11 October 2010

Kenya: Retail Giants Shop in Uganda

Nairobi — Kenya's retail market is getting crowded, so much that the big players are becoming uncomfortable. Nakumatt, Uchumi, Ukwala and Tuskys - the country's biggest supermarkets in terms of branch network and shopping traffic - have in the past few years expanded generously in a tight race for shoppers that has wound up in areas initially dominated by traditional channels like shops, kiosks and small supermarkets in small towns.

In Nairobi, the wars for market share have taken mainstream supermarkets from the usual commercial areas to residential places, where they are squaring off with newer and smaller entrants like Chandarana, Stagematt, Eastmatt and Naivas among others.

With Kenya being the more affluent market in East Africa, its retail sector is more developed, but nearly hitting the slow lane, and the big players are looking beyond borders - exporting their wars to neighbouring countries.

Already operating in Rwanda and Uganda, Nakumatt Holdings has been on an East Africa expansion plan to open three branches in Uganda, two in Rwanda and four in Tanzania.

Uchumi Supermarkets has operated in Kampala since 2002 at the Garden City mall popular with residents of the metropolis. The retail chain's CEO, Mr Jonathan Ciano, says Uchumi Uganda, which operates independently, plans to open another branch in Munyonyo on Ggaba Road area on the outskirts of the city, a more affluent neighborhood, hoping to tap the country's emerging middle-class population with wealthy wallets.

The recent entry of another Kenya retail chain, Tuskys, in Uganda has intensified the war in that market, which until recently had resigned itself to a calm play between the usual suspects.

Tuskys, which has 23 branches in Kenya, has acquired two supermarkets in Uganda - Half Price and Good Price - giving it four branches from the onset. This easily makes it the biggest Kenyan supermarket in Uganda in terms of branches (not market share). It has remained mum on their investment figures.

In Uganda, Kenyan retailers are seeking to get a share of a market controlled by foreign supermarkets like Game and Shoprite, located in main shopping malls, and small but nimble home-grown outfits like Capital Shoppers, Standard, Quality, Ken Joy.

The intensified quest for foreign grounds comes after the crowding of supermarkets in Nairobi city centre, particularly after Nakumatt replaced the quiet Woolmatt with its more vibrant brand on Ronald Ngala, Moi Avenue, and Haile Selassie and next to the City Hall.

Even with the Kenyan invasion, Shoprite is seemingly the biggest with two branches, followed by Uchumi and Nakumatt with one store each located next to each other, but local ones have two to three branches in different parts in town.

As they rush in, location seems to be as critical as brand just like at home, the retail stores are going residential, others targeting commercial areas and a mix of both. Yet while neighbours, Kampala and Nairobi, are worlds apart when it comes to commercial architecture.

"The layout of the city (referring to Kampala) is different from that we are used to here in Nairobi," says Mr Ciano, "Here there is a clear distinction between which areas are residential and which are commercial, but in Kampala you get they are mixed up."

Mr Ciano, the MBA who pulled Uchumi from the brink and out of bankruptcy in March after four cold years in recievership, says the Munyonyo Hyper will help it reach a new market segment.

Tuskys, whose managers declined to be interviewed for this story, has gone straight to residential locations, strategically in line with its core low-end to middle-class penetration approach at home. The Half Price and Good Price supermarkets it acquired have outlets in Kitintale, Ntinda, Nakulabye and Shauriyako, largely middle class residential places by Ugandan standards.

Nakumatt set up shop in Kigali city's Union Trade Centre, smack in the middle of the city, pouring in Sh198 million worth of investment. In Uganda it located in the Oasis mall, also in the city and just next to Garden city.

"Competition is good," says Mr Atul Shah, Nakumatt's managing director. "It's the only way we can ensure businesses deliver quality goods. We aim to give service that reflects a whole lifestyle."

The location determines the kind of customers a supermarket, or any business for that matter, attracts. Uchumi, Nakumatt, Shoprite, and Game stores are in malls, while the rest are housed in high-traffic buildings with limited parking spaces and not-so-assured security. This attracts the massive lot of bargain-hunters, but turns off the corporate class who prefer foreign stores because of ample parking, security and, for good measure, ambiance.

But it is not just the individual strategy that the retailers are exporting. Mr Shah says even though Kenyan shoppers are not different from their counterparts in the region, some of the products and services Kenya-based retailers are introducing in these markets are very new to them,

"It is our plan to continue being the market leader not only in Kenya but in the region, by offering innovative products and services," said Mr Shah, hinting at their cosy shop-floor arrangement that comes with branded shops within the stores and 24-hour shopping concept.

The success of Kenyan supermarkets is favoured by a welcoming shopping culture that Ugandans have. Unlike Kenyans, they don't discriminate a product based on its country of origin. Neither do they choose a supermarket based on origin, people familiar with Ugandans' marketing trends say. In fact, they seem to like foreign things.

But with stiff competition, it's not just about opening up shops anymore, but enhancing service too where they have had to export some trends to stand out in the market.

Nakumatt, for instance, has introduced the 24-hour service in Rwanda and Uganda, unheard of concept in these countries. Other services include consumer loyalty card programmes, and in-house foodstuff like bread and other bakeries in Uchumi, Tuskys, and Nakumatt stores.

The products are sourced from both Kenya and Uganda depending on availability and demand, but the retailers hope the opening up of the EAC common market will allow for a smoother flow of goods, this will also cater to the demand for home goods from the huge number of Kenyans working and living in these countries.

Even though they have been promising to enter the Tanzanian market, none of the retailers have set foot there yet. It is thus yet to be seen if it a full regional expansion strategy or it is lure of a lucrative market in Uganda and partly Rwanda.

Even then, Mr Shah says the entry and expansion in to other East African countries does not mean the end of local expansion plans. The market fight on the home ground continues, he says.

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