As inflation eats into consumers’ buying power at home, Kenya’s retailers are putting their money into new investments around the region.
Leading retail chain Nakumatt will open a new branch in Tanzania in October, add four more outlets in Uganda next year and one branch in Kigali even as it sets its sights on Juba and Bujumbura.
The retail chain, which secured a $41 million five-year loan from four local banks in August, said it planned to enter other key markets in Southern Africa, West Africa and the Horn of Africa.
Uchumi Supermarkets meanwhile has announced plans to open a branch in Juba and three in Uganda in addition to at least seven local branches. Its Tanzanian subsidiary commenced operations in August in Dar es Salaam.
Naivas, one of the fastest growing retail supermarkets, says it is looking to consolidate its operations in Kenya with a branch in Mombasa, set to open by the end of the year, and four other branches in the Nairobi metropolis.
Naivas says it is also looking to go to into Southern Sudan and Ethiopia next year, giving Uganda and Tanzania a wide berth in what looks like a strategic partnership with South Africa’s Shoprite.
Tuskys has also been expanding in Kenya, with three more outlets expected by the end of the year.
The retailers’ expansion plans come even as inflation continues to ratchet up around East Africa, fuelled by drought which has affected crop production at home, as well as high global oil prices.
In August, Research firm Consumer Insight found that the number of people going in for bulk monthly shopping reduced to 19 per cent this year compared with 29 per cent last year.
Instead, more consumers opted for weekly shopping — with at least 63 per cent of shoppers making weekly purchases, up from 46 per cent last year.
The proportion of weekly shoppers has increased because shoppers prefer smaller baskets due to the rising prices of goods, Consumer Insight said.
But the retailers are looking at the other side of the coin as well. The supermarkets say there is still room for growth because most shoppers still do their shopping at informal outlets like kiosks and small neighbourhood retail outlets.
“About 78 per cent of shoppers do their shopping outside of the supermarkets, so there is still room for growth,” said Willy Kimani, marketing and business development manager of Naivas. “This is still small compared with other developed markets, so much so that we can have about 1,000 supermarket outlets serving a market like Kenya’s.”
Tanzania is attracting the attention of Nakumatt and Uchumi because there are shopping malls coming up that offer space and high consumer traffic for retailers.
“We want to go in and change how shopping is done; instead of closing at early, we shall have extended shopping hours,” said Nakumatt managing director Atul Shah.
Construction of malls remains a bottleneck. Nakumatt, for instance, had planned to launch its Tanzania operations in Dar es Salaam but the construction of the mall took longer than expected forcing the supermarket to launch in Moshi first. “We go to the ground and we look at who owns the property then we strike a deal,” said Mr Shah.
Nakumatt bought out four Woolworth outlets for $4.4 million in 2009 after its premier store in Nairobi’s CBD — Nakumatt Downtown — was razed. It bought Rwanda City supermarket at $6 million in 2008 and hopes to open two branches in Kigali between October and March 2012.
Nakumatt, opting not to raise capital from the public, borrowed the money for its expansion from Standard Chartered, DTB, Bank of Africa, KCB and other investors, mostly private equity firms. Naivas says it has been reinvesting its profits over the years to expand its network.
“We are not seeking a loan or outside investment; we are reinvesting for self growth driven by the market,” said Mr Kimani.
See related: The rise of Naivas to the top league