Corporate

S African retailer Massmart to open store in Nairobi

People  in a store in Johannesburg . A South African supermarket plans entry into Kenya. afp
People in a store in Johannesburg . South African supermarket plans entry into Kenya. afp 

South African retail giant Massmart is looking to set up shop in Kenya, offering consumers more choice and raising competition in the retail sector.

Actis, a private equity fund, has said that Massmart — through its subsidiary Game — has booked space in its Sh12.6 billion real estate development on the Nairobi’s Thika Superhighway.

The investment will house Kenya’s biggest mall at 50,000 square metres.

The property dubbed Garden City will be ready in May 2014 and is situated near East Africa Breweries Limited (EABL), which previously owned the 32-acre land.

“The retail mall will include a flagship store for Game, their first in Kenya,” said Actis in statement announcing the Sh12.6 billion real estate plan.

“Detailed discussions are progressing with other retailers looking to enter the rapidly expanding Kenyan market such as South Africa fashion group, Foschini.” Executives of the Game confirmed their interests in Kenya through public relations company, Africa Practice.

The entry of Game, which operates 105 stores in 12 African countries, will shake up Kenya’s formal retail market that is dominated by locals Tuskys, Nakumatt, Uchumi and Naivas and offer the South Africa retailer a piece of the market after the exit of retail chain Metro Cash and Carry in 2005.

Companies from South Africa have found it difficult to crack the Kenyan market, prompting the exit of big brands like Cinema company Nu Metro, fast foods giant Nandos, household goods outlet Supreme Furniture and magazines publisher Media24, a subsidiary of the Johannesburg Stock Exchange (JSE)-listed Naspers.

However, South Africa’s Truworths, Woolworths and Mr Price have been successful, thanks to a franchise agreement with local retailer Deacons. Game will be counting on the financial muscle of JSE-listed Massmart Holdings, which Citigroup says is Africa’s third largest distributor of consumer goods, and its low price model that has given its space in Uganda and Tanzania.

Wal-Mart, the world’s biggest retailer, last year spent $2.4 billion (Sh201 billion) on a majority stake in Massmart.

Massmart has a handful of stores outside South Africa, giving it a foothold but not a major presence in markets such as Ghana, Nigeria and Uganda.
“There is room for growth in the industry and therefore we don’t see stiff competition coming from Game,” said Frank Kamau, the general manager of Tuskys.
Kenya has the second most developed retail market in sub-Saharan Africa with about 30 per cent of retail shopping being done in formal outlets, a Citigroup study has shown, whetting the appetite of global chains.

The study identified East Africa as the next growth frontier for huge SA retailers as well as some of the world’s biggest investors keen to cash in on a growing middle-class and rising consumer demand. 

But Citigroup reckons that dominance of the sector by local firms has acted as barrier to the entry of retailers like Shoprite and Massmart to the Kenyan market.

“East Africa is where SA retailers lack scale due to strong local retailers. Acquisition looks to be the easiest route to build scale in this region, “said the report.

Three of the dominant retailers; Nakumatt, Tuskys and Naivas are family-owned making them prime targets for acquisition. Tuskys shareholders are currently involved in a court battle for control of the giant retail outlet, with some of the directors blaming the power struggle to outsiders engineering an aggressive take over.

The Nairobi bourse listed Uchumi Supermarket was in 2008 involved in acquisition talks, with South African based Shoprite being one of its eight suitors.

The retail chain— which closed shop briefly in mid-2006 after failing to pay creditors—has returned a profit for four years in a row compared to a loss of Sh1.2 billion in 2005, signaling that its turnaround strategy is working and the strength of Kenya’s retail market.

rotini@ke.nationmedia.com