Majid Al Futtaim, which operates the Carrefour franchise in Kenya and Egypt, has revealed that revenues from its Kenyan stores rose by 143% in the first half of 2018. Revenues from its more mature Egyptian operation rose by 22%.

Buoyed by a string of new store openings, Carrefour in Kenya has seen stratospheric sales growth. Operator Majid Al Futtaim (MAF) opened its first Carrefour store in Kenya in May 2016, a 5,000m² hypermarket at the Hub Karen, in Nairobi. It opened its second store at the flagship Two Rivers Mall.

Since then, Majid Al Futtaim has used the opportunities presented by both Uchumi and Nakumatt closing stores to increase its network. In 2018, it has opened stores in Thika Road Mall, The Junction and Sarit Centre – all in Nairobi. In May 2018 Carrefour announced it would open its first, smaller format, Carrefour Market store in the space vacated by Nakumatt in the upmarket Village Mall, in Nairobi.

A wave of luck

In Kenya Majid Al Futtaim has ridden a wave of luck it could barely have dreamed of: Carrefour arrived as two of the three leading players in the Kenyan supermarket sector, Nakumatt and Uchumi, were suffering from severe financial distress and unable to pay suppliers. The third of the three leading players, Tuskys, also has substantial supplier debt but has managed to avoid a full blown crisis.

The Uchumi/Nakumatt crisis did three things to help propel MAF and Carrefour:

• Opened a significant gap in the sector left by the shutdown of more of nearly 50 supermarkets
• Freed up prime property in leading Nairobi malls and strategic locations
• Created a virtual stampede of Kenyan suppliers into MAF’s arms

MAF has not been the only benefactor. Domestic chain Naivas, which had held off rapid expansion as others opened new stores, has used the past 12 months to add more supermarkets to its network, and to position itself as a more premium brand. South African chain Shoprite, which had already exited Tanzania and decided against entering Kenya a few years ago, quickly elected to take up space in 7 malls in Kenya.

Carrefour’s impact on the supermarket sector in Nairobi

It is hard to overstate Carrefour’s impact on the supermarket sector in Nairobi. The original plan was to try and suck the oxygen from supermarkets within a 10km radius by diverting Kenyan consumers away from Nakumatt, Uchumi and Naivas and into Carrefour stores. MAF has elected to open large stores, typically over 5,000m². It was a risky, winner-takes-all strategy: when Nakumatt was sailing high, it wasn’t a given that customers would switch. The risk was that MAF could open up its two planned stores at Hub Karen and Two Rivers Mall but would struggle to be grow beyond that because of a lack of available space.

With six stores, MAF’s oxygen-sucking strategy has worked so far. MAF has managed to grow where Massmart’s Game, with just a single store in Kenya, has not. The South African discounter has adopted this approach of a shallow coverage in lots of markets across Africa. But it’s unclear what benefit it really gets from having small, expensive to service, networks in Kenya, Ghana or Nigeria. In many ways it shows what Carrefour might have been in Kenya: stuck in no man’s land. MAF’s Carrefour stores already raise the question of whether Game’s presence in Kenya is viable.

Because of the size and premium postioning of its stores, Carrefour is in a prime position to exert pressure on Naivas in Nairobi even at some distance. When traffic is light, Naivas’ flagship Kiambu Road store, for example, is just 10 minutes’ drive away from Two Rivers Mall. In Two Rivers Mall, the Chandarana supermarket one floor above Carrefour is largely empty as Carrefour bustles with customers. As a more premium network, with a handful of stores and only in Nairobi, it too is vulnerable to Carrefour expansion.

Tuskys is in a better position to avoid direct competition. Its store network has many 1,000m²-1,500m² stores in high traffic locations and serves more mainstream consumers who won’t be driving out to premium malls. But we haven’t yet seen MAF replicate what it has done in Egypt and accelerate the rollout of the Carrefour Market stores, which would directly aim for Tuskys customers.

Carrefour v Shoprite. What kind of battle can we expect?

Arguably, MAF’s major achievement is getting to market and establishing its store network before Shoprite. By early 2019, Shoprite will have 7 supermarkets in Nairobi. It also has more experience growing sustainable store networks in low income African markets.

Shoprite and Carrefour will inevitably compete against in Nairobi. Both retailers want to target the growing middle class in Kenya, but focus more on the premium end (in contrast to the many smaller chains, including Choppies) that are focused on the lower end of the middle class.

Shoprite could aim for the soft underbelly of the supermarket sector in Kenya: the provincial cities such as Eldoret and Kericho where Nakumatt and Uchumi stores have remained closed, and where competition comes from independents and small domestic chains. If it did so it would be moving away from the more competitive market in Nairobi and into more volatile, lower spend cities.

One of Shoprite’s main points of difference in expansion markets such as Nigeria and Angola is its willingness to open stores in secondary cities and thereby open up a version of national coverage. Expanding into up country cities fits Shoprite’s model much better than it does MAF’s Carrefour model and offers a clearer growth path.