Kenyans’ love for shopping lifts country’s ranking on continent

Kenya’s retail market ranks top in the continent in terms of opportunities for existing and new retailers across various market segments.

A new report from global market intelligence firm Euromonitor indicates that the country has the highest growth rate among the low-income earners compared with other African economies.

This, coupled with the country’s high rates of mobile and Internet connectivity, creates perfect conditions for regional and global retailers to establish a foothold in the market.

“Africa’s consumer spending will grow faster than the global average in the years to come with much of this increase coming from rapidly growing smaller markets, such as Ethiopia and Kenya - both expected to record consumer spending compound annual growth rate (CAGRs) of eight per cent over the 2017–2030 forecast period,” said the report in part.

“Africa’s communications sector will benefit the most from the growth in consumer spending, which is likely to result in notable enhancements in the continent’s mobile services.”

Service providers in Kenya have long recognised the potential inherent in data and money transfer investing billions in network infrastructure and jostling for new subscribers through numerous offers and bundles.

Mobile lending

A recent report by research firm Consumer Insight found that Kenya’s high adoption of smartphones has created a thriving mobile lending industry with applications like Tala and Branch investing billions to expand their reach.

Mobile loans have now become the largest source of lending for Kenyan consumers outside family and friends with Consumer Insight, saying four out of ten Kenyans rely on mobile loans for credit against one out of ten taking bank loans.

Much of the new demand is expected to come from Kenya’s low-income population transitioning to middle-income status over the next 15 years.

According to Euromonitor, Kenya’s population of low-income earners, classified as the bottom of the pyramid (BOP), is shrinking fastest among African countries.

“In 2017, 40 per cent of all Kenyan households were BOP; this proportion is set to fall to 16 per cent in 2030,” explains the report in part. “In line with this, total spending by BOP households will decline by 35 per cent in real terms between 2017 and 2030, and BOP is expected to account for just five per cent of Kenya’s consumer expenditure in 2030.”

This means more Kenyan consumers will have expanded their discretionary incomes, providing a ready market for local and international retailers across various product segments.

The report comes even as a large portion of Kenya’s local retail industry is still struggling to come out of a slump occasioned by rapid expansion, poor management and competition from regional retail chains.

Nakumatt Holdings, once the region’s largest supermarket chain, has been struggling to meet its obligations to creditors and suppliers.

In the past year, the retailer founded 30 years ago in Nakuru has seen at least 17 of its branches shut down with auctioneers descending on some of the prime locations.

A report released by Cytonn Investments last year found that an oversupply in retail space and low credit growth pose significant risks to the country’s retail sector.

Satellite towns

Nairobi alone recorded 40 per cent increase in supply in one year with malls such as Two Rivers, Rosslyn Riviera and Karen’s The Hub coming on stream.

Property developers have since begun casting their nets wide in populous satellite towns such as Machakos, Kiambu and Naivasha in search for better returns on their investment.

Regional and international retailers have also stepped up to fill the void left by Nakumatt.

French retailer Carrefour entered the Kenyan market less than two years ago and earlier this month, the group revealed it will open its sixth outlet at the prime Village Market branch once owned by Nakumatt. South African retailers such as Game and Checkers have also made significant inroads in the country’s retail industry.

Shoprite, the continent’s largest retailer, is finalising plans to establish a footprint in Kenya with seven new branches - ramping up competition in the lucrative sector.

“Businesses that can win the loyalty and trust of today’s Kenyan bottom of the pyramid consumer will be rewarded with an emerging middle-income consumer base with higher purchasing power in the future,” explains the report.

Food and non-alcoholic beverages account for the most significant share of the bottom of the pyramid households’ expenditure across all the continent but many of these goods are purchased at informal, open-air markets.

This means informal kiosks and tuck shops will remain dominant outlets for the majority of Kenyan consumers in the short to medium-term.

Food and alcoholic beverages account for 85 per cent of the Kenyan households’ expenditure, followed by housing and household goods in the second and third place respectively.

Households in Kenya were also found to spend almost equal amounts on education and communication.

Kenya’s informal settlements have prompted manufacturers to resort to producing goods in small packages to serve the demands of the infamous kadogo economy. “Companies need to adjust their distribution strategies to tap into this channel or think of creative alternatives,” says the report.

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