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The new kings of Kenya’s retail market

FINANCIAL STANDARD
By Dominic Omondi | November 10th 2020
Shoppers at Jamaa Supermarket in Olkalou town Nyandarua County Today as they shop for Christmas after arriving from Nairobi and other cities. [John Githinji, Standard]

Mourine Andisi, a resident of Nairobi’s Umoja Estate, had religiously been shopping at one of the big supermarkets in the country.

She would spend Sh8,000 monthly, content that the prices she paid for the items, mostly foodstuffs, were better than in other stores.

Then a friend introduced her to a new general store in the neighbourhood, ending her monthly trips to the big retailer.

“I was able to save Sh2,000, which I used to spend on rice,” says Ms Andisi.

The owner of the store sources the cereal from a trusted trader in Mwea, Kirinyaga County.

She has also booted supermarkets as the preferred source of her daughter’s diapers.

She now buys them from any of the many baby shops that have mushroomed in her estate.   

“Here (in baby shops), there are new, cheaper brands of diapers that are of good quality. You won’t find them in supermarkets,” says Andisi.

Her divorce from supermarkets, it seems, is now complete.   

It dawned on her that while supermarkets rode on the fact that they were able to offer shoppers everything under one roof, general shops equally stock virtually all the items she bought from the retailers.

And the icing on the cake: these products are way cheaper.

Andisi is among tens of thousands of middle-class Kenyans who, nudged by tough economic times, have aggressively been shopping for better prices and promotions.

As a result, they have been moving away from supermarkets and going back to traditional traders.

The onslaught on supermarkets is also coming from digital marketplaces. It is not just e-commerce giants like Jumia, Kilimall, Masoko, Avechi, and Skygarden that are snatching away convenience-loving customers from supermarkets.

Many individual traders are also selling their products online. 

Patrick Kisia is among thousands of Kenyans who started selling groceries three months after covid-19 broke out, in what has been described as a wave of car-boot shops.

“It has so far been my way of marketing… and from that I get referrals from my clients and family,” says Kisia, adding that he sometimes sells from the roadsides.

His overhead costs include fuel, parking fees, county fees, and car maintenance, as he uses his vehicle for deliveries.

With digital marketplaces, you can shop in several retail stores around the country and even the world.

Everything is just a click away, although there is a lag in time of delivery and in some instances wrong or sub-standard items.    

Though feeble, with only 4.3 per cent of the population aged 15 and above searching and buying goods online, according to the latest census, e-commerce is one of the midgets that are gradually bringing down the retail giants.

Products sold virtually also tend to be cheaper than at the brick-and-mortar retail stores. As a result, e-commerce has slowly been chipping away at the market share of supermarkets, although some have also taken that route.

These industry changes have left the managements of most supermarkets scratching their heads.

Towards the end of October, Naivas hired Consumer Insights, a market research company, to do a price comparison survey.

“Hello, participate in our price comparison survey and get 100 rewards points,” the retailer said in a message to customers.

Among other things, the retail store wanted to find out the extent to which price determines shopping decisions.

Rendered jobless

Faith Wanderi, the managing director of Nielsen East Africa, a data analytics company, said Kenyan consumers were highly price-sensitive and were always looking for deals and promotions at any given time.

“Majority of stores, if not all, consider promotions and lower prices to drive sales and foot traffic to the outlet,” says Ms Wanderi.

Naivas also wanted to find out if shoppers compared prices of items with those in general stores, online shops, specialised shops or other supermarkets.

The fact that middle-class families are switching from the convenience of pushing shopping carts along isles of well-arranged shelves in supermarkets to the drudgery of having to stand in long queues at general shops reflects the reality of the times.   

And the covid pandemic will not make it any easier. With more people rendered jobless by the virus, experts expect shoppers to aggressively shop around for cheaper options.

Naivas Supermarkets Chief Executive David Muhoho however downplays the impact of the general shops on the sector.  He believes it is just a matter of time before supermarkets kick dukawallahs out of town, having clawed a good chunk of their market.

“If you look at the big towns now, you will find that there is a supermarket in every corner,” says Mr Muhoho.

On the Consumer Insights survey, Muhoho says it will offer useful insights into consumers’ spending habits. “What they (small retailers) do is to buy bulk and sell in retail,” says Muhoho.

These outlets, explains Muhoho, also give discounts to customers who buy more, something that supermarkets can’t afford, although they give loyalty points.

He says supermarkets’ operating costs compared to those of general shops are high.

The initial shock when Kenya recorded its first case of Covid-19 in early March boosted modern trade in the second quarter, with Nielsen’s Wanderi attributing this to stockpiling by a population that feared the possibility of a countrywide lockdown.

Although she expects the shift to modern trade to continue, there have been setbacks due to retailer divestment.

“And new investments are likely to now take longer to materialise,” says Wanderi.

The modern retail market in the country, according to Cytonn Investments, in a study, has surged on the back of impressive economic growth and increased disposable incomes.

The other driver of the modern retail market has been the increase in the number of malls, especially residential and mixed-use ones, attracting major supermarkets that thrive on large foot traffic.

Changing consumer tastes and preferences have also played a significant role in driving the growth of the sector.  

However, as economic conditions have tightened, with studies showing that most Kenyans felt worse off in last year than they did three years before, general stores, specialised shops and online shops offering cheaper products have increasingly attracted broke consumers.

Compared to supermarkets, they have lower overhead costs, including rent, electricity, taxes and labour, enabling them to offer more competitive prices. 

Limited customers

On the other hand, huge operating costs eat into supermarkets’ margins, with most of them forced to increase the volume of sales by opening more branches. 

This desperate expansion, experts note, has been the Achilles’ heel of most supermarkets, with a majority of them struggling with governance problems.

The death of Nakumatt Supermarkets and the near-death of Tuskys and Uchumi Supermarkets has largely been blamed on impropriety by the management and staff as they expand to increase sales.

Unfortunately, there has also been a tendency to compartmentalise competition in the retail market, with the thinking being that supermarkets are competing amongst themselves, forgetting the role played by the general shops, specialised stores, kiosks and open-air markets.  

Indeed, the major supermarkets in the country are competing for limited customers with the close to 4.6 million small retail and wholesale trade establishments, according to a 2016 survey by Kenya National Bureau of Statistics (KNBS).

These small shops can be found in every corner of major towns. And it is not just the shops, it is also the butcheries, beauty shops, hardware stores, cereal shops and mama mbogas; the list is endless. 

Nielsen’s Wanderi notes that traditional trade in these markets is still relevant, contributing close to 62 per cent of the retail market.

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