24 Feb Kenya’s Retailing Sector: The Growth, the Challenges and the Future
So let’s start off by reviewing the tremendous boom that characterizes the growth of Kenya’s retailing sector.
There is no doubt that our retailing sector strengthened in the past year—to be precise an expansion of 13 percent that equaled to a total retail spending of Sh1.8 trillion in 2016—as corroborated by a survey from Procter & Gamble. The report also goes on to explain that this rise in spending accounted for 30 percent of Kenya’s GDP in 2016.
New entrants in the market
The growth was further characterized by the entry of international retailers in the local market. This interest from foreign retailing chains manifested in the form of sole ventures or as partnerships with the already existing local investors. For instance, French retail giant Carrefour which opened its first outlet in the suburbs of Karen in May 2016. The company plans to generate jobs for the locals by expanding their operations in the country. Its next project involves the opening of a retail store at Two Rivers. Other examples of new entrants include Massmart Holding’s Game and Bostwana’s Choppies, among others.
Online retail shopping on the rise
Apart from the growth experienced in the onsite retailing sector, the online retail shopping too saw a rise in Kenya. Online retailing websites like Jumia, OLX and Kilimall experienced an increase in traffic and revenue.
Expansion in types of retailing outlets
Along with the traditional kiosks, retail outlets, supermarkets and market stalls – the country has also experienced a recent rise in the popularity and the penetration of shopping malls.
These developments do indicate that the retailing sector in Kenya is gradually but swiftly climbing towards exponential growth. Now where there is positive development, there are bound to be underlying reasons on which the growth sustains. So let’s look what measures have prompted this growth in Kenya’s retailing sector.
Reasons which have fueled the growth of the retailing sector
Starting off with the very obvious is the increased buying power of the middle income consumers, which has been strengthened by the improving national economy as compared to previous years. There is no doubt that the prevailing drought in Kenya is expected to shunt the predicted growth rate, but regardless of that, the situation has tremendously improved. This could be corroborated by the evidence that Kenya was reclassified as middle income economy by the World Bank in 2015.
Then we have improvements in the infrastructure which include real estate expansions that have allowed the companies to access consumers in rural and peri-urban areas. Investment in satellite towns like Rongai, Kitengela, Juja and Thika has provided further land opportunities for the retailers to explore. Moreover, the commuting infrastructure is also being worked on, which has improved the transportation of goods and hence reducing the product prices. The airports, seaports and developments along Northern Bypass are other encouragements which the investors have received, thereby, opening projects that have aided in the growth of Kenya’s retailing sector.
The population growth rate is another factor that has contributed to an increased demand of retail goods, providing business opportunities for the resellers.
There has also been a shift in the consumer activity, where the locals are prioritizing to buy in bulk. This has encouraged the international retailers to open super markets that can provide one-stop-solution for all needs at discounted rates. The resulting entry of international brands has filled the consumers with confidence and therefore they are also prepared to buy more. So this has been a sort of circling cascading reaction.
Add to this the boom in technology like ecommerce, mobile platforms and availability of cashless payment systems have all added convenience, thus improving customers’ shopping experience.
But, we cannot relax
Yes, as a nation we cannot sit back and relax and expect the industry to grow on its own. Because where there has been growth, there have been reported events that tell us the industry is not self sustaining yet. Established local retailing chains like Nakumatt, Tuskys, Naivas and Uchumi are experiencing increased struggles to maintain their supply chain as they have an increasing debt. Now this may come as a surprise for our readers because where we have previously discussed about the growth in the industry, then why these experienced woes? The answer lies in the challenges that the retailing sector is facing. This includes:
- Pilferage that accounts for annual losses of up to Sh2.5 billion in the retailing sector.
- Then we have the political instability that has long plagued our country. Although the current situation has improved but no one knows what changes and challenges the upcoming elections of 2017 would bring with them.
- The adoption of devolution policies has resulted in increased taxes.
And there are plenty more, which would need more than one blog to be covered in full details.
What does the future holds
Looking at the entry of the international retailers, developments in infrastructure, increased urbanization and an overall positive economic growth – we expect the retailing market to continue with its positive trajectory. We expect a shift in the product offerings, which has already started with some traditional grocery stores investing in non-food related retailing projects. Blips are normal and they will punctuate the future of this sector until we are self sustainable and grand enough to deliver on the potential that, we, as a nation harbor.