Foreign brands strike gold as local rivals flounder

Carrefour's signage at the Junction Mall, Nairobi, August 3, 2021. .[Elvis Ogina, Standard]

Dozens of multinational firms operating in Kenya are reporting sterling results in a complex market, buoyed by a growing army of consumers with enhanced spending power, a Financial Standard analysis shows.

The firms, which include, mining companies, consumer goods firms, electronic giants, fast-food chains and financial institutions, are striking gold in various segments of the economy even as their local rivals falter amid tough economic times.

Backed by deep knowledge of global consumer markets, well-organised value chains and deep pockets from their parent firms, the companies are changing the common narrative that Kenya is a hard market to crack for foreign companies.

The new development comes at a time several Kenyan firms have presented gloomy growth projections marked by salary hike freezes and delays, losses and profit warnings and job cuts in some cases.

Among the companies that have struck it big over the last 12 months are foreign-owned retail chain Carrefour Kenya; Stanbic Bank Kenya, a subsidiary of South Africa's Standard Bank Group; Australian miner Base Resources, which operates titanium mines at the Coast; Mauritian conglomerate IBL Group; French fuel supplier Rubis and a raft of Indian Health care chains.

Chinese phone giants like Xiaomi and Techo are also riding on a growing Kenyan middle class, keen on acquiring the latest electronic devices and gadgets.

Buoyed by the runaway success, the firms have in recent years announced rosy growth plans and are among the several major foreign brands that have ventured into the Kenyan market with hopes of increasing their global revenues.

Analysts who spoke to Financial Standard said the firms have defied commonly perceived issues that are said to make the local business environment difficult, including government red-tape and corruption.

Shoppers at Carrefour supermarket along Mombasa Road, Nairobi. [Denish Ochieng, Standard]

Some foreign businesses have also stumbled due to a lack of understanding of local culture, social norms, and most importantly consumer preferences.

Among the outliers is Carrefour Kenya, which shrugged off the effects of inflation and tough economic conditions in the country to post growth in sales last year by nearly Sh3 billion to Sh40 billion (1.14 billion Emirati dirham).

Majid Al Futtaim, the exclusive holder of Carrefour's franchise in Kenya, said recently the revenue had increased from Sh37.2 billion (one billion dirhams) recorded the year before as it opened more branches and attracted more customers to its stores concentrated in Nairobi.

The supermarket operator's sales growth of eight per cent bucks the trend of poor performance by its foreign peers and Kenyan counterparts that have recently either exited the market, reduced their footprint or collapsed altogether, citing losses.

"Overall, Majid Al Futtaim delivered balanced growth through 2022. Positive contributions from across our portfolio, bolstered by the inherent strength of the UAE economy, have enabled the Group to achieve double-digit revenue growth despite the ongoing macroeconomic challenges," said Majid Al Futtaim Holding Chief Executive Ahmed Galal Ismail last week.

Carrefour opened its first store in Kenya in 2016 and now has 19 outlets. It has been aggressively growing its online shopping arm in Kenya, riding on the rise of e-commerce, which it sees as a bright spot.

It has been conducting aggressive promotions and online sales to attract shoppers, putting pressure on other retailers to follow suit.

Carrefour announced the record sales as troubled Tuskys recently announced the closure of its Kenyatta Avenue branch in Nairobi, one of the three that were still operational.

"Due to unavoidable circumstances, we have had to close this branch. Kindly support our Tom Mboya street branch, which remains operational," Tuskys said, dealing a blow to any hopes of revival of the erstwhile giant retailer.

Homegrown retailers Naivas, and QuickMart, which rose to fill the void left by Tuskys, Uchumi and Nakumatt, have recently turned to deep-pocketed private equity (PE) firms for their expansion agenda.

The two have grown to become two of Kenya's largest retail companies by sales and employment, avoiding the missteps of their predecessors for now.

Carefour's 19 stores are located in Nairobi, Kisumu and Mombasa. Local businesses are confronting a tough business climate as hard-pressed Kenyans contend with a worsening cost of living crisis by cutting back on spending.

Surging inflation is driving up costs for businesses and hampering consumers' purchasing power.

Away from the retail market, French Oil major Rubis has been on a successful expansion spree after its successful takeover of delisted marketer KenolKobil in 2019.

Rubis petrol station along Koinange Street, Nairobi. [Elvis Ogina, Standard]

The oil marketer had a great year in 2021 from its Kenyan fuel and LPG distribution business. Buoyed by this performance, it plans to keep investing in Kenya by buying independent suppliers across the country.

Base Titanium, the Australian company extracting titanium minerals in Kwale County, on the other hand, paid a record dividend of Sh10.7 billion to its Australian parent firm Base Resources in the year ended June 2022 when its net income grew threefold, underlining its newfound fortunes in Kenya.

Its Kwale operation has over the years become more profitable, helped by steady production and a surge in the price of the titanium minerals ilmenite, rutile and zircon in the global markets.

