The retail industry in Kenya continues to witness a blitz of expansion of physical store networks, contrasting a much-hyped possible shift towards e-commerce.
A spot check by Smart Business shows that all major retailers including Naivas, Quickmart, Carrefour, and Chandarana Foodplus have over the past two years opened a combined 20 new stores despite an increase in e-commerce platforms.
A recent report by property fund Ilam Fahari I-Reit for example shows that Kenya’s major supermarkets opened 19 new branches in 2021 alone, partly buoyed by a recovery in consumer demand and cash from private equity funds, which acquired stakes in two of the four retailers in prior years.
Quickmart opened six more outlets in 2021 followed by Naivas and Carrefour with five each, while Chandarana Foodplus invested in three new stores, according to data collated by Ilam Fahari I-Reit.
“Footfall across retail centres has been on the rise since [second half of 2021]. It remains a tenant market,” Ilam Fahari I-Reit wrote in a report on retail sector performance for 2021.
Naivas — which in 2020 raised Sh6 billion from the sale of a 30 per cent stake to a consortium of International Finance Corporation (IFC), Amethis Finance (France) and MCB Equity Fund (Mauritius), and German sovereign wealth fund DEG — closed 2021 with 78 outlets.
Growth-hungry Quick Mart, on the other hand, ran 46 branches on the back of investment from Africa-focused Adenia Partners, while Chandarana Foodplus’ and Carrefour Kenya’s branches grew to 23 and 16, respectively.
The number of outlets by retailers grew further in 2022 with Quickmart opening additional branches on Lang’ata Road and Machakos. Quickmart last year took up space vacated by Tuskys at T-Mall in Nairobi, less than a month after it opened a new branch at Machakos Wote road, opposite Machakos Level 5 Hospital, becoming the retailer’s 51st outlet countrywide.
Naivas Supermarket also opened three more physical stores last year. The first outlet was unveiled at Kiambu Mall in April 2022 in a space that was previously occupied by troubled Botswana retailer Choppies, which exited the Kenyan scene in 2019 after losses.
The second store was opened at Safari Centre in Naivasha while the third was opened in Meru on a date that is yet to be identified by the retailer. The new stores came up barely weeks after Naivas opened its 82nd branch in Syokimau as it continues with its national expansion.
The sustained aggressive expansion of physical stores by the retailers now shines a spotlight on the much-hyped shift towards e-commerce, which would have seen a slowdown in concrete-and-mortar growth.
“The growth in physical stores reflects the purchasing behaviour of customers. While e-commerce is touted as efficient, the reality is that many shoppers in Kenya are still stuck to the legacy stores and retailers are respecting that fact for now,” an official of one of the retail chains told Smart Business.
“Things may change later on but as we speak the physical store remains king and we have to take the products to the buyers through more physical stores,” he added.
Wambui Mbarire, chief executive officer of the Retail Traders Association of Kenya (Retrak), however, says there is still room for e-commerce growth despite the dominant physical retail stores.
“The two will complement each other; they are not in competition. Brick and mortar is here to stay. Even Amazon, the largest e-commerce platform, has in the last three years opened brick n mortar stores,” she said.
Mbarire adds that cybercommerce will continue to lag due to infrastructure issues especially the physical address system, which is a challenge.
The slow shift towards e-commerce in Kenya has been attributed to high delivery costs, highly fragmented markets, and lack of clearly named streets and buildings leading to supply chain barriers. This has seen e-commerce penetration around one percent in Africa, behind 12 percent in the USA and 20 percent in China.
High logistical costs are estimated to account for up to 70 per cent of the cost of an item across Nairobi.
Players in e-commerce say expenses involved in transporting goods from a store to a buyer are a major inhibition to the growth of the sector especially given the low disposable income among many households.
There is also mistrust in e-commerce both on the part of buyers and retailers. For instance, there have been cases where consumers have complained that the orders made are not what they get while others remain cagey about their privacy and exposure to cyber criminals prowling online platforms.
The mistrust also plays out in the part of online vendors some of whom have fallen victim to fraud and now insist on payments before delivery of items.
During the Covid-19 pandemic, there was a noticeable jump in the uptake of e-commerce. In the Jumia Africa e-Commerce Index 2021, the pandemic led to a shift in online shopping demonstrated by domestic sales of food delivery, essentials, and pharmaceutical goods.
The fast-moving consumer goods and beauty products for instance accounted for 57 per cent of gross merchandise value in 2020, up from 44 per cent in 2019.
This was followed by phones and electronics which accounted for 43 percent.
But after the pandemic eased, the temporal increase in the uptake fizzled out with the old struggles in the sector taking root.
Reports also show that low-income earnings have continued to push Kenyans into the traditional stores driving their dominance, even despite the advance of supermarkets and convenience stores.
Kenyan consumers buy 77 per cent of their food, beverages, and personal care products from more than 250,000 small stores, commonly referred to as dukas, in a market that currently has supermarkets such as Naivas, Quickmart, and Carrefour, the Future of Traditional Retail in Africa report by Boston Consulting Group, BCG says.
The struggles of online e-commerce in Kenya have been evident over the years with some players cutting down businesses or folding altogether. For example, the online e-commerce platform SkyGarden in October 2022 revealed it was shutting down on failed funding amid a bleak outlook of e-commerce.
This came shortly after another firm, Sendy announced that it was closing down its retail and supplier platform known as Sendy Supply—a decision it attributed to a funding drought in a tough economy.
“We have paused the Sendy Supply services, our solution that provides a platform for general retailers to purchase stock at competitive prices from multiple suppliers and manufacturers,” Sendy founder and CEO Mesh Alloys said in a statement announcing the decision. BY DAILY NATION