Shoprite in Kenya: going in with 7 new stores

Feb 28, 2018

Shoprite International Stores
Shoprite has finally revealed more detail around plans to launch supermarkets in Kenya, aiming to be in 7 malls vacated by Nakumatt and Uchumi by the end of 2018.

Shoprite have revealed more detail around their plans to enter the Kenyan supermarket sector. It has been a long time coming: Shoprite have been known to be interested in Kenya for more than a decade. But received wisdom was that the strength of domestic supermarket chains – meaning Nakumatt, Tusky’s and Uchumi primarily – acted as a barrier to entry.

Two of those supermarket chains are in dire straits. It is not a given that Nakumatt will survive its 60 day period under administration as it seeks to find a way to manage suffocating levels of debt and trade its way to viability without an injection of capital. Uchumi is barely in a better situation. Although it has backing from the Kenyan government it is shedding stores – often in its prime locations – and incurring heavy losses.

Shoprite has played a patient waiting game. The company has four stores in Uganda, none in Rwanda, and exited Tanzania in 2013. For a long period since 2000, Shoprite has been happy to wait out entering Kenya until it could find the right acquisition. That process included, reportedly, discussions between Shoprite and Nakumatt. This is CEO Peter Engelbrecht on Shoprite in Kenya:

“Well, we like to go on our terms, so two years ago we would have had to do an acquisition to get entry into Kenya. We were not prepared to do it. The price wasn’t right, the risk profile didn’t feel right and we waited.”

Although Nakumatt, Uchumi and Tusky’s would have provided retail competition for Shoprite, an overlooked issue would have been supplier relationships: Kenyan supermarkets had strong links into, and leverage on, Kenyan producers and it is likely that for some time they may have refused to work with Shoprite. But that issue is well past. Shoprite enjoys a strong reputation for paying on time, unlike Kenyan supermarket chains. Distributors have rushed to secure contracts with Choppies and Carrefour, both relatively new foreign entrants. The same will be true for Shoprite, who wants to reduce dependence on South-Africa-based suppliers as much as possible.

Taking over Africa, one country at a time

The map below shows Shoprite’s store network in Africa. The grey shows exited countries: Tanzania, Zimbabwe and Egypt. The orange shows the 15 countries in which Shoprite currently operates. Kenya would be Shoprite’s 16th market.

We consider it highly likely that, with stores already in Uganda and Kenya, Shoprite would also want to enter Rwanda. The Rwandan market is small, and supermarket chains almost exclusively limited to Kigali. Ironically, Nakumatt Rwanda is thriving. Aside Nakumatt, however, the major players – all with small store networks – are all domestic.

Shoprite International Stores

More bad news for Nakumatt and Uchumi

It’s bad news for Nakumatt and Uchumi, who don’t need or want strong foreign competition. It lays down a considerable challenge to Naivas, the Kenyan supermarket chain that has also taken advantage of Nakumatt and Uchumi’s problems to take over space and open new stores. A growing Shoprite will place pressure on Tusky’s, which also has substantial supplier debts and its own internal feuds to deal with.

The key thing to understand is what Shoprite has managed to do in South Africa: aggressively manage inflationary pressures and use price competition to boost its market share. Shoprite has reduced the prices of 5,279 SKUs. Arguably, no other retailer operating in Kenya has the same operational capabilities to streamline its costs.

But – Shoprite will only have seven stores in Kenya and needs to make a significant additional acquistion to really gain mass quickly. For now. For context, Tusky’s has 53 stores. Naivas has 45. Nakumatt still has 29. Uchumi has 16. Choppies has 11. Carrefour has 5 large stores. There are numerous regionalised chains, including Chandarana.

Where to open stores in Kenya

Uchumi and Nakumatt have both shut many of their up country stores, focusing their diminishing store networks on Nairobi primarily. The big question is where Nakumatt wants to focus its energies. In Nigeria, for example, Shoprite has focused on putting more stores secondary cities at the expense of saturating Lagos. If Shoprite decides to focus away from Nairobi it takes it out of direct competition with Carrefour and Chandarana and reduces direct competition with the leading Kenyan chains.

But that focus comes at a price: provincial cities are considerably smaller, with smaller target audiences. Both Nakumatt and Uchumi found that by expanding too quickly into provincial cities they drove up operational cost and complexity for relatively little revenues.

 

 

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