The making of Pan-African supermarkets

By Jevans Nyabiage

The battle for the consumer is set to intensify as leading supermarket chains announce plans to open outlets across the continent.

The entry of US retail giant, Wal-mart, into Africa with the acquisition of a 51 per cent stake in South Africa’s Massmart is sending shockwaves to incumbents such as Shoprite, Pick n Pay and Spar.

And as the chains expand outside their motherland — South Africa — stiff competition is anticipated as Kenyan retailers pump billions for a share of the continental retail goodies.

Last year, word spread that the world’s largest retail chain was also eyeing the East African region. Massmart didn’t expressively deny the speculation. And when asked for comment over the issue that time, Brian Leroni, Massmart corporate affairs executive said: "Massmart is not currently in a position to comment about the Kenyan market".

In Kenya, retail chains have gone into an aggressive expansion binge, both local and regional as South African retailers go frontal to counter Wal-Mart’s attack. This is expected to ignite a bruising battle for the continent’s retail business space. Africa is described by analysts as the next frontier for growth.

Already an aggressive intra-regional retail expansion by South African and East African supermarkets has been seen. Shoprite has been raising its game against East African retail chains, which focus on middle and upper income customers in Uganda and Tanzania.

Shoprite recently acquired two supermarkets in Mauritius. It has 169 corporate and 43 franchise stores in 15 countries in Africa including Uganda and Tanzania.

East Africa’s largest retail chain, Nakumatt has announced plans to go beyond the East Africa region and tap markets such as Botswana, Gambia, Burundi, Zambia, South Sudan, Zimbabwe, Malawi and Nigeria in its Nakumatt 2.0 growth strategy.

The chain is adding four branches – two in Kenya, one in Rwanda and one in Uganda this year, giving it 40 branches across East Africa. Kenya contributes about 85 per cent of the chain’s sales volume, and to fuel its future growth, the firm plans to tap to virgin markets in the continent.

The four new outlets, which will cost Sh500 million, have already been factored into the retailer’s cash flow.

Competitors Naivas and Tuskys, are also eyeing regional markets such as South Sudan, Ethiopia, Uganda and Tanzania.

As Nakumatt expands into countries like Zambia, its competitors will be global retailers like Pick n Pay and Massmart. Pick n Pay, has opened its first store in Mauritius, and is to open a second store there next year.

SPAR, the Dutch retail chain has entered the Nigerian market throwing the spotlight on Africa’s retail business potential.

As the continent’s middle class continues to expand, with more disposable incomes and a refined taste in consumer goods, Nakumatt plans to increase the number of branches to 50 across Africa by 2014.

Last year

The expansions come at a time when the region has recorded double digit rise in inflation, putting strain on consumer buying power. Last year, Kenya’s inflation nearly touched 20 per cent, although it has of late started to slow down.

Nakumatt plans to sell a stake to international retailers and equity investors to raise funds for its expansion.

The chain would initially seek to sell a 15 to 18 percent stake for $50 million, and attract international retailers to take up about another 25 to 30 per cent thereafter, to speed up expansion into new African countries.

Nakumatt Managing Director, Mr Atul Shah, told Financial Journal the company’s pan-African expansion plans are progressing well and are on course.

"Over the past few months, we have received proposals from a number of partners in as far countries as Botswana, Burundi, Zambia and South Sudan," Shah said.

"Indeed, as we speak, I’ve just returned from a fact finding tour of Juba and was recently in Bujumbura. We also have pending plans to finalise second level consultative meetings with potential partners in Nigeria."

Shah says the company has started feasibility studies to venture into new horizons in Nigeria, Gambia, Zimbabwe, Botswana and Malawi.

"Suffice it to say that we hope to conclude ongoing feasibility studies by end of this year. As per our plan, we hope to have our first beyond East Africa outlet up and running by 2015 and we are firmly on course."

Nairobi Securities Exchange (NSE) listed chain, Uchumi Supermarkets, recently announced plans to open a branch in Juba and three in Uganda in addition to at least seven local branches. Last year it opened a branch in Tanzania’s capital Dar es Salaam with a new branch at the Quality Mall.

Last week, when contacted, the chain’s chief executive Jonathan Ciano told Financial Journal that he was on a business trip outside the country.

Uchumi plans to open a branch in Juba. In Kampala, it is to open new locations in the areas of Gulu, Kabalagala, Natete and Quality Mall in Kampala.

In Kenya, it is returning to places where it had deserted years ago when it ran into financial difficulties and later put into receivership.

Uchumi is currently looking for business premises and does not have a firm date when it expects to have opened for business in South Sudan.

The supermarket chain is facing increased competition in the saturated Kenyan market from retailers such as Naivas, Tuskys and Nakumatt; that expanded at a time when the firm was under statutory management.

Uchumi Supermarkets, which re-listed at the NSE in May 2011 after a five-year absence, has returned to profitability.

Naivas Supermarkets, one of the fastest growing retail chains, says it is looking to consolidate its operations in Kenya with a branch in Mombasa, and four other branches in the Nairobi metropolis.

More branches

Mr David Mukuha, Naivas Supermarkets, managing director says the retail chain plans seven more branches this year.

Mukuha says Naivas is looking to go to into Southern Sudan and Ethiopia next year in its regional expansion bid. There are unconfirmed reports that the firm might enter into strategic partnership with South Africa’s Shoprite.

Locally, the firm opened a branch in Nakuru, four slated for Nairobi and others in Mombasa and Nyeri.

The supermarket says it is renovating the Narok branch to become a major branch as it moves to tap on the growing middle class in the peri-urban town of Rift Valley.

According to Mukuha, supermarkets control about 40 per cent of the retail market transacting more than Sh100 billion every year.

"We still have a huge market that is untapped. We want to concentrate this year in the local market before we move to other countries next year," Mukuha told Financial Journal.

Tuskys another rapidly growing chain has also been expanding in Kenya, with more outlets expected this year. Ukwala and Chandarana are also in the fight for consumer baskets.

Main driver

What is fueling this growth?

Analysts say the main driver for retail growth is market demand. "Despite the challenging economic environment, demand for formal retail services has more than doubled largely fuelled by economic lifestyle changes associated with urbanisation and globalisation," Shah says.

He says consumers have shifted their preferences and now enjoy shopping in formal retail outlets than in informal outlets. However, penetration of retail outlets is still low at an estimated 20 per cent coverage across the east Africa Region.

At the same time, lifestyle growth and attraction to formal retail has been fuelled by cost-effective bargains and value added services. Shoppers are more often likely to patronise a supermarket located in a mall where they can also conduct couple more of transactions such as banking, eating out and related shopping.

And all in all, retail development has also been fuelled by sustained property development since supermarkets and hypermarkets rely on development of buildings that can house their operations. Property developments focusing on shopping malls will remain lucrative given the demand.

"As Nakumatt Holdings, the pace of our expansion is limited by the availability of requisite shopping floor space and amenities. The development of a modern mall in Nakuru has allowed us to return to our cradle. Similarly the development of an ultra-modern business tower in Kigali also allowed us to open our second outlet in Kigali, Rwanda," Nakumatt boss adds.

"This year, we are set to open in Malindi where yet another modern development is fast coming up. We may also open along the Thika Superhighway later on in the year or early next year."