How expansion of companies benefits local communities

A Java House outlet on Kimathi Street in Nairobi. PHOTO | SALATON NJAU | NMG
A Java House outlet on Kimathi Street in Nairobi. PHOTO | SALATON NJAU | NMG 

Coffee chain Java House last week announced plans to open its 56th branch, worth Sh50 million, in Athi River, Machakos County, in a move that could add a significant boost to the microeconomy of the county.

The branch, at the Crystal Rivers Mall, will occupy 2,800 square feet.

“We found Crystal Rivers to be a very strategic location for our new restaurant — ideally positioned between Nairobi and Machakos, along Mombasa Road and right next to a rapidly expanding residential and commercial area,” said Java House Group chief executive Ken Kuguru.

Java has in the past year expanded its business in areas outside Nairobi, including Nanyuki, and plans to open more branches in Eldoret and Kericho by the end of the year, capitalising on the rising consumer spending that is seeing Kenyans spend the bulk of their income (about 60 per cent) on food and beverages, according to a P&G Fast Moving Consumer Goods report released this year.

Founded in 1999, Java House’s annual revenue is estimated at more than $30 million (Sh3.09 billion).

The business employs more than 2,000 people, who receive extensive training, serves 12,000 to 15,000 meals daily and has over 320,000 customers a month.

Thus, as such a sizeable player in the market expands into a new location, it can have an impact on the microeconomy of the county, and even nationally, through its procurement of food, staff, and other inputs.

“When a large chain opens in a new market, one of the advantages is that it will provide jobs to the residents, a key factor in improving the economy,” said Kevin Munyao, a Kenyan entrepreneur.

Indeed, according to a study conducted by economic analysts Global Insight, the opening of a typical 150 to 350-employee store in a county leads to an increase in employment by 137 jobs over the short term and levels off to a 97 job increase over the longer term.

“It also leads to net job declines in food stores and apparel and accessory stores, but to net job increases in building materials and garden supplies stores and general merchandise stores.

‘‘This indicates that chain stores seem to displace other retail establishments, but also serves to stimulate the overall development of the retail sector that leads to an overall positive impact (in terms of retail employment) for the counties in which it has expanded,” reported Global Insight.

An example of a chain store that boosted the economy of a country following its geographical expansion was Starbucks, an American coffee house chain that entered the UK market in 1998 and by 2012 had 738 stores.

In the 2011-12 period, an average Starbucks store located on a UK high street served 221,200 cups of coffee and 19,700 cups of tea.

With these drinks, customers bought 50,100 cakes, muffins, and croissants and 22,800 sandwiches, paninis, and salads, according to a case study conducted by Oxford Economics on the economic impact of Starbucks on the UK economy.

“The company employed 8,810 people across its stores and support operations. Some 46 per cent of these were under 24 years old, an age group that faces challenges in the labour market.

‘‘It also contributed £119 million in gross value added to UK GDP,” reported the researchers.

“Starbucks supported 13,100 UK jobs, and contributed £338 million to UK GDP. The company’s innovation, apprenticeship and training programmes for its staff helps enhance the supply-side of the UK economy and the labour market outcomes those people subsequently achieve.

‘‘Its contribution to the UK’s coffee-drinking culture and regeneration of the high street and other retail areas help increase and shape demand.”

- African Laughter