KENYA – As more retail players flock to the region, snapping up space in mushrooming shopping malls almost as fast as they come up, analysts say niche markets will be crucial in the fight for consumers who continue to show a preference for products they know, have tried before, or that have been recommended to them.

Property developers said fashion entertainment and food retailers are likely to take the biggest spaces in malls that are coming up in several major towns. The retail facilities have middle class and up-market customers as their target market.

“Investors prefer leasing retail space to office space because there are high returns. In our upcoming projects, more than 50 per cent of the space is booked to retail,” said Joseph Kamau, a commercial retail expert at Dunhill Consulting Ltd.

Property experts Dunhill are overseeing the establishment of the Waterfalls Mall in Karen, and Kangundo Mall on Kangundo Road in Nairobi. The firm manages Thika Road Mall among other properties.

Nakumatt Holdings, which boasts a chain of supermarkets in high-end malls in Kenya, Uganda, Rwanda and Tanzania, is facing competition from international entrants, but the chain sees a chance to expand formal retail trade.

“The average formal retail penetration in the region is 18 per cent. This means that the cake is still large enough to accommodate international and local fledgling retailers,” said Thiagarajan Ramamurthy, the regional operations and strategy director of Nakumatt Holdings.

In May, MassMart — the Johannesburg Securities Exchange-listed retail giant — opened its first shop, Game, in Kenya, to add to its operations in Uganda and Tanzania. Game (Kenya) is located at Garden City mall in Nairobi, where Nakumatt has also opened an outlet.

“Game’s value for money concept of discount retailing, which has earned the group a loyal customer base across Africa, will dramatically expand the shopping options available to consumers in Kenya,” said Mark Turner, Game’s marketing and customer director.

Botswana grocery retailer Croppies Enterprises — also listed on the JSE — has announced plans to buy 10 stores in Kenya for $10 million. The firm said it has entered into an agreement with Ukwala Supermarkets to purchase its assets and business name.

Choppies operates 125 retail outlets — 72 outlets in Botswana, 35 in South Africa and 18 in Zimbabwe.

Carrefour SA, a French multinational retailer, has leased space in two upcoming malls in Nairobi — the Hub and Two Rivers.

Analysts say supermarkets could be leasing space for specific brands depending on where the malls are situated and whether they can compete favourably.

“We expect to continue seeing the growth of local players, and the entry of large regional and global players. We will also see more segmentation of the market as more specialist fashion and grocery players stop addressing the market homogeneously and become much more focused on narrower niches,” said John Kiarie, a partner at Deloitte East Africa.

Analysts say shopping convenience and lifestyle will drive competition. Food and entertainment outlets determine where a customer shops, and each mall has a specific target market.

“The various services offered in high-end malls are not available at smaller locations, but mini-mall developments upcountry and even in urban centres are also attracting branded food outlets and banks in addition to retail brands,” said Mr Ramamurthy.

New retailers will have a major task making their brands known and finding the right niche. It takes time to establish loyalty. They may turn to technology like online shopping.

Existing chains have the advantage of established loyalty and wide coverage.

“The existing retailers have established themselves as a brand with loyal customers and a flowing supply chain. New entrants could bet on price and high quality services. Many consumers look for convenience and direct interaction with the seller,” said Adnan Ganiwala, the head of research at ICEA Lion.

Retailers decry the lack of guiding policies in the sector.

“A policy, complete with realistic incentives for local retailers, can help upgrade informal retailers to the formal space. Through a retail sector development policy, for example, a mama mboga (market woman), kiosk operator or online retailer, will get the deserved recognition and support for their efforts,” said Mr Ramamurthy.

Nakumatt has 55 branches across the region. The retailer is planning to open two more branches in Kenya — in Busia and Bungoma. Rwanda and Uganda are slated for one new branch each next year.

December 9, 2015;