Mixed fortunes for Kenya’s retail sector

Shoppers at a Nakumatt outlet. FILE PHOTO | NMG
Shoppers at a Nakumatt outlet. FILE PHOTO | NMG 

According to the Vision 2030 medium term plan 2013 – 2017, the retail sector is among the six priority sectors projected to make up the largest part of Kenya’s Gross Domestic Product (GDP) and to create approximately 50 per cent of total formal employment.

Indeed, the sector’s potential fits squarely under the economic pillar of Vision 2030 that seeks to improve the prosperity of all Kenyans by achieving a 10 per cent GDP growth rate by the end of 2017.

A recent report by Oxford Business Group placed Kenya’s retail market as the continent’s second most developed, trailing behind South Africa, and the fastest growing sector within the continent.

In 2016, the sector expanded by 13 per cent hitting an all-time high spending of Sh1.8 trillion according to a survey conducted by Proctor and Gamble in February 2017.

A closer look at the recent trends characterising Kenya’s retail sector reveals mixed fortunes – whereas the sector has reported growth there are some unfortunate events which signal that the sector is not mature yet.

Let us explore the recent trends in a bid to answer the question – what does the future hold for the sector? To begin with, the ever increasing buying power among middle income consumers supported by the improved national economy compared to the previous years, has been a major boost to the sector.

Undoubtedly, this progress will be hampered by the drought experienced recently and the prolonged electioneering period whose effect is already hurting the economy, but notwithstanding, this factor will continue being pivotal to the growth of the sector.

There has been tremendous improvement in the supporting infrastructure which include but is not limited to the recent rise in the popularity and penetration of shopping malls with supermarkets being the anchor tenants in virtually all the malls ; the real estate expansion allowing companies to access customers in areas traditionally perceived to be rural areas; and thirdly the increased investment in Nairobi suburbs like Ruaka, Kitengela, Rongai, Ruai etc. have presented opportunities for the retailers to further consider.

The recent boom in the technology space impacting on areas such as mobile platforms, cashless payment systems and e-commerce have positively impacted on the customer shopping experience.

Besides the growth in the traditional onsite retailing sector, technology has fueled online shopping activities with the growth of online retailing websites like OLX, Jumia, Pigiame and Kilimall.

Finally, the sector has been characterised by the recent entry of international players in the Kenyan market who penetrate the market either as sole ventures or joint ventures with already existing local investors. A perfect example is Carrefour which opened its first outlet in May 2016.

The company has since opened another outlet at Two Rivers and is in the process of opening another store at Thika Road Mall – a clear indication that the market is receptive and promising.

Other examples of new entrants include Massmart Holding’s Game and Bostwana’s Choppies (through acquisition of Ukwala Supermarkets), among others. Whereas the sector has recorded growth and positive prospects this has not been universally the case.

Various players have been going through stormy times powered by tough operating environment characterised by increased struggles in a bid to maintain their supply chain amid increasing debts, prolonged electioneering period triggering a wait and see attitude among the investors and the consumers by extension, cash flow management problems, poor growth management and internal corporate governance issues.

An example of a retailer who has come face to face with these challenges is Kenya’s leading supermarket, Nakumatt, which is seeking to appoint an administrator. Recently, Nakumatt has shut down a number of its strategic outlets and warehouses.

Shoppers are getting used to empty shelves and absence of certain popular brands prompting the customers to abandon the trays midway.

The same fate recently befell Uchumi Supermarkets, a publicly listed retailer, which is to date struggling to bounce back to profit making territory. Needless to say, large numbers of employees have been sent home and hundreds of employment opportunities crumpled.

Courtesy of the entry of international retailers, continued improvement of the supporting infrastructure, rising middle-class purchasing power, technology advancement and an overall positive economic growth and the aforementioned impediments notwithstanding – the sector’s future remains very promising.

The downsides are normal and they will continue punctuating the future of this sector. However, the players and all the stakeholders must learn from the mistakes committed in the sector. Government must continue supporting the sector by way of creating a conducive business environment.

Fredrick Kimotho is Senior Associate within the tax team at PricewaterhouseCoopers.