Supermarkets ought to rethink physical outlets model or die

Retailers have to change now or face the consequences. file photo | nmg

What you need to know:

  • Online shopping, home deliveries, going virtual the leading threats.

In East Africa, the retail sector is currently facing unprecedented pressures. Is this mismanagement or a changing business environment issue?

If trends are anything to go by, then the retail sector has proven to be as dynamic and unpredictable as ever. It isn’t anyone’s turf anymore. In fact, according to KPMG’s 2017 Global Retail Trends report, there is a need for a true reflection and understanding of today’s consumer and retail realities.

A sector that once comprised of consumers who many considered unsophisticated has now been filled with consumers who want to know the full details of each product and how that satisfies their requirements.

Though many may cite mismanagement as one of the major challenges facing major retail outlets, the sector is facing a turbulent change. Possibly fuelled by a generation of new consumers who want ease and convenience in their shopping experience.

As such, the retail sector has seen a considerable increase in the number of online purchases year in year out.

According to a 2017 survey conducted by KPMG where 18,430 consumers were surveyed, Generation X consumers (Born 1966-1981) in Africa and the Middle East made around 19 transactions per person that year.

What was even more riveting was the fact that globally, Baby Boomer consumers (born between 1946 and 1965) and Millennial Consumers (Born between 1982-2001) were not far off, averaging 15 transactions per person.

What makes these numbers even more significant is the fact that the respondents admitted to spending about $150 to $200 per transaction. While according to a recent Kenyan Supermarket report by Black Orwa, on average, a shopper spends a little below Sh2,000 per transaction which is almost the same as the online transactions.

Naturally, online shopping is still at its infancy in Kenya with an opportunity for growth. According to the KPMG study, only 23 per cent of the respondents preferred visiting retail shops.

If these respondents are a representation of the wider population, then physical shopping and retail players are at risk and online shopping may well be the preferred retail experience in the medium term.

This only goes to show that for most retailers, developing e-commerce platforms is pivotal to their success and longevity. On the contrary, for them to be able to upsell and increase the value shopping for consumers, most retailers will have to come to terms with consumers’ preconceptions and address their immediate needs.

For example, home delivery of products is slowly becoming an advantage for those retailers who offer it within Kenya.

For a long period, consumers have based their purchasing decisions on internal and external influences. From internal influences such as health and family to external ones such as advertising and the revolutionary social media.

As much as these influences have proven to be vast and different, it has meant one thing to most retailers: that they have to adapt to the ever changing consumers habits in order to acquire and retain them.

These disruptions are reshaping the competitive landscape faster than most retailers can move.

A good example of this is in customer acquisition. Most customers’ decisions are based on the look and feel of the product and brand in general.

Price is of course a determinant, but not the only one. This means that for most retailers, the cost of acquisition not only requires a thorough market study, but a more personalised marketing approach.

Aside from the reality that convenience stores offer a much more personalised experience not to mention the greater price inelasticity, it may be worth noting that consumers are slowly foregoing weekly or periodic shopping and are now shopping daily.

This is only viable with convenience stores hence the uptrend. A 2010 article in the Daily Nation made this prediction citing that consumers are not only shifting to outlets that reflect their economic class, but also ease and convenience. This has seen an increase in residential stores.

Retailers will soon need to go the extra mile just to provide a service or product in a differentiated way to attract consumers.

Locally, the landscape may not have transitioned fully, but it will.

Retail outlets face increased competition unless they can encourage customers to enjoy the physical retail ‘experience’.

Retailers have to change now or face the consequences.

Smith is an associate director and head of debt advisory and restructuring at KPMG Advisory Services Ltd. These are personal views.

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