Why Kenya retailers face supply chain expansion hurdles

Carrefour’s recent expansion into Eastleigh’s Business Bay Square Mall highlights the remarkable growth of the supermarket industry in Kenya in 2023. However, Carrefour is not the only player in this race for dominance.

In addition, five other supermarket chains have also established a significant number of branches. Naivas leads the pack with 95, followed by Quickmart (58), Chandarana (27), Khetia (22) and Maguna’s with 20.

The competition is fierce as the retailers strive to capture a larger share of the market.

With less than 15 percent of Kenyans residing in Nairobi, efficiently reaching smaller towns presents a significant hurdle for any supermarket chain striving to establish a truly nationwide presence.

Fulfilling upcountry deliveries is challenging. The cost of moving goods in Africa is, on average, estimated to be two or three times higher than in developed countries.

Transport costs can represent as much as 50-75 percent of the retail price of goods. This poses a significant hurdle for supermarket chains looking to expand beyond Nairobi and reach smaller towns and upcountry regions.

The chain that can triumph over this challenge will secure its position as the market leader. Quickmart, Chandarana and Naivas have successfully ventured beyond Nairobi, establishing between 40 and 55 percent of their stores outside the capital.

In contrast, Carrefour currently lags with fewer than five branches beyond Nairobi. The ability to build the most efficient supply chain will serve as the true measure for any supermarket in the Kenyan market.

But why is upcountry so different from Nairobi? Here are three reasons that significantly impact the cost of goods upcountry.

First, there are thousands of suppliers catering to the supermarkets in Kenya. However, most of them rely on a direct delivery model to individual branches.

This model is a relict from times when there were fewer branches. In the last three years, the number of stores has grown exponentially.

The rapid growth of the branch network made it difficult to continue the same model. Especially for regions outside of the capital, it becomes exceedingly difficult for suppliers to use their vehicles.

Consequently, many suppliers opt against supplying branches beyond Nairobi. Unfortunately, this absence of suppliers, often smaller brands, results in a gap on the shelves, limiting the range of product choices available to consumers.

Secondly, The delivery cost from the warehouse to the branches can be as high as 15 percent of the product price, which poses a significant challenge in the supply chain.

Long offloading times and the prevalence of small orders leading to half-full vehicles contribute to inflated transportation costs. Addressing these issues is crucial to reduce the cost of goods.

The challenges that the industry is experiencing will continue to grow as chains open additional branches.

Thirdly, supermarkets also rely on brands to employ merchandisers responsible for stocking shelves, maintaining cleanliness, and reordering.

Within Nairobi, a single merchandiser can efficiently handle multiple branches. However, replicating this system becomes challenging when expanding beyond the capital.

The intense competition among supermarkets in Nairobi highlights the importance of an efficient supply chain. However, the true growth potential lies in expanding beyond the city and reaching upcountry regions.

The limited presence of supermarkets in smaller towns poses difficulties in staffing and adequately maintaining shelves, further exacerbating the supply chain dilemma.

Different supermarket chains have deployed various tactics to increase their footprint outside Nairobi. Those chains that have focused on stores beyond the capital have a big advantage based on their experience.

Nevertheless, to establish dominance in the Kenyan supermarket industry, all supermarkets must strategize their expansion plans beyond Nairobi.

The key lies in creating a robust and cost-effective supply chain that facilitates efficient distribution from suppliers to branches nationwide. The current solutions were built for a much smaller branch network and need to be reviewed.

The current landscape of the Kenyan supermarket industry presents an opportunity for fulfillment and logistics companies to play a significant role in supporting the sector with effective solutions to affordably transport goods to the branches.

By leveraging their expertise and resources, these companies can help optimize the supply chain, streamline distribution processes, and reduce costs for both suppliers and supermarkets.

Collaborations between supermarket chains and fulfilment companies can help build the foundations, addressing the challenges of reaching smaller towns efficiently and ensuring a consistent supply of products on the shelves.

These partnerships not only enhance industry efficiency but also contribute to the overall growth and development of Kenya's retail sector. More importantly, there is a great opportunity to reduce the cost of goods on the shelves and reduce the cost of living.

Marvin is the Chief Growth Officer at Sendy. Email: [email protected]