Kenyan Retail Dynamics

Supermarkets have been defined by different authors in various ways. According to the dictionary of business and finance, a supermarket is defined as a large store selling a wide variety of consumer goods, particularly food and a small collection of household requirements. Others have defined a supermarket as a form of grocery self-service store that offers wide variety of food and household commodities prearranged into departments. It sells small quantities of goods and services to consumers for their personal and non-business use. It is relatively bigger than a traditional grocery store and offers relatively low cost, high volume, products and services. It is smaller though and more limited in its range of offers than a hypermarket.

Supermarkets were seen as the preserve of the well to do high income earners in developing countries in the past, with the rest of the population characterized by relatively low incomes frequenting the small scale vendors or Kiosks as they were popularly known. Neven and Reardon argued that supermarkets are no longer the preserve of the high income consumers as they once were. They are rapidly expanding into smaller towns with smaller populations in Kenya and the world over among middle and low income earners.

Kenya has been characterized by interest rate volatility in the last five years whose effect on supermarket remains unknown. The instability on macroeconomic variables was witnessed in year 2011 where interest rates rose to over 30%, inflation rate to 13.97 percent compared to 3.9 percent in 2010 and Kenya shilling greatly weakened against major world currencies. Against the US dollar, the shilling averaged 101.270 in October 2011 from 81.029 in January 2011.

Retail market profitability in sub Saharan Africa has remained high compared to the rest of the world. Kenya has of late initiated a framework and infrastructure to encourage lending through public and private credit reference bureaus, institutional strategies to spur economic development such as the vision 2030 in Kenya and financial systems approaches which include alternatives to collateral in order to access credit.

Retail business continues to hold the driver wheel for the growth of Kenyan economy. According to the economic statistics conducted in 2008/09 the Kenyan Gross Domestic Product (GDP) growth rate was at 11% thumbs up to the retail and distribution industry. If this economic trend will be upheld then the realization of goals as stipulated in the vision 2030 will not be a hard task. This good performance of the retail business in Kenya can be a good explanation as to why the five major global retail chains intend to invest in Kenya. Wal-Mart, Jet, Game Store, Edgars and Carrifour have plans to invest in retail business in Kenya by end 2017. This will lead to more competitive pressures in the retail Market.

In today’s hyper-competitive retail environment no organization is safe and thus the need to engage in value creation. The high interest margins and other financial related inefficiencies continue to erode investor and consumer confidence, keeping off potential investors, ultimately impacting adversely on Kenya’s economic growth as postulated in the Vision 2030 (PWC, 2011).  Year 2011 was one of the most challenging periods, characterised by instability in financial markets and slow economic recovery in response to external shocks and structural challenges within the economy. The rapid depreciation of local currency, rising inflation, high interest rates and dry up of capital markets, which mirrored the situation across the EAC region, bore spillover effects from instability in global markets (FRS, 2011).

With all these dynamics therefore, every retailer needs to be strategizing to remain afloat and relevant in the market place. More competition is expected in the near future. All the best to all retailers. Contact Retail Worth Limited for more insights.

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