Walmart Could Be Set For Entry

Walmart -owned Massmart could be about to make a move on Kenya , with reports that the US retailer's South African unit i s in negotiations to acquire Kenyan supermarket chain Naivas . If this were to play out , it would confirm our long-held view that South Africa's leading food retailers are likely to target Kenya for both its own potential and as a gateway into wider East Africa ( see ' Big Four In Kenya Could Attract Interest From South Africa Down The Line , ' September 26 2011 ). Indeed, Tanzania and Uganda are two of Africa's most promising growth prospects.

We have also argued over the past few years that given the relatively developed nature of Kenya's organised food retail sector, entry via an acquisition was likely to be favoured . This is in contrast to the organic expansion favoured by Massmart - and its South African competitors Shoprite and Pick n Pay - in other African markets , where retail is much less developed than Kenya.

Good Time To Enter
Kenya - Total Mass Grocery Retail Sales (US$bn)

Kenya is distinguished from Tanzania in one key way: the overall retail fabric in Kenya is much more segmented . In Tanzania, most organised grocery outlets still depend on the large and expanding population for a considerable chunk of sales. Kenyan retail is far more competitive, with considerably more stores spread around Nairobi than in the largest Tanzanian city , Dar es Salaam . In addition, Kenya's food processing industry is far more developed , and l ocally produced goods are usually much cheaper. Therefore, the leading retailers can much more realistically pursue lower-middle-income traffic in Kenya than is the case in Tanzania or Uganda.

Massmart's aggressive expansion into wider Sub-Saharan Africa and in particular the East African Community region will have been a big attraction to Walmart. Contributing 8% to Massmart's annual sales in the year to June 2010, regional sales excluding South Africa are expected to grow strongly over the next few years as retailers place much more emphasis on frontier market investments. Demand for discounted food and general merchandise is expected to grow very strongly as incomes appreciate and investment pours in (helping supply to grow and bring down prices).

This article is tagged to:
Sector: Food & Drink
Geography: Kenya

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