With Walmart’s entry looming in Kenya, local retailers say they are banking on experience to stay ahead of competition.
During court proceedings initiated by feuding siblings over the ownership of Naivas Supermarket, Kenya’s fourth largest retail store, it emerged that South African company Massmart, majority owned by Walmart, wants to buy a majority stake in the chain.
Siblings Simon Mukuha, Naivas chairman, and David Kimani claim their brother Newton Kagiri owns no stake in the company, and accused him of derailing plans to sell a stake to Massmart, whose majority shareholder is Walmart.
The brothers’ fight over a 20 percent stake has delayed the world’s largest retailer, Walmart, from gaining a foothold in East Africa’s largest economy. Walmart’s interest in setting an Africa footprint confirms the attractiveness of Africa’s retail market.
The numbers in Kenya whet the appetite of any retailer in need of investment opportunities, said Moses Njuguna, head of research at Sterling Capital, a Nairobi-based brokerage house.
“Wholesale and retail is a major component of Kenya’s economy. It has been growing faster than the mainstay industries such as tourism and agriculture,” Njuguna told AFK Insider.
Government statistics indicate that the wholesale and retail sectors accounted for 10.2 percent of Kenya’s gross domestic product in 2012, which translates to $4 billion.
“This number may look like a drop in the ocean by international standards – it is less than 1 percent of Walmart’s annual revenue for 2012 – but analysts say the industry has huge potential,” Moses Waireri, an analyst at Genghis Capital told AFK Insider
Local formal retailers say they are aware of the threat of Walmart, but what they lack in cash they make up for in knowledge.
“We have no doubt that over the past 20 years we have learned a thing or two to enable us deliver better value for our customers than the fancy international players,” Atul Shah, CEO of Nakumatt Holdings, told AFK Insider.
According to Waireri, “All the major chains or formal retailers account for 30 percent of the market while the remaining 70 percent is comprised of small stores knows as dukas in Kenya.”
Increased infrastructure spending in the region is ushering rural folk to urban areas. As more East Africans move to cities and away from farms, the shopping malls will channel the neo-urbanites to retailers.
Following the construction of the Nairobi-Thika Superhighway in 2012, U.K.-based private equity firm Actis is putting up Garden City, East Africa’s largest shopping mall.
On completion, the $170-million investment covering 500,000 square feet will house Shoprite, (a South African retailer and Massmart rival) and Nakumatt.
Nakumatt, the region’s biggest retailer with $500 million in revenues and 32 branches in Kenya, Uganda, Tanzania and Rwanda, says that the bottom end of the market is profitable.
“Rarely highlighted is the fact that retail is perhaps one of the sectors that touches literally the entire populace,” Shah said. “In my view 98 (percent) if not 99 percent of the population engages a retailer – formal or informal – at least twice every month.”
Other retailers
French conglomerate L’Oreal acquired Interconsumer, a Kenyan-born cosmetics manufacturer that targets the low end of the market.
While L’Oreal has the Dark & Lovely line of products, Interconsumer has Nice & Lovely, the most popular cosmetic brand in the Kenyan market reports Business Daily.
Nike, Spanish clothing retailer Zara, Massimo Dutti, Clarks, Subway and KFC have either established distribution deals or opened stores in the last three years.
Larger retailers are expected to enter the market but pundits wonder if their entry will be smooth or will act as fuel for more family feuds that have turned nasty.
Family Feuds and Court Drama
What do Naivas Supermarket’s Newton Kagiri and Stephen Mukuha Kamau have in common?
Both heirs to two of Kenya’s largest retailers, they have become frequent visitors to the courts through drawn-out family feuds that gave the world a glimpse of a side of a billion-dollar industry usually hidden from public view.
Kamau is a scion of the Kamau family that owns Tuskys, East Africa’s second largest retailer.
Kamau went to court in February 2012 on assault charges. He is accused of boxing his younger brother at the retailer’s Nairobi headquarters over ownership disputes, much to the shock of employees. Kagiri was first arrested and arraigned for defrauding the family company in 1996.
Tuskys and Niavas have 71 stores between them spread throughout Kenya, Uganda and Rwanda. Kenya’s Business Daily reports that court filings indicate that Tuskys earned $289 million in revenues in 2011. The latest valuation of Niavas stands at $68 million.
