Shoppers at Nakumatt Supermarket at the Garden City Mall on Thika Superhighway in Nairobi. Urbanisation and an increasingly connected and discerning consumer class helped by the use of technology are boosting the formal retail sector. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
Kenya and Tanzania are among 10 countries with high potential for retail growth in sub-Saharan Africa, but the lack of raw materials for the manufacturing industry could hold back progress, a report by PricewaterhouseCoopers (PwC) notes.
Consumer spending patterns in these countries are projected to almost double in the next three years, creating more business opportunities for the retail sector, including supermarkets and dealers in electronics and food and beverages.
Urbanisation and an increasingly connected and discerning consumer class helped by the use of technology are boosting the formal retail sector.
Kenya and Tanzania are among 10 countries with high potential for retail growth in sub-Saharan Africa, but the lack of raw materials for the manufacturing industry could hold back progress, a report by PricewaterhouseCoopers (PwC) notes.
Consumer spending patterns in these countries are projected to almost double in the next three years, creating more business opportunities for the retail sector, including supermarkets and dealers in electronics and food and beverages. The other eight countries are Angola, Cameroon, Ethiopia, Ghana, Cote d'Ivoire, Nigeria, South Africa and Zambia.
Urbanisation and an increasingly connected and discerning consumer class helped by the use of technology are boosting the formal retail sector.
However, it is the “last mile” distribution that many Kenyan consumer goods manufacturers find frustrating, mainly due to poor infrastructure and the large number of small traders, often operating in remote areas, notes the PwC report titled So Much in Store: Prospects in the Retail and Consumer Goods Sector in sub-Saharan Africa.
It is estimated that upwards of 90 per cent of sales are through informal channels such as kiosks, table-top sellers and street hawkers in eight of the countries apart from South Africa and Angola, where formal retail accounts for up to 50 per cent of total sales.
In Tanzania, consumer goods manufacturers face challenges in distribution considering the country’s vast size. For example, Serengeti Breweries has production plants in Moshi, Mwanza and Dar es Salaam.
“The best solution is to build your brewery closest to demand,” said Serengeti Breweries managing director Steve Gannon. “Physically moving goods from Moshi to Mwanza is prohibitively expensive.”
Raw materials — availability and procurement — are a headache on their own.
In Kenya, Bidco Africa has subcontracted 10,000 farmers to grow oil seeds such as soya beans, sunflower and maize. A major challenge is having a surplus of one crop and a shortage of another when farmers grow the same crop. The vagaries of weather also lead to erratic supply.
“The other thing is, farmers are never loyal. So don’t expect that they will always sell to you. What you have to do is make sure that you give them the best prices, a guaranteed market and pay promptly,” said Vimal Shah, chief executive of Bidco Africa.
Local franchises of international fast food chains say that they import meat, potatoes, sauces and spices due to quality issues.
Eric Andre, co-owner of Domino’s Pizza Kenya franchise Om Nom Nom, said sourcing locally will, however, be central to the chain’s future success.
“Two or three years down the road, when we expand, we will need to source locally. For example, our tomato sauce takes six months to get here from Portugal while meat from Saudi Arabia takes 3-4 months from order to delivery. A local supplier would take just a week,” said Mr Andre.
At Serengeti Breweries, the second-largest brewer in Tanzania which is 51 per cent owned by East African Breweries Ltd, 11 brands are made using mostly local raw materials. Kibo Gold, for instance, is brewed with water from the snow of Kilimanjaro and raw materials from farmers in West Kilimanjaro.
“Barley is in short supply currently forcing us to import some of it from Sweden. It is cheaper to import malt and ship it to Dar es Salaam than to transport it from there to Arusha,” said Mr Gannon. “In future, I hope we will have a malting plant here. But that will depend on government policy.”
Retailers have blamed the lack of guiding policies in the retail sector for the dominance of the informal sector.
“Such a policy, can help to foster the transition of informal retail players to the formal space,” said Thiagarajan Ramamurthy, Nakumatt Holdings regional strategy and operations director.
Other factors that could slow growth are falling commodity prices, slowing revenues and volatile currencies.
“The impact of weakening currencies seen last year could be felt in the better part of this year as the economy adjusts to the little gains being made; citizens might have less to spend,” said Adnan Ganiwala, head of research at ICEA LION.
