Kenya’s economy is taking on a new shape as increased Internet penetration, growing use of mobile phones and a rising middle class change consumers’ shopping habits and payment methods for goods and services.

A new survey shows that Kenyans are increasingly purchasing items from formal retailers like supermarkets while at the same shunning the traditional salespersons in favour of online marketing.

The survey by TNS RMS, a global market research firm, shows that, as a result, over the past five years, the informal shopping outlets — usually kiosks — have shrunk by 29 per cent, ushering in modern distribution outlets like supermarkets and hypermarkets, which have grown by more than 34 per cent over the same period.

“We see progressively big outlets taking up sales from many small ones. This trend is likely to continue in the coming years where selling daily products to consumers will become a big business and less of a small scale business,” TNS said.

This means that new consumer trends are slowly eating into the informal sector’s market share — consisting mainly of small and medium sized businesses.

This sector has been identified in Kenya’s economic development blueprint, Vision 2030, as one of the key areas whose improved performance could catalyse the country’s transformation into a middle income nation in the next two decades. 

TNS RMS researchers said Kenya, like other countries in the region, is set for a major rise in cashless transactions in coming years as more consumers seek convenience when paying for goods and services.

Central Bank of Kenya data shows the value of card transactions rose by 74.74 per cent to Ksh1.009 trillion ($11.74 billion) in the 12 months ending December last year, compared with Ksh577.85 billion ($6.71 billion) transacted for the period ended December 2011. The value of transactions through mobile phones hit Ksh1.54 trillion ($17.96 billion), a 32.13 per cent rise from Ksh1.16 trillion ($13.59 billion) within the same period.

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Meanwhile, increasing formalisation of the economy means that more branded goods are consumed, an opportunity that firms will be keen to cash in on. Kenya has become an area of competition for top retailers — mainly Nakumatt, Tuskys, Uchumi and Ukwala — who are expanding their outlets across major towns.

Foreign retailers like South African retail giant Massmart are also eyeing the market. Massmart has booked space in a Ksh12.6 billion ($146.7) real estate development plan along Thika Road in Nairobi.

Spanish clothing retailer Zara set up operations in Kenya in early August in a distribution agreement with local retailer Deacons. British shoe retailer, Clarks is already in the market while South Africa-based retail chains Foschini and Edgars are planning to open shop next year. 

The fast-changing consumer trends are forcing the retailers to rethink the positioning and composition of their outlets, which are increasingly found within shopping malls, new estates in Nairobi and major towns.

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Today, retailers are opening up outlets in malls where there are food courts, cinemas and luxury clothing lines to complement the shopping experience of the new consumer.

Nielsen, a global marketing research firm, gives an interesting profile of the new Kenyan shopper: “They will spend more than their EAC counterparts on consumer goods, and they are likely to visit modern trade outlets such as supermarkets and grocery stores.”

As a result of the transformation of the consumer, it has become easier for firms dealing in fast moving goods to plan their distribution and marketing. According to TNS, the number of Kenyans doing shopping or payments through mobile phones now stands at 73 per cent — albeit doing basic payments like utility bills — more than the global average of 15 per cent.

“At least 53 per cent of Kenyans say they would prefer to use their mobile phone to find information about products and services rather than to speak to a salespeople,” says the survey.

According to the researchers, this is threatening the role of salesperson in the business process.

“The role of sales people and other intermediaries is increasingly being taken up by mobile phones and the Internet, since a buyer can do almost everything on the Internet from identifying a product, bargaining and even paying” said Eric Reingewertz, chief executive officer of TNS RNS East Africa. 

Over the past two years, Kenya has seen a huge rise in online shopping sites among them, n-soko.com, olx.co.ke, jumia.co.ke and cheki.co.ke. The emergence of these shopping sites has triggered increased online shopping from Kenyans, with Jumia alone saying it attracts between 13,000 and 20,000 Kenyans to its site daily.

The changing trends points to the growing sophistication of the average Kenyan consumer, a trend that experts warn could prove both a challenge as well as provide opportunities for businesses in coming years.

“Traders need to embrace these developments or risk losing out to the growing trend of ‘showrooming,’ in which consumers visit a traditional store to view and test products, then make their final purchase at cheaper outlets online,” reads the report.

Data from the Communication Commission of Kenya (CCK) shows Kenya’s Internet use rose 11.6 per cent in the three months to December 2012, pushed up by high mobile phone usage and stiff competition among service providers. This pushed the number of Internet users to 16.2 million from 14.5 million in the previous quarter.

The growing Internet penetration has also forced companies to change the way they address customer complaints. For example, almost all major companies like Safaricom, Barclays Bank, Equity Bank, Kenya Commercial Bank and the Kenya Airport Authority (KAA) — have online customer relationship teams that directly address complaints raised by customers.

Traditionally, correspondence between companies and clients was limited to the two but the emergence of social media sites like Twitter  means that complaints and response made online are viewed by a wider audience. The increased mobile penetration has also changed the way businesses interact with their clients.

For example, electricity utility Kenya Power estimates that 70 per cent of their clients use mobile money to settle their bills, with only 5 per cent turning up at their offices. The rest use third parties like supermarkets and banks to make payments.

The uptake of mobile money coupled with the increased installation of pre-paid meters should help the company drive down its electricity receivables, which in the year ended June 2012 stood at Ksh11.8 billion ($137.2 million) compared with Ksh13.5 billion ($156.9 million) in the same period in 2011.

For banks the uptake of mobile and agency banking has also revolutionised the way customers interact. For example, in November last year, Equity Bank’s agency banking overtook bank branches to become the second most utilised delivery channel behind ATMs, though numbers from May this year show the platform was on course to becoming the most preferred method of making transactions.

The growing uptake of these IT driven delivery channels is expected to lower the cost to income (CTI) ratio for banks while increasing the customer experience.

According to KPMG, a consulting firm, it is 45 times more expensive to serve customers via the branch network than by using mobile phones and 10 times more expensive to serve customers via an ATM than by using mobiles.

Last week, KCB Group introduced M-Benki, a product that allows customers to open bank accounts through their phones. The launch of KCB Group’s new platform comes almost a year after Commercial Bank of Africa (CBA) and Safaricom launched a banking platform dubbed M-Shwari that allows customers to open an account and access micro loans from the bank.