Kenya outpaces Ghana, Morocco and Nigeria in growth of supermarkets

A customer picks fruits at Naivas Supermarket in Nyeri on August 7, 2021. PHOTO | JOSEPH KANYI | NMG

Kenya has outpaced Ghana, Morocco and Nigeria in the penetration of supermarkets underlining the ongoing retail chain battle among local and global players seeking a bigger footprint in the region.

But a new report has found that there still exists a huge market underserved by the current players, with only three out of every 10 shoppers using supermarkets to shop for their supplies.

The study by the Boston Consulting Group (BCG) released this week found that Kenyan consumers buy 77 percent of their goods including food, beverages and personal care products from more than 250,000 small stores, commonly referred to as dukas, in a market that currently has supermarkets such as Naivas, QuickMart, and Carrefour.

The growth and dominance of the stores have been attributed to proximity to customers and offering credit options unlike the supermarket chains, the Future of Traditional Retail in Africa report, BCG shows.

“Several factors make traditional retailers remarkably resilient. Small shops offer the proximity, flexibility, and convenient operating hours needed to serve their communities. They also often allow customers with limited incomes to purchase small quantities on credit,” stated the report.

Their preference has also been exacerbated by the Covid-19 pandemic that cut households’ disposable incomes, amid rising inflation reducing the size of customers’ shopping baskets.

Players in the sector say low earnings have kept Kenyans at traditional stores driving their dominance, despite the advance of supermarkets and convenience stores.

“Disposable income is limited. Because of this people go to the informal sector which breaks bulk into smaller quantities. In many cases this sector is also based on personal relationships, which afford credit facilities when one does not have cash,” added Wambui Mbarire, chief executive, Retail Trade Association of Kenya.

The report studied more than 4,500 small retailers in five of the biggest African markets — Egypt, Kenya, Morocco, Nigeria and South Africa, across where traditional stores’ dominance has been recorded.

Countries with a lower gross domestic product (GDP) per capita had a high dominance of the dukas, translating to lower modern retail penetration.

Kenya’s gross domestic per capita increased by 11.4 percent from Sh220,132.2 in 2020 to Sh245,145 in 2021.

The Kenya modern retail market has seen a poor run as some retailers exit or face auctioneers due to poor management, overly rapid expansion, and inappropriate formats.

The Game Stores operated by South African retail giant Massmart last September revealed its plan to sell its three stores in Kenya, citing “performance and complexity in running the store among other 11 stores in five markets in the East and West Africa was something frankly that we needed to address”.

It made its debut in Kenya with its first store at the Garden City Mall, to cash in on the growing demand for retail outlets in the country. It subsequently opened two other stores at the Waterfront in Karen and the Mega City Mall in Kisumu that are still operating.

Massmart’s planned exit followed previous similar exits of South African retailers Shoprite and their southern African peer Botswana-based Choppies.

Nakumatt shut down as Tuskys still operates less than seven stores after rapidly expanding across East Africa.

The proximity and preference for the traditional stores have seen Chandarana FoodPlus Supermarkets, which survived the crisis focus its expansion in residential areas, eyeing heavy traffic in the estates and making a U-turn in its strategy that favoured malls.

The family-owned business has been opening large-size convenience stores in Riverside, Thigiri and General Mathenge in Westlands, running away from malls facing cash flow challenges leading to stock-outs and subsequently reduced footfall, forcing supermarkets to shut down.

“By comparison, many modern retailers in most of Africa have failed to devise a winning model that can be scaled up to address the needs of most customers. Their locations and value propositions primarily cater to upper-class consumers.

And while modern retailers in Africa are embracing e-commerce, particularly since the onset of the Covid-19 pandemic, they are not doing so as quickly as in Southeast Asia and Latin America,” it added.

Despite this, the reports state that modern retailing is expected to resume growth with its market penetration reaching around 25 percent in 2030.

This will be led by current market leaders such as Naivas, Quickmart, and Carrefour that have managed to find the right formulas in terms of format and assortment to address the market.

“We expect local modern chains to try to expand with small supermarkets and convenience stores and by franchising.

“Traditional retailers will remain resilient in low- to-middle income areas and will likely diversify by adding more services and leveraging digital platforms,” it added.

On average, African consumers buy more than 70 percent of their goods from the continent’s more than 2.5 million small and independent shops.

Traditional shops are expected to account for 65 percent to 75 percent of sales in most of the region through at least 2030.

Even with their dominance, traditional retail in Africa faces imposing challenges including the expansion of modern retail, the nascent rise of e-commerce, and changes in consumer behaviour that were accelerated by the Covid-19 pandemic.

With Kenya’s dynamic digital technology ecosystem and penetration of mobile money, some traditional stores have been forced to start offering new solutions for payments, procurement and last-mile delivery.

The report shows digital maturity of Kenyan shop proprietors is also substantially higher than the national average.

In Kenya, for example, 91 percent of proprietors surveyed in Nairobi and Mombasa have smartphones, compared with 68 percent of the general population in those cities.

About 85 percent of Kenyan shop managers have a bank account indicating higher financial infusion in traditional retailing, while only 40 percent of their counterparts in Nigeria have one.

A growing portion is also offering digital services—and around one-third offer remote ordering and delivery and bill payment services.

In Kenya, 97 percent of the small retailers surveyed said they accept mobile money.

Digital adoption was lowest in Morocco, where only one percent of respondents use mobile money and 29 percent use other digital services.

“Traditional retailers will continue to dominate. But to thrive, they must modernise by offering new services and leveraging opportunities offered by digital solutions.

“Many small retailers are already aware of this imperative and say they intend to take action in three ways,” it added.

The research adds that most of the traditional stores are prioritising offering higher quality products, and plans to open more stores while citing “modernising look and feel” as a priority.

Around 40 percent of traditional retailers in Morocco and Kenya are interested in affiliation or franchise models around 50 percent of Egyptian and 60 percent of South African retailers are also interested.

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