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Competition makes Kenya a tough nut

| International retailers

Last year, French retail chain Carrefour opened its doors at an upmarket shopping mall in Karen, Nairobi. Yet Africa's biggest retailer, Shoprite Holdings, has not yet made a foray into the country, raising questions about the failure of South African retailers to make significant inroads in the region.

Although Shoprite has become a dominant player in some major African markets - reporting some impressive numbers in the face of low commodity prices and forex shortages in certain countries - the East African market has proved a minefield for the retailer.

Celeste Fauconnier, an Africa analyst at Rand Merchant Bank, said on Thursday intense competition was central among the reasons South African retailers had not thrived in Kenya.

"You've already got your Nakumatt, Uchumi, Tuskys in Kenya and Botswana-based Choppies thinking of going in. It has more to do with the competition than anything else."

Fauconnier said foreign retailers needed to thoroughly assess the competition and be willing to take a minority share in a local business if they wanted access to the market.

Ashmi Shah, Kenya-based retail portfolio manager at real estate consultancy Knight Frank, said it was vital that foreign retailers understood how the market operated. Local partners could provide invaluable information in this regard.

"Supplier contracts must suit the local market since what works elsewhere may not necessarily yield results, say in Nairobi," said Shah.

"We must remember that we cannot use one type of product across the different countries. You have to assess whether Kenya is starting to become a mature retail country or retail sector, which means you have to start diversifying your products a bit."

Nakumatt is the largest family-run supermarket chain by sales in East Africa with a branch network of 64 stores across Kenya, Uganda, Tanzania and Rwanda.

Its footprint was broadened when it bought Shoprite's stores when it exited Tanzania in 2014. The group only has two stores in Uganda.

By comparison, Shoprite operates 2,214 stores in 15 countries across Africa.

According to 2016 research by Knight Frank on African retail, in sub-Saharan Africa, Kenya is second to South Africa in terms of shopping centre space.

While South Africa accounts for 23million square metres, Nairobi in Kenya has 391,000m². Windhoek's shopping centres put Namibia in third place.

This week Nakumatt announced the appointment of former Tesco executive Andrew Dixon as chief marketing officer , signalling a move towards the further deepening of the formalised retail environment.

According to Oxford Business Group, Kenya ranks as the second-highest formalised retail sector and the average value of consumer spending has risen as much as 67% in the past five years, making it Africa's fastest-growing retail market.

Shah said: "The Kenyan market is itself quite dynamic and the range of products on offer is wide - not forgetting that the existing retailers have established brand loyalty among consumers over time. Therefore, incoming retailers need to offer a differentiation if they are to appeal to consumers."

She said that, like other South African retailers, Game, a subsidiary of the Walmart business Massmart, which opened its first store in Nairobi in May 2015 at Garden City shopping centre, "hasn't expanded to other locations in the country".

Location was a crucial factor, he said.

Massmart operates one Game store in Nairobi and one in Uganda.

Africa's largest branded food service franchisor, Famous Brands, which has expanded to nine the number of stores flying the banners of its Steers and Debonairs Pizza brands since it launched in Kenya, has decided against opening outlets in malls.

Darren Hele, Famous Brands CEO, said: "We have stayed away from malls due to high rentals, which are often dollar based." But "further cautious expansion" in Kenya was planned.

Fauconnier said high rentals were among the factors that made it difficult for South African retailers to gain traction in Kenya.

"Even though the Kenyan government is quite open to investment, it also tries to protect its own industries," she said.

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