Secrets of Safaricom’s Sh25bn profit and huge market share

When Safaricom released its financial results on Tuesday and announced a Sh25.5 billion pre-tax profit, many Kenyans were not shocked by the huge amount.

The Sunday Nation set off to unearth the secret behind the success of a firm that has grown from a nondescript department of a State corporation to become the most successful company in the region.

Our investigation established that the multi-billion-shilling firm’s success can be attributed to a combination of a marketing and branding that is supported by an extensive distribution network.

The company prides its self as having fashioned itself as homegrown to tap into Kenyans’ loyalty.

The firm believes most Kenyans, as a result, view Safaricom’s competitors as “outsiders out to finish their company”.

“Kenyans are very proud of the achievements of a Kenyan company,” said Safaricom chief executive Bob Collymore on NTV on Wednesday.

This is underlined by the fact that many are comfortable paying for services within Safaricom instead of using the same services free of charge or at a promotional cost on other networks.

But Kwame Owino, the chief executive of the Institute of Economic Affairs, Kenya, argues that most Kenyans do not use Safaricom because it is a Kenyan company.

“I use Safaricom, and I don’t care if it is Kenyan or not. In fact, I don’t even hold any Safaricom shares,” said Mr Owino. “It’s just the most dominant network.”

Small investors hold a 25-per cent stake in the company, Vodafone Plc of the United Kingdom has 40 per cent and the Kenyan government owns 35 per cent.
Vodafone Plc will pocket more than Sh7.2 billion — Sh2.3 billion for M-Pesa licence fees and a Sh4.9 billion dividend — for its stake.

Mr David Njung’e, a small Safaricom shareholder, expects to get just over Sh100 in dividends. In an article published in the Sunday Nation, Mr Mungai Kihanya argues that two of Safaricom’s owners hold 75 per cent of the shares; Vodafone Kenya Ltd with 16 billion shares and the Treasury with 14 billion shares.

“The remaining 10 billion shares out of the total 40 billion are held by the 720,000 or so individual and institutional investors,” says Mr Kihanya. “So, if we remove the share of profit going to the two big guys, we are left with Sh6.25bn to be divided among 720,000 people; that is an average of Sh8,700 per shareholder.”

250,00 airtime outlets

The other three mobile phone service providers –– Airtel, Orange and yu –– have unsuccessfully attempted to lure customers from Safaricom with offers of free calls, SMSes and money transfer as well as footing the cost of porting.

Efforts to deploy their best brains from other regions to crack the Kenyan market have proved futile. Safaricom also boasts an unrivalled distribution network that some liken to the world’s best known distributor, Coca-Cola.

The annual report released this week shows that Safaricom has over 250,000 retail outlets for selling airtime. “The idea is that everywhere you turn you spot a green-coloured structure where you can obtain Safaricom services,” said a source at the firm.

The elaborate distribution network is complemented by the fact that 32 per cent of airtime top-ups are done via M-Pesa, which now has 17.1 million subscribers or 88 per cent of Safaricom’s total customer base.

There are 65,000 M-Pesa agents, 25,000 of them added in the last six months alone.

Then there’s branding. The green and red trademark has become a household brand just like most of the names used in its promotions.

“Kwachua was not accidental and neither were Bamba 50 and now Tetemesha,” said a senior manager who could not be named because he’s not allowed to speak to the media.

“If you are clever, you will see the deeper meaning of tetemesha (Kiswahili for shake up) being released just days before the full-year results, which shook the country to the core.”

The company’s total revenue stood at Sh124 billion (from Sh107 billion in 2012), meaning it has an average daily income of Sh336 million. This is the biggest daily turnover in Kenya and the region, according to Mr Collymore. Profit before tax grew by 47 per cent to Sh25.5 billion, with a net income of Sh17.5 billion.

Mr Collymore said the firm will account for five per cent of Kenya Revenue Authority’s collection for the year.

But not everyone is smiling. A subscriber who identified himself only as Kairuthi says the profits are obscene after passing on to customers the 10 per cent excise tax the government slapped on money transfer services. “The current M-Pesa transaction costs are prohibitive. Why couldn’t they absorb that cost, surely?” Ms Kairuthi asked.

But Mr Owino says the company cannot be vilified for ‘super normal profits’ because Safaricom is a profit-making entity.

“It’s not like they put a gun on your head or mine and stole our money. The profits are just a reflection of their dominance and Kenyans’ confidence in them,” he said.

Safaricom was launched as a department of Kenya Posts & Telecommunications Corporation based on an analogue network.

Today, the company, through Safaricom Foundation, has the largest corporate social responsibility programme on the continent. This year’s budget is Sh1 billion, up from Sh500m last year.

Mr Owino says Safaricom’s leverage was its ability to retain customers over the years. “I have issues with their network and services but comparatively it is truly the better option,” said Mr Owino.

Subscriber market share

Mr Collymore credits his predecessor, Mr Michael Joseph, for building a strong brand with a unique advantage –largest market share. Latest figures show that
Safaricom enjoyed a subscriber market share of 64.5 per cent, followed by Airtel at 16.9 per cent, Yu (10.5 per cent) and Orange (8.1 per cent).

When it comes to making calls, Safaricom’s market share jumps to 77.5 per cent, while its SMS market share stands at 93.7 per cent and 72.6 per cent in the mobile data market share.

This means that although most Kenyans claim to subscribe to the other networks, they mostly use Safaricom services.

Mr Collymore attributes this to the fact that the company conducts a monthly customer delight index for its products and competitors.

“We ask our customers what Safaricom products make them happy and unhappy. We also do this with the products offered by other mobile firms,” he said.

“Once we have this information we act on it. If, for instance, a product scores poorly the department head and his team will not get bonus, while those who score highly smile all the way to the bank. This inevitably keeps managers and their juniors on their feet to ensure customer satisfaction.”

Safaricom also conducts regular surveys on employee satisfaction. “Here, the aim is to find out if they can recommend our services and products to the customers,” said Mr Collymore.