From shoes to sweets, we have built an empire – Kenafric CEO Mikul Shah

Kenafric Industries CEO Mikul Shah (Right) and Head of Legal Lorna Solopian showcase Africa’s first Charcoal-Activated gum dubbed Fresh Active on July 22, 2021[David Gichuru, Standard]

In the last four years, Kenafric Industries has invested over Sh2 billion in different product lines including biscuits, beverages and confectioneries.

The firm, headquartered in Nairobi’s Baba Dogo, ranks as one of Kenya’s most diversified manufacturers. To propel further growth, the family-owned business has since ceded a majority stake to external investors.

Enterprise sat down with Kenafric Industries chief executive Mikul Shah in a wide-ranging interview on innovation, business diversification, running a family empire and the state of Kenya’s manufacturing.

Mr Shah is the second generation in the business which was started by his father and uncles (Chedda family) in 1987.

The siblings came from a trading background and moved to manufacturing.

They started with plastic footwear and because of forex controls, oil price fluctuations, they decided that they needed to diversify in case something happened and that’s how they started the confectionery business.

Now, it’s one of the largest manufacturers of confectionery, biscuits and beverages in the region employing over 2,500 directly and over 10,000 indirectly.

Their confectionery business has a market share of about 40 per cent and is present in the regional export market – Uganda, Rwanda and Tanzania. Their products target the masses and youth population.

Kenafric Industries is one of the most diversified businesses, why is this key for any business?

The reason we have diversified over the years is that we saw that there’s a lot of volatility in the region. When you try and only focus on one business line there could be shocks which means that that business will then suffer. When you’re diversified, if one business is not doing well at least the other one is and you are able to manage. On top of that what we found is that while some of the products while not linked to the same distribution channels were quite similar.

A few years ago you opened up the family business to external investors ceding a majority stake. What has that meant?

As a family a few years ago we decided that we wanted to grow, professionalise and institutionalise the business. We then brought on board some Private Equity (PE) investors with the growth. Together, we’ve set up a factory in Uganda, invested in the biscuits and beverages lines and continue to grow with them.

The idea was to improve governance, take the business to the next level and prepare ourselves for a future where it’s an institutional business rather than run purely by the family members. The PE acquired about 40 per cent of the business.

There’s an accusation that PEs fatten the cow and flee...

It’s not the case … PEs understand financials, governance and they bring all that to your business. They might not understand 100 per cent the Kenyan landscape but that’s where the combination comes in – they have the money, know-how, governance and we know how to run the business and the local conditions.

That combination is what helps to bring a good partnership and they open you up to the world, sometimes as Kenyans, we are too insulated and can only think about our numbers.

Corporate governance has also improved and we end up making high-quality decisions and they challenge you to think beyond your shamba.

What was the thinking behind the new product lines?

We spent time researching consumer needs and also did a survey to understand what gum consumers in East Africa lacked in the various product offerings. One thing that was clear to us is that oral health and hygiene are key consumer needs but not met fully.

This saw us develop Africa’s first activated charcoal chewing gum dubbed “Fresh Active”. It has many benefits including oral healthcare for gums and teeth and helps with digestion.

We found that there is no such product in Africa that can be offered to the masses. Those available today are either imported or hard to access by the masses. It contains ingredients such as neem, aloe vera and comes in two flavours – watermelon and mint.

Recently we invested in beverages making two products water and energy drinks. The firm has also invested in matches and also have a footwear line.

Does this mean new production lines and what are the timelines for the new products to pick up?

For new chewing gum it means finding new sourcing, formulations and packaging. Generally, it takes six months, from the time the product is introduced, gets to wholesalers and supermarket shelves. Consumers try it and then give us feedback.

A few years ago, Kenafric Industries set up a $1 million (Sh108 million) biscuit line. How is the biscuit business performing?

It’s a very competitive market especially for the small packs which are popularly priced. For us, it’s a bigger play and an interesting part of our strategy is to ensure our biscuits meet the snacking needs of our consumers.

We produce 200 tonnes of biscuits monthly. We only sell them in Kenya but plan to put up a factory in one of the regional countries. Currently, we have a very small market share of about three to five percent but we intend to grow it over time.  

As key suppliers to supermarkets, has the turbulence in Kenya’s retail industry troubled you?

No, we’ve not faced challenges. Over the last few years, the retailers have gotten better and better at keeping to the commitments. We find that now, they are better capitalised than in the past.

How did you weather the Covid-19 pandemic?  

This was a very hard time for us, a lot of our products are sold by hawkers and people were commuting less owing to the Covid-19 restrictions. Retail shops closed and our products target school-going kids and those in tertiary institutions.

Our stationery business was shut for a number of months it was a very difficult time for us. What helped one was we had a good export market regionally. The marketing team also did a good job of spurring demand for home consumers. We had to shift our focus from selling products in commute to home consumption as more kids were at home

What have been the key lessons from the pandemic as a business leader?

To always have available cash in the business for tough times. Agility is also important. Further, making sure from top to bottom people know what’s going on – whether it’s hard or good times. If that’s culture is there, people start thinking about how to save money or do more sales. If the culture of the organisation is that way impacts can be less severe.

We decided that as a family we didn’t want people to go home, some seniors took salary cuts and the family put in some more money to ensure that the people who were most affected such as factory floor workers could continue getting paid even if there wasn’t the same level of work. We tried to avoid the layoffs in that period.

What are some of the bad business decisions over the years?

A good one is the chocolate business which we took a big hit eight years ago. We ended up over investing and bought a very high capacity machine without sizing the market properly and we failed and had to take a big hit.

Was there a time when the business hit a plateau? 

2008 was a bad time when there was a global financial crisis and commodity prices shot up. It was a tough time, margins were under pressure and the shilling weakened. Kenya relies on importing a lot of raw materials but we got through the year. What really changed was when we stopped looking at it only from a trading mindset and started bringing professionals who helped us think about what the consumer wants and tailor products to their needs. I think that made a difference to the journey.

Are there any plans to list at the Nairobi Securities Exchange (NSE)?

Not right now, but there’s always a possibility – if the Kenyan financial markets mature a little bit more. There are no benefits the government are giving to get people to list, the liquidity in the stock market in Kenya is quite low and only a few stocks get traded.

The government has a lot to do in terms of making sure that they bring people especially Small and Medium Enterprises (SMEs) to the public markets.

What are some of the immediate challenges facing local manufacturers?

Kenya’s power costs are amongst the highest in the region which is worrying. We have an overcapacity of power what is the government doing to subsidise these power costs to manufacturers so that we can grow?

If we don’t make these changes it will be difficult. Labours is also an issue.