce system.

Pleasantly surprised last night. @TuskysOfficial won at #JumiaAwards alongside friend and partner @dchandaria thanks to @SamChappatte pic.twitter.com/qM3x25QT2f

— Dan Githua (@Githuz) June 16, 2017

Naivas Supermarkets also saw its branch network increase to 43 with the opening of a 24-hour store in Nairobi central business district at the junction of Kenyatta Avenue and Moi Avenue.

24Hr shopping experience at the heart of Nairobi https://t.co/lx1ARyywyh

— naivas Supermarket (@naivas_kenya) December 21, 2017

Further, it unveiled a Kshs.180 million ecommerce platform that will see goods get delivered countrywide using their system, Naivas Pay.  “This is due to an increase in demand for convenience by the Kenyan shopper. According to Communications Authority of Kenya (CAK), courier items sent locally grew 59.3 percent y/y as of June 2107.”

Foreign Players

The country with a formal retail penetration of 35 percent according to Oxford Business Group making it the second highest in Africa, after South Africa’s 60.0 percent has seen foreign retailers such as Carrefour, Botswana’s Choppies and Game penetrate the market with ‘considerable success further supported by a widening middle class’ says Cytonn Investments.

For instance, Majid Al Futtaim is set to open a fourth hypermarket after taking up the anchor tenancy at the Junction Mall on Ngong Road. The Junction store will boost staff employment count at Carrefour in Kenya to 1100, all within two years of operation in the country, a majority being Kenyan nationals.

Further, Botswana retailer Choppies that took over Ukwala supermarket plans to expand its presence in Kenya and Tanzania in its  40 new stores expansion strategy by mid next year.

In its  KSH 29 Billion expansion, they intend to have 20 to 25 new stores in the next three years time.

Consequently, to avoid competition, Carrefour has sought protection from competition by Kenyan local supermarket chains at its main branches. Through an application to the Competition Authority of Kenya (CAK), the retailer wants exclusive rights of occupancy.

Related:

• Challenges Facing the Retail Sector in Kenya: Will Be Out of the Woods? 
• Regulating terms of payment to suppliers is bad for the Retail Sector 
• Troubled Kenyan retail sector could hurt entire economy
  

Online Shopping

Internet penetration and smart payment methods are boosting non-store retailing in the country as it witnesses the growth of e-retailing with online shops such as Jumia, and social media growing rapidly.

“Players believe that there is an increase in demand for convenience and thus retail must adjust towards embracing online platforms,” According to Cytonn Retail Sector report.

The trend saw Safaricom launch its online sales platform dubbed “Masoko” to tap into the fast-growing e-commerce market in Kenya. The retail online platform banks on the service provider’s established local presence and financial muscle to grow the online marketplace.

Masoko is expected to face stiff competition from dominating brands in the industry such as Jumia, Kilimall, OLX, and Pigiame, with Jumia alone controlling 5,000 vendors and about 500,000 products.

“Retailers are bullish on market performance, however, are expecting to face increased competition,” notes Cytonn.