Shoppers delight as more retailers come calling

• Local firms will have to come up with a number of offers to retain loyal clients as Massmart of South Africa, which is owned 51 per cent by US giant Wallmart, comes calling

The retail industry in Kenya is gearing up for exciting times, with the impending entry of a South African giant into the local market.

Massmart, which is owned 51 per cent by US retail firm Wallmart, confirmed to Smart Company the booking of space in Garden City shopping mall on Thika Road. Construction of an outlet is to start in December this year and be completed by May 2014. This will mark the entry of the first multinational retail chain in Kenya.

“The Kenyan market meets Massmart’s market assessment criteria that include, but are not limited to, factors such as size and concentration of urban consumer market, application of the rule of law and availability of retail sites,” Massmart Group corporate affairs executive Brian Leroni said. He, however, declined to comment on the amount of money they intend to invest in the venture.

“It’s still very early in the process and is, therefore, premature to disclose the potential value of the investment,” he said.

To protect their turf, local supermarkets have rolled out attractive promotions, offers and discounts on purchases. Most have invested heavily in loyalty programmes. Shoppers are issued with reward cards and earn points on subsequent shopping.

The points are later redeemed, allowing customers to shop free of charge for the value of the points accumulated, or even to go on holiday.

Nakumatt has 750,000 smartcard holders; Uchumi about 600,000, Tuskys 300,000, and Naivas approximately 160,000 in their loyalty programmes.

Some supermarkets have also partnered with banks and telecoms to provide secure payment systems and other convenient modes of transactions. They will, however, need to up their marketing efforts to capture more customers and retain the existing ones.

In East Africa, Massmart has a store each in Uganda and Tanzania, operating under the Game brand name. Its major South African competitor, Shoprite, which is also Africa’s largest food retailer, has three outlets in Uganda and two in Tanzania.

A Citi report indicates that East Africa is the most under-represented region for the South African supermarket giants, as their Tanzania and Uganda outlets account for merely five out of Shoprite’s 193 outlets on the continent (outside South Africa).

Massmart’s outlets in Uganda and Tanzania account for only two of the retail giant’s 26 stores in Africa. The two retail giants have a solid presence in Central, Southern and Western Africa.

Massmart’s strategy is pegged on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, through 287 outlets in South Africa and 26 others in 12 countries in sub-Saharan Africa.

However, whether this model will work in Kenya will be the biggest test for the South African retail giant. It may want to borrow from mobile service provider Airtel, whose high-volume, low-price strategy has failed to work, with the majority of Kenyans sticking to what they regard as their local provider.

In the last financial year, Massmart grossed Sh523.2 billion (R52.9 billion) in sales. Nakumatt supermarket’s Sh38.6 billion ($460 million) sales revenues in 2011 pale in comparison over the same period, though the latter operates in a bigger market.

Massmart’s profits after tax stood at Sh9.1 billion (R918.8 million) in the 2011 financial year, a 24 per cent decline from Sh12 billion (R1.2bn) recorded in 2010. The entry, however, will stir excitement in the retail market which, for the past five years, has been one of the fastest growing.

It is also one of the most competitive industries — dominated by six supermarket chains, including Nakumatt, Tuskys, Uchumi, Naivas, Ukwala and Chandarana.

Uchumi Supermarket chief executive officer Jonathan Ciano said the entry of the new firm will intensify competition. “We are not afraid of more players in the Kenyan market. The market is large enough and is open to more supermarkets,” he said.

Tuskys, Naivas and Ukwala supermarkets mainly target customers in the low and medium income groups, while Uchumi targets the middle income segment. Nakumatt and Chandarana, on the other hand, target the middle and high end earners.