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Whereas the Kenyan Retail Industry has been on the verge of collapse and; at the same time a promising peripheral boom in a decade, much has happened and exclusively demarcated and outlined the fragility and strength of the Kenyan retail industry. The robustness of an industry is contingent on its ability to allow a steady growth, especially, outside the major cities and towns.
According to a report published by Kenya National Bureau of Statistics 2018, the Kenyan retail industry is ranked position 5 as one of the major contributors to the GDP by 5.8%. The formal retail industry employs more than 300, 000 people both directly and indirectly throughout the supply chain. The biggest players in the Kenyan retail industry include Nakummat, Uchumi, Tuskys, Naivas and Chandarana Stores with Tuskys being the leading store having a market share of approximately 29%.
With increased consumption rates among Kenyan consumers that have been churned by the improvements in living standards among middle-class consumers, the Kenya retail industry has displayed mixed growth signals that continue to brew indecision in the horizon juxtaposed with the neighboring countries. Here are some of the key issues that have emanated in 2018 when it comes to the Kenyan retail industry.
Kenyan Retail Industry Dominated by foreign retailers
Owing to the changes in the consumer taste and preferences among Kenyan consumers that have been fueled by the increase in middle-income, the local supermarkets and other retail stores have found it difficult to meet the emergent challenges in supplying as per consumer preferences and needs consumption in the retail sector in Kenya has seen a dramatic swing as many of the consumers move from low-class income earners to the middle class.
Many of the consumers have seen a rise in their income level and they need quality retail services within their convenience. Being unable to meet such challenges due to insufficient funds, the Kenyan retail industry has opened a gap that has attracted foreign retailers who are quick to capitalize and profit from this opportunity. Some of the foreign firms that have entered the Kenyan retail industry include Carrefour, Shoprite and Choppies among others. Foreign retailers such as Shoprite have a strong presence in more than 15 African countries and; its sound financial background can guarantee a swift growth and expansion throughout the country.
Kenyan Retail Industry has experienced aggressive reduction in floor space
The need for local retailers to adequately compete with foreign firms has had negative results due to poor expansion strategies that have led to the reduction and shrinking of retail spaces in Kenya. Many of the leading retailers such as Tuskys and Nakummat engaged in aggressive expansion strategies and campaign that led to the opening of many stores across the country.
However, despite the move being on the right track to reach more consumers and curtail competition from rivals, it only ended up being disastrous as many of the retailers could not shelve the expenses incurred in running many outlets. The situation had deleterious effects on the retail industry as many of retailers found it knotty to continue with normal operations and resorted to the closure of its stores. Tuskys closed more than 3 stores such as the famous Beba Beba branch, Hyrax and Tuskys Ruaka branch in Nakuru and another branch along Nairobi’s Sheikh Karume Road. Reports indicate that the retailer’s industry in Kenya owe supplier approximately ksh 40 billion from 2013 and suppliers have lost trust in many of them.
Some of the retailers which have been adversely affected by the over-ambitious expansion plans was Nakummat that has seen the retailer placed under administration due to its inability to meet operational costs. The woes have also led to the closure of many outlets owned by Nakummat countrywide and it is currently staggering to recover through an MOU with Tuskys to restock some of its key outlets.
Kenyan Retail Industry has experienced Merger, franchise and acquisition of local retailers
In 2018, the Kenyan retail industry has witnessed a series of mergers and acquisition by foreign firms due to inadequate capital to expand and meet the dynamic middle-class earners’ needs. For instance, Tumain supermarket is the latest retailer to be taken over by the Mauritius-based Adenia Partners through Sokoni retailer.
Initially, Ukwala had been taken over by Choppies which is a Botswana based firm and in June 2018, Uchumi franchised its Lang’ata Hyper Branch with an aim of reducing recurrent overheads.
Kenyan Retail Industry Informal Retail Sector Continues to Thrive
Despite the fact that many Kenyan households have seen a rise in the middle-class earnings causing a shift in consumption patterns, the increase in groceries has only been able to sustain the middle class while the majority of the low-class income earners continue to shop in the informal business along the roads and other marketplaces. The groceries are designed to only serve price conscious clients. Many of the local consumers are price sensitive and are likely to shop where prices are affordable and in most cases, avoiding groceries that are deemed to be expensive.
In summary, despite the fact that the retail industry in Kenya is central to the GDP and has grown over the past decades, its future sustainability is in the balance and highly indeterminate due to lack of capital to spearhead expansion and growth activities. As frequently, many of the local retailers are taken over or franchised by international firms and hence making the industry highly dependent on foreign firms. Axiomatically, this becomes an imminent threat to the stability of the local retailers. Over-reliant on foreign firms to run the local business is key to the growth of the industry and at the same time its cancerous to the stability of local business by making the economy vulnerable to foreign investment policies.