Nakumatt’s purchase of Woolmatt stores renews rivalry among retail chains in battle for market share. Photo/FREDRICK ONYANGO
A change in shopping trends in Nairobi is spawning a battle for dominance in the billion-shilling retail chain segment.
Positioned as the country’s main business hub and the most populous city in Kenya, Nairobi is emerging as the focal point of this rush as supermarket chains seek to outdo their rivals in the scramble for market share.
The announcement by Nakumatt Holdings that it has bought Woolmatt for Sh400 million is expected to spur fresh re-alignments in the retail segment.
The new acquisitions are expected to gradually fill the revenue gap left after Nakumatt’s Downtown branch — its most profitable outlet —went up in flames in a tragic accident last year.
“I am happy to confirm that we have also acquired Woolmatt branches in Nairobi as part of a move to enhance our CBD presence,” Mr Atul Shah, the chain’s managing director, said.
Uchumi Supermarkets, Ukwala and Naivas have also unveiled similar plans to defend and grow their city market share through revamping their networks and opening more stores, paving the way for a long drawn-out market share war.
As more and more Nairobi residents working in the central business district opt for the convenience and variety offered by supermarket chains in the city centre, retail chains are seeking out the industry’s new gold —location. It’s this shortage of commercial space that promoted Nakumatt to go for Woolmatt—giving it access to four branches in the city centre.
But its rivals are not about to give up: “We intend to roll out more stores in the city centre, the only hindrance is availability of prime space but we must expand,” said Mr Francis Maswili, the general manager of Naivas Ltd.
Human traffic
Uchumi Supermarket is also seeking to reinforce its presence in the CBD with focus being revamping its two CBD branches with an eye on opening more stores, according to chief executive Jonathan Ciano.
Two of Nakumatt’s new acquisitions are located in busy parts of the city centre synonymous with heavy human traffic and small businesses.
The acquisitions point to a change in tack by the chain, which is seeking to shed its high-end market image to cast its nets for a wider consumer base.
Among Nairobi’s four million residents is an emerging middle class, a good portion of which works within the city centre and which uses public transport and which forms the target market of most retail chain outlets.
Supermarkets that have positioned themselves next to bus and matatu termini have been among those that have reaped big from the changing shopping trends.
Ukwala, Tuskys, Naivas and Woolmatt supermarkets are among those with major outlets in areas of the central business district with dense human traffic.
Tuskys in particular has been aggressive in the last few years, opening 24 outlets within major towns in Kenya and commanding a market share of 20 per cent.
The retailer is currently expanding its network into suburban districts and targets to have 50 branches across the country by the end of 2012.
As most retail chains continue to stock everything from freshly baked bread to groceries, the one-stop shopping experience has continued to draw in consumers in droves.
While the goods remain the same and as retail chains leave little to differentiate them in terms of pricing, convenience brought about by location is gaining importance.
Uchumi has over the last four years witnessed massive growth in earnings from its CBD branches.
“It’s a high population area, one tends to get a steady stream of customers looking for quick things to buy,” says Mr Ciano, adding that they were targeting between 17 and 18 million customers this year with sales projections of Sh10 billion. “Outlets are never our targets. Our target is customer numbers,” he says.
The latest data from the Kenya National Bureau of statistics shows that wholesale and retail trade in the country had steadily declined as the economic slow down took its toll on consumers’ purchasing power.
Pecking order
By the third quarter of 2009, wholesale and retail trades had declined to 1.8 per cent as a proportion of national income, compared to 10.9 per cent in the third quarter of 2008.
Supermarkets are thought to account for about a third of the total retail space in Kenya, according to details in the Uchumi strategic plan, which ranks Tuskys Supermarkets as the number two brand in the pecking order.
Last year’s sharp economic downturn, which was characterised by an annual average inflation rate of 26 per cent – as calculated using the previous method— slowed down consumption throwing the retail chains’ growth estimates off track.
This is, however, set to change as the Kenyan economy slowly emerges from a two-year slump.
Consumers have in the last couple of years faced a hostile environment characterized by galloping inflation as drought pushed up energy and food costs, slowing down their purchasing power amid limited jobs and subdued incomes.
Better economic times for the consumers would lead to a rise in earning power with a resulting improvement in spending by families.
This is likely to trigger demand for consumer goods and raise businesses prospects for retail chains.
“There is a lot of potential in retail,” says Mr Ciano.
New branches
Since 2006, Nakumatt has been carrying out a branch “modernisation” plan that has positioned its stores in the top-end of the retail market, targeting the rich with a wide range of electronic goods, furniture and other lifestyle products.
Nakumatt also became the first Kenyan supermarket to offer 24-hour shopping outlets and the first to enter the Rwanda market where it spent Sh240 million ($3 million) to establish the Kigali branch.
The retail chain’s total branch count currently stands at 22, including the Uganda and Rwanda outlets.
The chain, which has just opened three new branches in Kakamega, Nanyuki and Diani in Mombasa, reckons that the restoration of the CBD’s city-in-the-sun glory, backed by customer demands, had inspired it to make additional investments.
“All these openings remain in line with our regional expansion plans and puts us in very good position to attain our 2010 targets,” says Mr Shah.
The giant retail chain has been looking to wrap up a deal to unlock more than Sh2 billion for its branch expansion that will see it acquire a supermarket in Uganda and put up a second shop in Rwanda.
It has been looking to sell 30 per cent of its business to a strategic partner whose identity Mr Shah has refused to reveal, saying doing so would jeopardise negotiations which have been on the table since last year.
It is believed that the retailer has been in talks with Satya Capital, a London-based private investment provider, and Kingdom Holding Company, an investment group associated with the Saudi Arabia royal family, to inject Sh2 billion to enable it continue opening new branches so as to increase sales.
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