SA retail giant trains eye on local market

By Jevans Nyabiage

The retail market is set for major realignments following reports that South African retail giant — Massmart Holdings — is looking to set up shop in Kenya.

Last week, Massmart top executive revealed that the retailer, which is 51 per cent owned by world largest retailer WalMart is sealing a deal to enter Kenya, in collaboration with the real estate developer, Actis. 

A top manager at Actis confirmed reports that the firm is in advanced talks with Massmart to enter the local market through  Game stores, a line of discount general merchandise stores.

The development is expected to ignite the market, already in an expansion frenzy, as local, regional and international retailers pump billions for a share of the continental retail business. 

Last week, Massmart said it is in talks to open its first store in Kenya, what could be its latest step to expand since Wal-Mart Stores bought a majority stake in the business for $2.4 billion .

The buyout served as an entry point for WalMart to access southern Africa and the rest of the continent without having to approach each country individually.

No timeline

Massmart is South Africa’s third-largest general retailer, with around 36 stores outside of South Africa — mainly Game discount retail stores.

But Massmart did not give a timeline for the store opening in Kenya.

“We are unable to discuss timelines or investment commitment until we have finalised our discussions with Actis,” Brian Leroni, a Massmart executive for corporate affairs said when contacted by Business Weekly.

Last year, the combined WalMart-Massmart entity said it was planning “significant new store openings” and aims to increase its food business by more than 50 per cent in the next five years.

According to available information from Actis, a private equity fund, Massmart through its subsidiary — Game — has booked space in its Sh12.6 billion real estate development on the Nairobi’s Thika Superhighway.

“The Actis development will house East Africa’s first regional retail centre. We want the development to be a unique shopping and leisure experience that can compete with the best globally,” Koome Gikunda, investment principal at Actis, told Business Weekly.

“Discussions are in progress with other retailers looking to enter the rapidly expanding Kenyan market such as South Africa fashion group, Foschini.”

Gikunda said central to this is its strong local and international tenant-mix. 

“Equally important is our emphasis on creating green public spaces. To this end, we are dedicating four acres of the site for a central park full of family-friendly leisure features,” he said.

The property dubbed Garden City will be ready in May 2014 and is situated near East Africa Breweries Ltd , which previously owned the 32-acre land.

Shake up

The entry of Game, which operates 105 stores in 12 African countries, will shake up Kenya’s formal retail market that is dominated by locals and offer the South Africa retailer a piece of the market after the exit of retail chain Metro Cash and Carry in 2005.

Massmart said last year that in the next three years, the company would add five to six stores in major cities in other parts of the continent to tap into the growing consumer class by replicating Walmart’s high-volume, low price business model.

Walmart is known for sourcing cheap products, particularly from Asia, and their entry is expected to lead to realignments for other players, to compete with the same model.

Meanwhile, retailers have been scrambling to grow in the rest of Africa, which is recording growth above five per cent—with rates approaching 10 per cent in Angola and Ghana — even as the rest of the world stagnates.

Locally, retailers such as Nakumatt Holdings Ltd, Uchumi Supermarkets, Naivas Supermarkets, Tuskys have also joined the frenzy, searching for opportunities in high growth markets.

The retail chains have gone into an aggressive expansion binge, both local and regional as they brace for WalMart’s attack.

Not threatened

“Nakumatt warmly welcomes both local and international competitors. It is our firm belief that competition is healthy and we are confident of our market positioning thanks to the support of our loyal customers,” Nakumatt Holdings Managing Director, Atul Shah, said.

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 firm is currently undertaking feasibility studies in various north, south and central African countries where it has received a market invitation.

Its Kenyan competitors, Uchumi Supermarkets Ltd and Tuskys have also progressively gained market share in Kenya, thanks to their economy positioning and presence in city centres as opposed to Nakumatt’s out-of-town superstores.

Naivas is also eyeing Ethiopia, South Sudan, Uganda and Tanzania, following the footsteps of Nakumatt, Uchumi and Tuskys.

The firm’s business development manager, Willy Kimani told Business Weekly the firm will open at least three outlets in the region by the end of this year and four more in Kenya, which will bring the supermarket’s total number of branches to 27.