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How the duka mentality is fueling growth of retailers

 Retailer Sarah Macharia at her shop in Umoja estate, Nairobi County. [Elvis Ogina, Standard]

Long before the convenience of online shopping and doorstep delivery, local shopkeepers ruled the roost.

Corner shops offered the same convenience that e-commerce affords the modern shopper.

And despite the expanding scope of the modern retail business, physical shopping is not about to be obscured by the growing popularity of online shopping and doorstep delivery.

New research shows the real estate sector has been riding on the rapid expansion of supermarkets for growth.

This is according to the Kenya Market Update Report by Knight Frank, a real estate consulting firm, for the half year ending December 2022 released earlier this month.

While noting that supermarkets in Kenya have had contrasting fortunes owing to the closure of some chains, the report notes that major retailers such as Naivas, Quickmart and Carrefour and Chandarana supermarkets have been expanding. "This may perhaps be attributed to the low penetration of modern retail in Kenya," notes the report.

Knight Frank references a 2022 report by Boston Consulting Group (BCG), which details why the modern retail space has not seen so much growth in the country and, in turn, fuelling the growth of real estate through renting of business spaces.

The report notes that 77 per cent of consumers buy their goods from over 250,000 small stores. These are the traditional shops or dukas as they are commonly referred to in the country.

This means if a Kenyan walks home with 10 items, seven of them are likely from a shop, which means they physically walked into the store and had banter with the seller. This interaction with the seller is what supermarkets seem to combine with the digital age for a more wholesome duka experience.

The Knight Frank report unpacks this as a market for supermarkets to grasp and grow. "This depicts the existence of a large consumer base for supermarket chains to target as the number of middle-income earners continues to increase," reads the report. BCG in its research that covered Kenya, Egypt, Nigeria and South Africa, notes that there are well-established hypermarkets and supermarket chains in these markets.

"Modern sector growth has been sluggish in the past few years, however. Several players have exited or gone bankrupt through a combination of poor management, overly rapid expansion, and inappropriate formats," the research states.

Yet the report notes Kenya's dynamic digital technology ecosystem and the significant penetration of mobile money are stimulating the transformation of both traditional and modern stores.

Retail spaces

During the height of the Covid-19 pandemic, there was a general slowdown in the uptake of retail spaces in the market.

This is because the lockdown measures employed were a conducive environment for modern retail, specifically online shopping.

"At the onset of the Covid-19 pandemic, most retail businesses adopted the online and e-commerce business strategy, which has led to a decline in the demand for physical retail space and an overall hindrance of its growth and performance," reads the Kenya Retail Sector Report 2022 by Cytonn. Then, there was an oversupply of retail spaces in the urban cities of Kisumu and Nairobi of 0.2 million and three million square feet.

As such, developers were expected to halt their plans of expansion as they wait for these spaces to be absorbed. At the time, Naivas had 84 branches, Quickmart 51, Chandarana 24 and Carrefour 16. In the latest report by Knight Frank, Carrefour is reported to have expanded to 19 branches, Naivas 91, while Chandarana has 26.

"The general performance and supply of malls in Kenya has been on the decline, with the focus shifting to convenience centres that are closer to residential neighbourhoods. Major upcoming malls include Business Bay Square in Eastleigh, which Carrefour planned to anchor it and Promenade Mall in Nyali, Mombasa," the Knight Frank report adds.

Mobile money

The BCG report talks of a formula that some retailers seem to have grasped for growth as both traditional and modern retailers. This is as the research notes that more and more traditional shops are transforming into modern retailers through mobile money.

"In Kenya, 97 per cent of the small retailers we surveyed said they accept mobile money," reads the research titled The Future of Traditional Retail in Africa, which cited digital adoption to be lowest in Morocco, where only one per cent of respondents use mobile money and 29 per cent use other digital services.

"The Covid-19 pandemic has accelerated the adoption of digital retail services in several markets. In Kenya, for example, the portion of retailers offering remote ordering rose from 27 per cent in early 2019 to 39 per cent in late 2021," the research adds.

It further notes that modern retailing in the country is expected to resume growth.

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