"We have completed another operationally strong year and, with the continued improvement in mineral sand prices throughout the period, we were able to achieve record financial outcomes. This, and our disciplined management of costs, has enabled the continuation of robust returns to shareholders," said Base Resources Managing Director Tim Carstens at the time.

The miner's sales jumped 39.8 per cent to Sh33.3 billion in the year ended June 2022. Titanium is an important pigment for industrial, domestic, and artistic applications. It is also a choice material for joint replacement, tooth implants, and body piercing.

And in the banking sector, Stanbic Holdings, a subsidiary of South Africa's Standard Bank Group last week announced a record dividend payout totalling Sh4.9 billion on the back of increased revenues in the year ended December 2022, underlining a bright spot for a foreign-owned lender.

The payout of Sh12.6 per share is 40 per cent is higher than the aggregate Sh3.5 billion or Sh9 per share dividend paid out the previous year by the Nairobi Securities Exchange-listed firm.

Stanbic, which is the Kenyan unit of Africa's largest lender by assets, Standard Bank, announced the higher cash distribution after it posted a 25 per cent jump in net income in the year to December 2022 to Sh9 billion, riding on higher interest and non-funded income.

The lender said the higher dividend payout signalled it is more optimistic about the future of the battered economy despite multiple headwinds such as stubbornly high inflation, a weakening shilling, and political uncertainty following the vow by the opposition to push ahead with mass rallies.

It added the improved profitability placed it in a position to pay the larger dividend while remaining well-capitalised to pursue growth. "Whenever there is excess capital, we pay it out," said Stanbic Holdings Regional Chief Executive Patrick Mweheire.

"The operating environment is characterised by currency depreciation and rising inflation. However, we remain well positioned to navigate these challenges," said Mr Mweheire at an investor briefing in Nairobi last week.

Stanbic is the first lender to announce its full year's results. The lender's operating expenses also recorded a jump by Sh2.2 billion or 17 per cent to Sh14.9 billion eating into the bottom line.

Stanbic Bank Kenya branch along Kenyatta Avenue, Nairobi. [Wilberforce Okwiri, Standard]

Stanbic Bank Kenya and South Sudan Chief Executive Joshua Oigara, who took the helm about 100 days after leaving KCB Bank, said the lender will bet on revamping its lending products to target micro, small and medium enterprises (MSMEs) and its existing large corporate customers.

He projected the banking sector to remain resilient amid domestic and global headwinds. "We are quite bullish about 2023. There is always an opportunity even in difficult times," said Mr Oigara.

Mauritian conglomerate IBL Group is also among a host of foreign players moving aggressively to expand locally after seeing the potential of the local economy.

IBL last year acquired a minority stake in supermarket chain Naivas and is currently in the process of taking majority stakes in a solar firm and a pharmaceutical distributor, whose identities have not yet been disclosed.

Recently, IBL said it will grow into Kenya's construction, agrochemicals, consumer goods distribution and reinsurance industries, adding to a string of acquisitions it is implementing in the local market.

The multinational plans to enter the local distribution of fast-moving consumer goods through its subsidiary BrandActiv.

It is also eyeing the agrochemicals sector through its subsidiary Blychem, reinsurance through Ellgeo Re and electrical and construction through CMH.

And Zimbabwe's largest fast-food restaurant operator Simbisa Brands has been on a spirited expansion spree within Kenya, expanding its outlets by the dozen each year. It had targeted to expand to 245 outlets from 190 by mid-last year.

The company - which operates quick-service restaurants, including Chicken Inn, Pizza Inn, Bakers Inn and Creamy Inn - said it targeted to open an additional 55 restaurants amid increased competition from big players in the fast-food industry.

"Expansion of Simbisa's footprint in Kenya remains a priority and in the six months to December 31, 2021, 26 new counters were opened in the market to close the period with 190 counters," it said in an earlier regulatory filing. "The business is on track to achieve the pipeline target of 55 new store openings in the financial year 2022."

In the health sector, India-based Dr Agarwal's Eye Hospital, which handles complicated eye cases, said recently it plans to expand its Kenya operations after opening its first eye unit in Nairobi four years ago.

The eye care chain announced that it has set aside Sh1.19 billion for the new eye clinics in Kenya, Tanzania, and Nigeria.

The over 60-year-old Bombay Stock Exchange-listed eye care chain said the new proposed facilities in Kenya and Tanzania would target patients from the wider East Africa region. "As part of our expansion strategy, we will open 35 more hospitals in India and one each in Tanzania, Kenya and Nigeria," said Chief Executive Adil Agarwal in an interview with the Indian media.

The firm follows in the footsteps of several Indian giant chains, which have established a footprint in Kenya to capitalise on the huge demand for India's specialist medical services.

For instance, Healthcare Global Enterprises Ltd (HCG) - one of India's largest cancer treatment hospital chains-earlier announced it had agreed to buy a majority stake in a Kenyan cancer care centre.

Looming sugar shortage in the country as Comesa runs out of sweetener
KQ increases weekly flights to London, New York
Premium Governors splash Sh195b on perks amid economic crisis
Premium What the State must do to make life bearable for all