Nakumatt and other local retailers have long served Kenya‘s market but now international store chains and private equity investors are also coveting the strong growth prospects in east Africa’s leading economy.
Kenya, with a GDP of $53.4 billion, is a gateway to regional trade, but it holds other attractions for retail investors.
Analysts say the penetration of formal retail is 25-30 percent, double that of Africa’s biggest economy Nigeria. In addition, the average value of a shopper’s basket has risen 67 percent in five years to $20, making Kenya the continent’s fastest-growing retail market, say industry executives.
A key factor that new market entrants will have to consider is how to deal with local competition. New market entrants must race to complete buildings on time, deal with legal requirements, and establish supply chains.
“The dominance of local chains in the modern retail segment makes it difficult for new entrants and resistance to foreign takeovers complicates mergers and acquisitions,” said research firm Euromonitor International.
French retailer Carrefour says it will inaugurate its first Kenyan store this year through its Dubai-based franchisee Majid al Futtaim.
By contrast, Nakumatt, which has annual sales of $750 million, bought four stores in Tanzania from South Africa‘s Shoprite last year, taking its total in east Africa to 52, as it ramps up its presence in underserved neighbors.
It has 38 outlets in Kenya, up from 11 a decade and a half ago, eight in Uganda and two in Rwanda.
South African chain, Massmart, said it plans to expand into east Africa, where it will open its Game brand store at a new shopping mall to be opened in Nairobi this year. In June 2011, US retail conglomerate purchased a majority stake in Massmart.
Nakumatt is also looking to expand by selling a quarter of its shares. Managing director Atul Shah said the company was in talks with an investor but declined to give details.