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Festive season promises good harvest for corporates

BUSINESS
By - | November 11th 2012

By Macharia Kamau

Retailers and peddlers of fast moving consumer goods are looking forward to a good high season, with basic indicators showing the public might spend more during the upcoming festive season.

The current confidence is informed by positive developments on the economic front that have taken place in the recent past, including monetary policies adopted by the Government to control inflation, reduce interest rates and ensure stability of the exchange rate of Kenya shilling against the major world currencies.

These new developments have raised optimism that consumers’ spending powers could improve as the country braces for the long festive period of December.

Traditionally, December has been a high season for Kenya’s retail industry, with the month combining the long school holidays and the Christmas and New Year’s holidays. It has, however, not been so in the recent past with the harsh macro-economic environment resulting in an eroded consumer spending power.

Tough times

Last year for instance, a prolonged dry spell, a weakened shilling against major world currencies, high food and fuel prices left many with little to spend during the festive season.

Though not the best of years, 2012 has been relatively good for Kenyans. Good rains that have kept food prices low and a steady and strong shilling that has exchanged at around Sh85 to the dollar throughout the year are among the factors that have retailers optimistic of high spend among consumers this season.

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These add up to a reduced cost of living that might result in Kenyans being able to spare a little more to spoil themselves this Christmas. Thus December 2012 might be slightly different and retailers are looking forward to what might be a bumper season after a long while.

Food prices have remained stable, recording steady declines in the course of this year. Imports of commonly used grains like maize and wheat have also helped stabilise prices.

The Kenya National Bureau of Statistics attributed the consistency in prices to decline in food values. Food comprises about 30 per cent of the consumer price index, making it one of the major components in the basket.

The shilling has also held steady against major world currencies, which meant that the cost of imported goods remained low. Energy costs have mostly risen but this has not had major impact on inflation.

Personal finance advisor Patrick Wameyo noted that food items are likely to remain stable during the festive season as supply is expected to be good and check on any unexpected demand through to January.

“Food prices will remain stable because the weather has been favourable to everyone and the excessive Christmas demand might not be there. We may, however, start experiencing heavy demand and short supply early in 2013,” he said.

He also noted that change in school opening dates, which gives parents ample time in January to look for fees, might give them a little extra to spend in December.

Retailer, Nakumatt Supermarkets, is upbeat that the festive season will bring about good tidings, adding that it expects this season to be the best in the recent past.

Thiagarajan Ramamurthy, Nakumatt Holdings regional director, operations & strategy noted that in addition to the traditional business of customer buying gifts their self, the chain is already experiencing huge demand for customised gifts, corporate orders and gift vouchers.

He added that there has been a steady growth in spending among customers to the retailers’ outlets in the recent past. By close of the third quarter, the average basket value for consumer to Nakumatt supermarkets grew seven per cent compared to its value the same period last year.

“All indicators are that we are fast approaching the traditional retail markets peak season. Current signs also confirm that this might be one of the busiest shopping times in recent times,” said Ramamurthy.

“We have already noticed a more than 30 per cent growth on purchase of gift vouchers and cards. A number of leading corporates and organisations have already placed orders for customised gift cards and vouchers featuring their corporate identities for presentation to their staff, customers and associates.

“This simply means that we shall be witnessing heavy redemption in December and beyond alongside normal business.”

The chain expects to achieve at least 40 per cent growth in the next two months.

“We are forecasting that consumer spending on basic commodities will remain the same but expect to see steady growth on lifestyle products,” explained Ramamurthy.

While the retail industry is optimistic, there are fears that high fuel prices and the subsequent effect on other segments of the economy might slow down spending.

According to KNBS, cost of power and transport went up in October due to increase in fuel prices.

“The cost of consuming 50 kilowatt hours (Kwhrs) of electricity increased to Sh657.50 in October 2012, up from Sh613.50 in September due to upsurge in fuel adjustment cost and forex charges,” said a KNBS commentary on October inflation.

“The Transport index went up by 1.37 per cent over the same period, mainly due to higher costs of petrol, diesel, petrol and bus and matatu fares.”

Wameyo said the rise in consumers prices and the heavy import bill that by far outweighs what Kenya exports might see prices of certain goods, some of them essentials, remain high going into the festive season.

He added that even in times when the economy is depressed and consumers have little to spend, they are likely to spend the little they have.

“The average buyer, who account for the bulk of customers, is not emotionally wired to shield self from marketing incentives,” said Wameyo who is also a founding director of Financial Academy & Technologies Limited, an institute focusing on growing financial literacy.

“The average person is a ‘walking emotions’ whose buying behaviour is driven by images of expectations stored in their subconscious mind. Only a few financially literate public are able to save, as well as spend judiciously regardless of the season.”

James Chege a retailer of electronic goods along Nairobi’s Luthuli Avenue echoes similar sentiments noting that while many of the walk in customers will complain about depressed income and try to negotiate prices downwards, most just need a little nudging to make a purchase.

“When the holidays are approaching, many people tend to make huge purchases, some of them bordering on impulse. Making a sale is not difficult around this times of the year, one just needs a little convincing about the quality of the product or assure them that they are not making a bad decision,” he explained.

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