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International retailers eye region’s market but informal shops dominate

Saturday June 06 2015
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Shoppers at Game store in the newly built Garden City Mall in Nairobi when it opened shop on May 28, 2015. Retail chain investment in East Africa follows a global evolutionary path that has seen modern trade retailers establish operations in developing markets. PHOTO | SALATON NJAU

Despite East Africa getting increasing attention from international and regional retailers, who are attracted by the region’s rising population and middle class, the informal retail market remains the dominant form of shopping.

“Traditional and informal retail remains the most prevalent form of shopping in both urban and rural areas as it meets consumers’ needs in terms of convenience, local proximity and flexibility in packaging, pricing and trading hours,” said Ailsa Wingfield of Nielsen’s Africa Marketing & Communication in an e-mail. Nielsen is a leading global information and measurement company.

A February Nielsen report titled Africa: How To Navigate The Retail Distribution shows that Africa has six out of the 10 fastest growing economies in the world. It also has the world’s greatest proportion of young people, and a burgeoning urban population with a growing demand for many goods and the means to buy them.

With the exception of South Africa, modern trade on the continent is at an early stage of development. Indeed, the most common shopping channel is the table top, which is a stall set up at the side of the road or in the local market to attract passers-by.

The table top is the emerging market’s version of the convenience store. The Nielsen study on sub-Saharan countries found that 80 per cent of consumers shopped from table tops.

READ: Retailers seek cheaper shops in Kampala suburbs

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Leading retailers in the region are not worried about the increased attention from foreign retailers because the market is large enough for all.

Retail chain investment in East Africa follows a global evolutionary path that has seen modern trade retailers establish operations in developing markets. 

In May, Massmart — the South African retail giant — opened its first shop in Kenya, with its Game brand shop located at Garden City in Nairobi. The $250 million Garden City Mall is backed by sub-Saharan African real estate developer Actis in partnership with CDC and IFC.

“Game’s discount retailing, which has earned the group a loyal customer base across Africa, will dramatically expand the shopping options for consumers in Kenya,” said Mark Turner, Game’s marketing and customer director of the Johannesburg Securities Exchange-listed retailer.

Massmart has 172 outlets in 11 African countries. Kenya becomes the third country in East Africa for Massmart to operate in after Uganda and Tanzania, with a branch each.

Botswana’s multinational grocery retailer Choppies Enterprises has announced plans to buy 10 stores in Kenya for $10 million. The JSE-listed company, said it had entered into an agreement with Kenya-based Ukwala Supermarkets to purchase its assets and business name. 

Choppies operates 125 retail outlets including 72 stores in Botswana, 35 in South Africa and 18 in Zimbabwe. Kenya becomes its first market in East Africa.

READ: Botswana chain pairs with Kenyans for EA growth

Carrefour SA, a French multinational retailer has leased a space at Two Rivers, an upcoming shopping mall in Nairobi owned by Centum. It will be its first store in East Africa.

“We expect to continue seeing growth of the local players and entry of larger regional and global players. We will also see more segmentation of the market as more specialist fashion and grocery players stop addressing the market homogeneously and become more focused on narrower niches,” said John Kiarie, a partner at Deloitte East Africa.

Increasing retail trade will present prospects for consumers to experience broader categories and product choice in single outlets; more structured pricing and promotional calendars, as well as exposure to loyalty schemes and e-commerce.     

Research and investment analysts said the new entrants need to come up with appealing sales techniques to attract customers from existing retailers and the informal market.

“The existing retailers have established themselves as a brand with loyal customers and a supply chain. Many consumers prefer shops because of the convenience and direct interaction with the seller,” said Adnan Ganiwala, head of research at ICEA LION.

According to a Citi Group report, Kenya has the second most developed retail market in sub-Saharan Africa, with about 30 per cent of retail shopping done in formal outlets.

The study identified East Africa as the next growth frontier for huge South African retailers as well as some of the world’s biggest investors keen to cash in on a rising middle-class and growing consumer demand.

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