Modern retail in Kenya is gaining pace, though rising competition has created challenges

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In July Nairobi-based grocery retailer Naivas Supermarket inaugurated a 3250-sq-metre property in the capital’s Ciata City Mall. The opening of the new store – which occupied a space formerly held by local retailer Uchumi – raises the firm’s total number of supermarkets in Kenya to 41, with seven more due to open before the end of the year.

The company announced last year that it would spend KSh470m ($4.6m) to expand its network in its home market.

Naivas is not the only retailer looking to increase their local footprint. French retailer Carrefour opened a store in Nairobi’s Two Rivers Mall in early March. The 7200-sq-metre hypermarket, which is operated by the Dubai-based franchise holder Majid Al Futtaim, is the company’s second location in the city.

Carrefour first ventured into the local market in May 2016 with a store in The Hub Karen mall, also in the capital.

The new openings come as a wave of new retail properties have come on-line. Kenya’s formal retail space doubled last year to 100,000 sq metres, according to property consultant Knight Frank’s “Africa Report 2017”. This is in line with targets laid out in Vision 2030, the country’s medium-term development plan launched in 2007, in which retail is one of the key pillars to “providing high-quality life to all its citizens”.

Investment is likely to continue, with a formal retail construction pipeline of more than 370,000 sq metres planned through to mid-2019, according to Knight Frank.

Attractive headline performance in the retail sector

These new openings come amid strong headline performance in Kenya’s retail sector, despite the broader uncertainty of a presidential election year.

Overall retail spending grew by 13% to KSh1.8trn ($17.5bn) in 2016, according to a survey by Procter & Gamble published in February of this year, with supermarket spending up by 18%, demonstrating its increasing importance within the sector.

The report also suggests that formal retailers are beginning to expand their share of fast-moving consumer goods (FMCG) sales, an area traditionally dominated by the informal sector, as 70% of Kenyans do their shopping at informal vendors such as table-top kiosks and market stalls.

Supermarkets accounted for 30% of FMCG sales for the financial year ending in June 2016, and “projections show that this sector will keep growing as consumers opt to shop in bulk instead of single items,” the report noted.

Retailers restructure, while liquidity crunch affects suppliers

The arrival of the new anchor shops by Carrefour, Naivas and others in the second half of 2016 led to increased competition and reduced traffic in older malls outside of popular locations, a trend that is expected to continue.

This has forced some retailers to restructure their activities. In March of 2016, for example, Uchumi closed five outlets in Kenya along with branches in Tanzania and Uganda as part of efforts to offset softening sales.

Then, in September this year Nakumatt sold a stake in its business to Tusky’s, the country’s second-largest retailer by number of outlets. This followed the closure this year of two of Nakumatt's outlets in Nairobi and three in Uganda due to financial difficulties, which led some of the supermarket’s suppliers to stop delivering goods. In addition to increased competition, the chain’s financial troubles have been attributed to an ambitious expansion strategy; it currently has 45 outlets in Kenya and several others in Uganda, Rwanda and Tanzania.

Tuskys has also moved to close down some of its low-performing locations, including two Nairobi stores, although it opened nine more outlets late last year.

Tighter profit margins among major domestic retailers have had ripple effects throughout the supply chain. Debt owed to suppliers reached an estimated KSh40bn ($389m) at the end of last year, as reported by the Ministry of Industry, Trade and Cooperatives.

This lack of liquidity has meant that some payments to suppliers have been delayed by between 180 and 240 days. With many suppliers being small and medium-sized enterprises (SMEs), such delays can make operations impossible.

Due to these delays, the Association of Kenya Suppliers is lobbying for the payment timescale to be shortened to between 30 and 45 days, and 15 days for fresh produce, down from the current 90- to 120-day window.

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