Most of us are conversant with Kenya as being a destination for classical savanna safaris but little are we aware of its upcoming retail sector.

Our goal with this piece is to let you know what’s actually going on there.

Challenging And Encouraging Opportunities

The Kenyan retail sector is booming with many local and international investors surprised by the lucrative market. Nielsen, a New York based research firm, ranked Kenya as the 2^nd biggest market for retail investors in Africa. More than 40% of all Kenyans shop in supermarkets. Kenya is certainly one of Africa’s most interesting markets with 55 million wealthy people comfortable with organized retail and doing their shopping in malls and supermarkets. In Africa, the average shopping cart carries about $20 worth of merchandise.

Euromonitor International, a UK firm recently published a report stating the growth in this sector is accredited to the following factors:

• A strong economy
• A stable political environment
• A broadening middle class
• A passionate inclination for convenience

Retail Landscape

Compared to the western and southern areas of Africa, East Africa works far more in harmony. The comfort of doing business in East Africa is much higher than any of the other large economies in the continent.

The Kenyan economy continued to grow, backed by increasing foreign investment and steady political leadership, as well as an increasing focus on the growth of youth entrepreneurship. The rise of the middle class, as well as the improved infrastructure, which lowered transport costs for businesses, was key to supporting retail growth. Another important factor was a real estate boom, allowing retailers to take up major sites near domestic areas for customer convenience, as well as the decentralisation of services to rural areas, encouraging the expansion of retail outlets nationwide.

Africa’s “long-term game ” has yielded great success for Kenya’s Nakumatt Super-Market Chain. More than 20 years after it opened, Nakumatt is now one of Africa’s leading retailers.

Trends In Kenyan Retail

Let’s have a look at the top trends in the retail sector in Kenya. We will also focus on some of the main areas that retailers must look at and what investors can expect from the industry.

The Era Of Big Supermarkets And Malls

Kenya has now entered the era of big supermarkets andmalls, which is changing the way people shop. Some of the most notable malls that are being developed are Two Rivers (by Centum Investment), Garden City (by PE firm, Actis), Unicity (by Kenyatta University), and Juja City.

Chris Kirubi, Director at Centum Investment has stated in a television interview of his desire to make Nairobi the next Las Vegas with exclusive shopping malls. Centum is in the finishing stages of developing the 70,000sqm Two Rivers mall in Nairobi’s high-class area of Ruaka.

This trend is also being experienced in smaller towns such as Mwea, Naivasha, Nakuru, and Meru where mega developments are lined up. The middle-class has always preferred doing their shopping in malls. Unfortunately, these malls were only available in big towns such as Nairobi, Kisumu, and Mombasa whereas with the new shift to large scale mall construction, Kenyans will have the chance to shop in high-end malls.

Appetite For International Brands vs. Trust In Domestic Brands

International brands are now eying the Kenyan market because of the stable economic and political environment. Some of the major brands that have entered the market are France’s supermarket juggernaut, Carrefour, Massmart Supermarket (owned by Walmart), Game (a South African brand), and Zara (a Spanish fashion giant).

The entry of these brands will upturn the level of competition in the industry. This will lead to the endurance of the strongest brands. Some local brands will be forced to close shop or be acquired. A good example is Uchumi Supermarket which has suffered losses in the last 3 years due to competition and expensive bank loans.

But in contrast to that, local companies led the retail market in 2015, mainly as a result of their solid brand legacy built over time through strong advertising and their long-term existence in the market. Also, the growth of modern retail outlets to the residential areas facilitated a wider customer reach. The roll-out of private label ranges permitted customers to enjoy quality products at affordable prices, further driving the revenue growth of native companies. The partial success of foreign companies in Kenya’s retail atmosphere can be ascribed to strong competition, insufficient and posh suitable locations and inadequate market entry strategies.

Next week, we’ll take a look at the remaining drivers of Kenyan retailing, including mobility and eCommerce, technology to support better assortments, the use of Big Data and analytics.