What Kenya’s Struggles Have Taught Us About The Retail Industry In Africa
- The retail industry in sub-Saharan Africa remains a vast opportunity with a burgeoning consumer market. The region is now home to more than one billion people, which is expected to account for nearly one-fifth of the world’s population by 2025.
- Retailers may have to scale back the ‘grand’ dreams and better target markets. Targeting the fastest growing cities or city clusters will better help to capture the “spenders” in the market.
- The focus on urban centers, including the likes of Nairobi, Lagos, Addis Ababa, and Johannesburg, taps into the power of African urbanization and reduces the added costs of sprawling expansion across countries unable to underwrite the growth of many retailers through its local population.
This article speaks of the downturn in the retail industry for the big supermarkets. However, highlights the opportunity for strategic small retailers that will focus on the local market.
Economic realities mixed with a toxic cocktail of internal and external mismanagement have brought Kenya’s largest retailers to their knees. This questions assumptions around the size and potential of the African market, and how we evaluate competitive performance and management in such a complex environment.
The future of retail in Kenya is uncertain. But what is clear is that business empires cannot be built on the foundation of debt-funded, grand expansion plans targeting Africa’s elusive middle class. If the sector is to thrive off the capital and expertise of local players and replicate the success of sectors like banking, which today is dominated by Kenyan banks, local retailers will have to professionalise their strategy and operations. This will require a vast improvement in governance and day-to-day management, not to mention modernising for an ever-changing African consumer market in a dichotomous era of Industry 4.0 and informality. This is essential to remain relevant and sustainable in an increasingly competitive and complex retail space.
3. Deloitte Paper: African Powers of Retailing New horizons for growth
The informal retail market is still significant according to the United Nations Economic Commission for Africa (UNECA), the African retail market is characterised by approximately 90% of transactions occurring through informal channels. This could signal an opportune gap for the increased establishment of formal retail presence to capture larger portions of this market share. However, hurdles such as the diverse consumer mix, low levels of established distribution networks, infrastructure constraints and political and economic uncertainties include challenges for big formal retail chains setting up in-country operations. These small, local and informal retail transactions account for 96% in Ghana and 98% in Nigeria and Cameroon. Even in Kenya, the vast consumer base in rural areas still shops at informal outlets, which account for approximately 70% of retailshopping. Zimbabwe also has a fragmented retail market and is seeing a recent upsurge in small “tuck shops”.4 While South Africa leads the way in terms of formal retail, with 60% of South Africans shopping in formal retail supermarket.