Survey ranks Kenya as Africas second largest retail market

Posted Thursday, May 24 2012 at 18:05

Kenya has the second most developed retail market in sub-Saharan Africa with about 30 per cent of retail shopping being done in formal outlets, a Citi Group study has shown. South Africa is the most formalised market in region, with double the proportion (60 per cent) of Kenyan consumers using formal outlets. The high penetration of modern retail shops is attributed to the presence of strong brands of local outlets, a broader middle income class relative to other African countries, decent transportation network and good governance allowing for ease in importation of goods. Kenya is the second most formalised African country in terms of formal retail penetration with retail penetration standing at around 30 per cent, reads the report. The retail market is dominated by four major outlets; Nakumatt, Tuskys, Uchumi and Naivas. Three of them (except Naivas) have already crossed into the neighbouring countries. Nakumatt is the largest retailer in Kenya by turnover. It has 37 stores, followed by Tuskys which has 37 outlets, Uchumi 18 outlets and then Naivas with 19 branches. Nakumatt is also present in Uganda, Tanzania and Rwanda, while Tuskys and Uchumi are also in Uganda. Uchumi recently announced plans to increase its presence in Uganda with three more branches. Use of the formal outlets increases customer choices, while creating employment. According to research this is one of the fastest growing areas in the private sector and it is a good thing as it helps grow customer choices and provide employment. However there is need to introduce policies and procedures that will ensure all tax obligations are captured, said Dr Samuel Nyandemo a lecturer of economics at University of Nairobi. Kenyan customers were said to be generally loyal and value orientated, pushing retail chains to compete aggressively on prices. Nakumatts loyalty card programme was reported to have over 700,000 members. The increased use of Internet and social media was said to be making Kenyans more western influenced dictating their shopping habits. However, the report notes that even with the more conducive climate for modern retail, many of the established retailers felt that modern retail penetration will peak out at between 45 and 50 per cent, as most of the rural areas will continue to favour informal markets over modern retail.

The strong presence of local players was also identified as a hindrance to new entrants, with the research firm recommending acquisition as the best entry option for into Kenyan retail market for South African outlets addressed by the report. East Africa is where SA retailers lack scale due to strong local retailers. Acquisition looks to be the easiest route to build scale in this region, said the report. Three of the dominant retailers; Nakumatt, Tuskys and Naivas are family owned making them prime targets for acquisition. Tuskys shareholders are currently involved in a court battle for control of the giant retail outlet, with some of the directors blaming the power struggle to outsiders engineering an aggressive take over. (Read: Tuskys retail chain hit by fierce sibling rivalry) Nakumatt is also seeking private equity to boost its capital to help it meet its expansion plans before listing on the Nairobi Securities Exchange. The exchange listed Uchumi Supermarket was in 2008 involved in acquisition talks, with South African based Shoprite being one of its eight suitors. The supermarket had been suspended from the bourse in 2005, but was re-listed last year after a successful recovery, and is on another expansion drive, underlining the strength of the Kenyan retail market.