East African retailers battle it out for share of growing market
The East African retail sector feels the pressure to expand as traditional players face strong competition from new entrants.
Currently, Game Discount Store, Shoprite, Uchumi, Nakumatt, Tuskys among other retail giants in the region are scouting for opportunities across major towns in a bid to outclass each other.
The rivalry has been catalysed by the integration of East African countries that saw then launch a common market in July 2010. The move saw the five member states’ borders opened up for trade.
Nakumatt Holdings says the retail sector may well be the next most sought after economic investment sector and employer in the next five years.
With a population of more than 140 million people, the East African region provides a vast retail market to formal retail traders, covering close to half of the population with daily turnover of more than Ksh1.4 billion.
“This population can sustain at least 10 major retail stores in each town with a turnover of $300milion,” said Nakumatt Holdings Managing Director, Atul Shah.
In the next ten years, Nakumatt is forecasting that close to 25 million customers across the region will have access to formal retail trade facilities with monthly sales reaching the $700-million mark. The expansion means the selling space will also hit close to 40-million square feet up from 15-million square feet today.
“Nakumatt Holdings is keen to facilitate the upgrade and development of its regional retail trade from its current informal classification to a more formal one that can guarantee better returns for the population,” Shah said. “At the current market coverage, the formal retail trade is an investor’s haven.”
In Kenya, the leading players alongside Nakumatt include Uchumi, Tuskys, Naivas and Ukwala. The regional retail sector is currently skewed and tilted heavily to informal operators.
However, the sector urgently requires a Retail Development Policy and recognition as a key economic driver. Indeed, in a recent forum on investment in East Africa, Tanzania’s President Jakaya Kikwete called on the leaders in the region to come up with more conducive policies that would spur retail business in the region.
The chief executive officer Jonathan Ciano says the retail firm’s expansion in East Africa has been phenomenal. The chain that almost went under in 2006 has recorded a marginal growth that has seen it re-listed at the Nairobi Stock Exchange. Uchumi currently has 22 branches in Kenya and six more are in the pipeline.
In Uganda, the retailer has five branches with another two in the pipeline. In Tanzania where the supermarket has one of the largest shopping malls, it plans to open five branches in future. “We want to be an East African Community company with branches in all the five states,” he said of the regional expansion. “Our focus is to continue hitting our targets as we move on. We are actually even beyond the target and we are working on the positive side of things,” Mr Ciano said.
Uchumi has been on the path to recovery since it emerged from receivership following years of financial troubles that led to huge losses and bankruptcy.
Critical in the looming competition is the move by supermarkets to cut down on their operating costs, expand their operations and cut prices.
Analysts say Uchumi should swiftly redeem its customer loyalty through low pricing of its products. “Uchumi’s comeback needs a robust strategy that will make it sail through the current competition. The short-term approach is to put their prices lower than those of its competitors while going for fast-moving products,” John Kandie, a retail market analyst said.
Mr Kandie says that in spite of their growth plans, supermarkets in the region are still faced with a number of challenges such as unresponsive policies, which render them uncompetitive in the market. “Supermarkets are no longer [the] privilege of the rich. To safeguard themselves against the hostile environment, supermarkets must define ways to gain a competitive advantage through product and costs strategies.”
Uchumi, Kenya’s oldest retail chain is now planning to enter Rwanda. Mr Ciano says the plans are still at conceptual stage. “The success in our subsidiaries in Uganda and Tanzania shows the region still has huge retail opportunities,” he said.
It is also seeking to cross-list its shares on the Rwandese Stock Exchange, Dar es Salaam Stock Exchange and Uganda Securities Exchange.
By Mark Kapchanga