Retailers find new cash in food market to grow returns
By Wainaina Wambu | September 7th 2021
We are wearing black because we’re burying all these other supermarkets,” chuckled a comedian last week as Quickmart marked its 15-year anniversary.
Whether the hubris-laced attempt at dark humour will age well, only time will tell.
For Kenya’s supermarket business, it appears there are no fairy tale endings with at least seven retailers failing in less than five years.
Amid this debris, Naivas and Quickmart have stood firm and seem like they are on steroids. Each has expanded by more than 10 branches in the last three years after being acquired partly by private equity (PE) funds.
They are both now at 75 and 45 outlets respectively – the largest local retailers by floor space. The rather secretive Quickmart has made it known that it aims to soon overtake Naivas.
The two retailers are anchored on the same business model – from origin to growth – and it will be interesting to see who will come out top.
They both share humble beginnings in Nakuru and have largely keep away from malls and were acquired by PEs at almost the same time.
They are also relying on a new retail concept of food markets to pursue growth, and have no regional expansion plans at the moment.
Kenya’s retail turbulence brought a lot of rethinking in the business and the entry of foreign expertise might explain the new rage of food markets and fresh agricultural produce.
Naivas claims to be the local pioneer of the food market concept in 2016 having been “re-engineering the in-store experience” over the years.
It has now started converting some of its old outlets into food markets with a large focus on fresh agricultural produce.
“This move was driven by our need to constantly meet and exceed customers’ needs as the business is alive to the fact that the environment it operates in is changing and the consumer is evolving,” said Naivas chief commercial officer Willy Kimani as the retailer refurbished its Prestige outlet into a “next level” food market.
Quickmart says it has allocated 30 per cent of store space for fresh food and bakery, which have anchored its sales.
“The margins within that category are very attractive, hence the drive to see a lot of stores coming up with food markets,” said Quickmart marketing director Betty Wamaitha.
The produce is sourced locally so there are no supply hitches, and also present huge opportunities for Kenya’s farmers, manufacturers and suppliers.
Quickmart has 45 stores in 11 counties and plans to have at least 70 in 30 counties.
French retailer, Carrefour – the third largest supermarket with 16 outlets – has also not been left out of the food market wave.
It recently opened its 16th branch at Southfield Mall in Embakasi, Nairobi. The store has a grocery range and a variety of fresh food including butchery, fruits and vegetables and a bakery.
The three retailers appear to be thriving in a vacuum left by erstwhile giants Uchumi, Nakumatt, Tuskys and Ukwala as well as foreign chains such as Choppies, Shoprite and now Game Stores, which recently announced exit plans.
They, however, maintain that they have learned from the mistakes of their predecessors and have changed significantly in terms of management and governance structures after bringing in external investors.
Retail trade (combined with wholesale, hotels and restaurants) provided over nine million jobs by 2019 and is the biggest employer in the informal sector, according to government data.
The sector, which was valued at Sh740 billion at the end of 2019, is one of the main drivers of the Kenyan economy and its recent turbulence has shattered millions of livelihoods.
Some of the factors attributed to the woes afflicting the sector include fraud, aggressive debt-fuelled expansion, inability to keep up with changes in consumer spending patterns, online competition and challenges in the implementation of new sector regulations.
It has taken Quickmart 15 years to be Kenya’s largest second supermarket; it took Nakumatt, Naivas and Tuskys about 30 years to be at the top.
“Our growth is not too fast, its steady, planned...and organic. There’s been an opportunity in the market and we’ve grabbed it,” Ms Wamaitha told FS.
She said their strategy in the “middle to short term” is to grow their local footprint to become Kenya’s leading retailer, adding that they have put in place “solid measures and procedures” to prevent a retail catastrophe and ensure continuity in the business growth strategy.
“We’ve really strengthened our structures, brought in a lot of expertise with experience in the market,” Wamaitha said.
Last year, Mauritius-based private equity firm Adenia Partners acquired Quickmart, with the transaction structured through the Adenia Capital (IV), a €230 million (Sh29.4 billion) fund.
The same PE had acquired second-tier Tumaini Supermarket in 2018, and this saw the merger of the two to trade under the Quickmart brand.
Also last year, French PE fund Amethis became the first external investor in Naivas alongside its partners DEG, MCB Equity Fund and International Finance Corporation (IFC), a member of the World Bank Group.
The deal has enabled Naivas, then valued at Sh20 billion, to expand rapidly and become Kenya’s biggest supermarket in branch network.
Amethis acquired a 30 per cent minority stake from the Mukuha family, pumping in Sh6 billion for scaling the business further.
What is striking is the French influence in the modern shaping of Kenya’s retail sector after the fall of Nakumatt, Uchumi and Tuskys.
The PE funds have a French connection and they have brought in representatives to protect their interests.
They now sit in the board and are in charge of key departments such as finance and operations. The locals are just the face of the company.
While Carrefour prefers malls, Naivas and Quickmart - whose roots are as convenient stores in residential estates - have largely avoided malls.
Quickmart, however, said they are open to new opportunities.
“There remain pockets of underserved markets within Kenya, those are the opportunities we look at exploring and getting nearer to our customers,” said Wamaitha.
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