Formalise businesses to reap from evolving retail sector

The recent high-octane discussions about Kenyans supplying potatoes to the local KFC franchise was fuelled by understandable emotions. After all, Irish potatoes, as they are commonly known, and which are the main ingredient in the preparation of what we locally call chips, are a widely grown crop.

Even more crucially though, this debate cast a strong light on the extent to which Kenya’s businesses, especially those on the manufacturing side, need to adapt to formal standards for them to compete in the nation’s fast-evolving retail sector.

Kenya’s retail sector is said to be the second-most highly developed in Africa with large players like supermarkets taking up 30 to 40 per cent of the trade, thus presenting a large opportunity for local small and medium-sized businesses to ride on its growth.

This is driven largely by population growth, urbanisation and to an extent, the devolution process that has led to higher urban incomes over the last five years.

According to the Oxford Business Group, Kenya’s urban population was expected to cross the 14 million mark by 2020, signalling an immense market for growth-minded producers.

It is therefore not surprising that both global and local retail brands have recently gone on a spree of pitching camp in several urban areas around the country. The upshot of these developments, which are done by formal retailers who have set their own standards by which they want to be known, is that local suppliers must then match up and make the necessary investments.

In any case, research by KPMG shows that not only are more people resorting to buying from the formal retailers, but their basket values are also rising with every passing year with recent figures posting the annual rate at 67 per cent. This shows that as incomes rise, consumers are buying more items from formal retailers.

The fact that e-commerce has taken root in most Kenyan cities is a key factor to consider.

Online shopping has become highly normalised, both for formal and informal businesses. The larger portion of consumption though, is done through channels of formal retailers.

While the Covid-19 pandemic is credited with fuelling this rise in e-commerce, Kenya was already well on its way to adopting the lifestyle from as early as 2015.

The reality of the world we live in is that there are no longer geographical barriers to reaching retail markets.

The onus though, is on those willing and ambitious enough to plug into the formal retail sector, to ramp up their quality through investments in relevant technology, equipment, personnel and processes.

In some cases, they will require help from government agencies. Sector umbrella bodies can also chip in for instances where a substantial amount of movement is necessary such as subsidies and institution of favourable external tariffs.

The first step is to acknowledge that the consumer deserves better. Globally and even locally, consumers have become highly conscious about the sources and quality of the products they consume.

The clincher for formal retailers, is that they must be able to trace the source of each item or batch to a particular producer. The suppliers must therefore work towards arriving at this level. The opportunities exist but it means they need to adopt stronger formal business practices.

If this can be done successfully for the export market, then we are convinced it is possible and should be done for the domestic and regional markets.

Sector players realised early on that a partnership approach will serve all players well. This means even as suppliers rev up their quality internally, retailers would lend them a hand to grow and meet their consumers’ needs and standards.

On the global scene, we have seen Walmart for instance engage their design teams to work with artisan suppliers to create designs that would appeal to Walmart customers and still stay true to the artisans’ creative spirit.

Here in Kenya, there are concerted efforts by the large retailers to develop joint marketing plans between with suppliers that will ensure they register higher turnover.

All these efforts point to the desire for formalisation and the acknowledgment that this is what will work for everyone.