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Why French retailer wants to lock out rivals from malls

NEWS
By Paul Wafula | December 16th 2017
Carrefour’s Store Manager at Thika Road Mall, Jean Yves Genies (left) helps pack a customer’s shopping. This is their third branch in Kenya. [David Njaaga, Standard]

French retailer Carrefour has come out to explain why it rattled the retail market with an application to lock out rivals from malls it has signed up as the anchor tenant.

The retailer, which now has three stores in Nairobi, says it is paying a premium in the malls it is renting and one of the reasons is to be allowed exclusivity to be able to make a return on its investment.

“We are not against competition. But we would like to have a sustainable business that makes return on investment. We are also restricted from opening shop in other malls 50 metres close to where we have taken space. This is reciprocity,” Frank Moreau, Majid Al Futtaim country manager in Kenya told reporters in a briefing.

Majid Al Futtaim has the exclusive franchise to operate Carrefour in Kenya and other 37 countries in the region.

The firm equates the request to a tenant of a beach property who takes up residence in a unit facing the ocean and is charged a premium for the view, only for the landlord to build another structure in front of the window blocking the view.

“Our investment in every store is about four to five times what the existing local retailers have and this gives us between six to seven years for a return on the investment,” Mr Moreau said arguing that the request is an internationally acceptable standard to ensure retail chains operate efficiently.

The retailer rattled the retail space after it applied to the Competition Authority of Kenya (CAK) to stop rivals from gaining tenancy at the Hub Karen, where it has an outlet, after making a similar application for its flagship store in Two Rivers Mall.

He said the retailer is not interested in throwing out those tenants it already found but rather is looking at new entrants in its current spaces.

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Carrefour shares space with Chandarana Supermarkets at Two Rivers Mall and first applied for exclusivity from peripheral businesses in malls in March last year.

At the Thika Road Mall (TRM), it will find several tenants among them a butchery which it will have to learn to live with.

Investment plans

If granted, the application would keep at bay other local supermarket chains that may be eyeing space in the shopping malls.

It would also lock out other businesses, including butcheries, green groceries and fruit vendors from the malls and this may reduce competition that allows consumers more choice and bargains.

The retailer declined to reveal just how much it has invested in the country in the last two years. On average, Nakumatt spends about Sh300 million to set up a store. This means that it could be investing about Sh1 billion in every store in the country.

The retailer says it has had to alter its investment plans in Kenya following the gap that was created in the market by the troubles of Nakumatt and Uchumi supermarkets which saw it take up the space in TRM that was initially occupied by Nakumatt. It says the next town for investment in Kenya would be Mombasa. Uganda could be its first expansion into the East African region.

However, there is no immediate plan to open stores at the coast or the region given that it first needs to put in place logistics for suppliers and do market due diligence.

The firm planned to open five hypermarkets and 10 supermarkets in the next five years but this plan has been accelerated given the fact that the two largest retailers have been struggling for the past one year to meet their cash flow requirements.

“We do not want to make the same mistakes. That is why even if we were offered 50 per cent of the current outlets being left by Nakumatt for free, we will not take them since our model is different,” Moreau said.

As part of its strategy, Carrefour has invested heavily in each store to have an independent team of management that run its operations at the store level. It has warehouses at the stores.

It has a stringent contract award system where it charges extra fees known as pay-to-stay and listing fees, which are used to gauge a supplier’s seriousness.

The money also acts as security to the supermarket in case a supplier’s product fails to sell. The Kenya Association of Suppliers has been battling the requirement that all suppliers pay a non-refundable fee of Sh1.4 million and commit to paying monthly rebates to do business with the retailer.

Local suppliers have found the going tough as international retailers shy away from local products.

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