A look at weak chains in Kenya’s retail sector

Employees of Tuskys branches in Kisii protest termination of their contracts and three months' unpaid salary on September 30, 2020. PHOTO | RUTH MBULA | NMG

By ELVIS MBOYA
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Summary

• Experts say the high number of closed outlets indicates a market share that remains to be exploited if players can put their recurrent financial woes in order.

Kenya’s supermarket sector has over the recent past faced numerous challenges.

The figures paint a gloomy picture. In a short time, the branches have shrunk from 314 to 189, with big retailers such as Nakumatt, Tuskys and Uchumi the biggest losers.

But it is not all gloom and doom as Naivas and Quickmart have capitalised on the weaknesses of the fallen giants to expand and woo shoppers. Naivas has been leading an aggressive expansion plan, taking up retail spaces they have left behind.

But overall, the sector appears to be under siege. While a total of 125 branches have been closed, only 13 new outlets opened in 2020 and just seven more are projected to be opened in the near future, according Cytonn’s latest research on supermarkets in Kenya conducted in October.

The financial constraints due to mounting rental arrears and suppliers’ debts have seen Nakumatt, once Kenya’s largest supermarket chains, lead from behind with closure of all its 65 branches.

Uchumi, Choppies and Nakumatt follow with 33, 13 and 10 closed branches respectively. South Africa’s giant chain, Shoprite that entered into local market in 2018, closed all its four branches, citing the underperformance of its supermarkets.

Tuskys has also been rapidly shutting down its branches due to mounting rent arrears and supplier debts.

“The recent closure of its outlets indicates recurrent financial woes and hence the need to mobilise more funds to stabilize its operations and ease the financial pressure,” the Cytonn market report says of Tuskys.

“The closure emphasizes the ongoing financial constrains by the retailer due to strained revenues.”

The Kenya Union of Commercial Food and Allied Workers (KUCFAW) has called for government intervention to rein in a sector that continues to grapple with mismanagement, corporate governance issues, and delayed payments to suppliers and workers.

Experts say the high number of closed outlets indicates a market share that remains to be exploited if players can put their recurrent financial woes in order.

Naivas projects its number of branches to increase to 70 from current 66. So far, the family-run retailer has opened five more branches in 2020 and expected to open four more to its thriving stable.

The plans to open four new retail stores to be located at Lifestyle mall in Nairobi’s CBD, Rongai, and two other undisclosed locations, have seen the ambitious retailer mainly take up spaces left behind by struggling ones, breathing a fresh air into the struggling yet prospective sector.

French supermarket chain, Carrefour is also expected to open three more branches, to increase its numbers from 8 to 11. So is South Africa retail chain, Game Stores that opened one more branch in 2020, to increase the stores to three.

According to the report, Big Square, a fast-food retail chain, opened its second branch outside Nairobi, in Eldoret at Rupa’s mall, bringing the total number of stores operated by the retail chain to 12.

At five branches opened in 2020 amidst Covid-19 constraints, Naivas lead the pack with number of branches opened this year.

Naivas is followed closely by QuickMart that opened three more branches this year, followed by Tuskys (2), Chandarana and Games Stores one each.

In terms of total current number of branches, Naivas leads with 66 branches, followed by Tuskys (54), QuickMart (32) and Chandarana FoodPlus (20). Others are Carrefour (8), Uchumi (4), Game Stores (3) and Choppies (2).

Experts say the new outlets are a major boost to the struggling retail space.

“Despite the continued exit by troubled retailers such as Tuskys, we expect the performance of the retail sector to be cushioned mainly by expansion of local and international retailers such as Naivas taking up prime spaces left behind by struggling retailers,” says Cytonn report.

Save for entry of international players into the market, other factors expected to boost the sector, the report says “(are) changing tastes and preferences of consumers, growing middle class with higher purchasing power, and positive demographics.”

With Kenya’s current urbanisation and population growth rates at 4 percent and 2.2 percent respectively against a global average of 1.9 percent and 1.1 percent respectively, according to the World Bank, the country’s demographics, coupled with swelling middle class, provide ample market for growth of the sector.

The performance, according to the report, is however likely to be constrained by the existing oversupply of 2.8 million square foot of retail space as of 2019, competition from informal retail spaces in some submarkets, and the growing focus on e-commerce thus affecting demand for physical retail space.

With a growing number of consumers searching and buying goods online, and as Covid-19 lockdowns restrict movements, forcing a consumer shift to e-commerce that’s gradually bringing down the retail giants. People are also realising that shopping online is more convenient and products are cheaper than at the brick-and-mortar retail stores.