Kenya and the East Africa region has continued to attract leading pan-African and global retailers looking to establish a footprint in the region. The influx is attributable to a positive demand outlook in the region driven by growing disposable incomes, urbanisation, youthful population and increasing access to information through internet.
The combination of these factors has created a fast-growing base of aspirational consumers, who are brand aware, health conscious and more critical of what they choose to buy.
The entry of global players is creating a new competitive landscape for the local retailers. To survive in the long run, they have to find ways and means of differentiating their businesses and competing profitably.
In addition, they have to stay alert to the dangers of oversupply in the retail sector adding complexity to the operating environment and pressure on margins.
Local retailers will have to set their sights beyond the short term. Their aspirations, clarity of vision, precision of purpose and the subsequent positive transformation in the marketplace needs to be anchored in the establishment of an ever relevant and dynamic competitive advantage.
This could be in the form of a unique value proposition, correct product mix or experiential-based marketing. Clarity on what growth means to the local retailer cannot be overemphasised; is it profitability, an expanding footprint, warding off competition and thus protecting ‘the base’, innovation, or a well-thought-out product mix? Each retailer will need to find a magical combination to ward off the insurgence of formidable competitors.
A smart retailer is nimble enough to respond to customer needs on time and in a sufficient manner, leaving them fully engaged and not ‘shopping around’ for alternatives.
Interactions with the customer should be supported by precise market insights that leave the consumer with the impression that the retailer cares about what matters to them. One very critical aspect of ensuring loyalty is creating a consistently memorable experience when consumers purchase or interact with the products and service offerings, creating a ‘feel good’ effect.
I believe that a good understanding of the local business environment is a significant advantage for local retailers against the new global entrants. Long established supply relationships and tested route-to-market platforms should also provide good competitive advantage in the short to medium term.
However, this could easily be whittled away by the new players leveraging on technological advances and improvements in market infrastructure.
Nevertheless, a combination of these advantages will provide a firewall to the local retailers for sometime.
The retail sector will continue to experience significant disruption and transformation. Whilst a deliberate effort has been made by local players to keep up with overseas competition on technology, more remains to be done.
They should consider new retail models that suit consumers’ lifestyles. They should prioritise social media and mobile technology to establish personalised relationships with customers based on individual preferences and behavior. They should, where possible, develop multiple customer interaction channels ranging from online platforms to the non-conventional lower-cost pickup points.
Similar to many other countries, our homebred retailers are mainly family-owned businesses – the majority in their first or second generation. Family-owned businesses tend to face unique challenges relating to governance, professionalisation and succession planning.
Many of them struggle to professionalise the business and ‘the family’, and constantly grapple with weak governance structures. This tends to limit their ability to effectively develop strategies to respond to the changing marketplace.
Many family businesses have a short-term mentality and owners spend most of their time on current issues, leaving the businesses vulnerable to emerging trends and risks.
The increasing rental costs of formal retail space could also pose a significant challenge to the local retailers as they look to grow their footprint in the modern, upscale shopping malls. The high cost of construction combined with increasing demand of space from new retailers has generally driven up the cost of retail space.
Finally, infrastructure shortfalls, constrained local supplier capacity and high distribution costs will remain areas of concern for local retailers as they compete against deep-pocketed, networked global players. Whoever conquers the supply-chain battle will thrive.
Looking ahead, Kenya will continue to dominate East Africa’s economy. Retailers should work to remain in sync with consumers’ ever-changing needs and create products and services that are relevant and timely. The local retail players must guard their patch and create a niche anchored in intrinsic value, correct product mix and dynamic ways for consumers to experience their products and services.
Michael Mugasa is a partner with PwC Kenya and the CIPS industry group leader. This article was originally published in PwC’s fourth edition of the Spot On publication.