Traditional stores hold ground in expansion spree by retailers

Despite the number of supermarkets inching towards 300, traditional stores still hold a significant place in consumer shopping behaviour.

Data from research firm Sagaci Research, presented at this year’s East African Property Investment (EAPI) summit in Nairobi, reveals that even the affluent class prefers traditional stores to modern retail chains.

The data shows that while supermarkets are strategically expanding into the space occupied by traditional stores to claim a share of the Sh130 billion (USD 1 billion) industry, seven out of every ten affluent individuals still shop at local stores.

Familiarity with the shopkeeper, proximity to home, and cash flow are some of the advantages traditional stores have over supermarkets. However, supermarkets are not conceding easily. The data indicates that modern retail is establishing itself closer to low and middle-income neighbourhoods as a strategy to compete.

According to the “Overview of Retail Market - The Case of Kenya” document, the number of supermarkets in the country is currently close to 300, up from 174 a decade ago. “The number of modern retail chain stores is estimated at around 287 as of April 2024,” the research states. In 2000, this number was just 33.

As the number of modern retailers increases, so does the cost of space in malls. In 2010, when there were 116 modern retail chain stores, the cost per square meter was Sh186,000 in the Nairobi Metropolitan area.

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“Supply of retail space in Nairobi is approximately Sh770,000 per square metre as of 2023 and is forecasted to be Sh850,000 in 2024,” the research notes. “The last 14 years have experienced a double-digit growth rate.”

Nairobi is estimated to have less than 100 modern retail stores. Naivas is the leading supermarket chain in the country, with 104 stores.

The data indicates that modern retail represents up to 30 per cent of grocery sales in the country.

“Modern retail is growing fast at 10 to 15 per cent per year and currently represents 20 to 30 per cent of grocery sales,” the research states. This figure is higher compared to the rest of Sub-Saharan Africa, which stands at five to 30 per cent of grocery sales. In Southern Africa, the figure is 30 to 50 per cent, while in Northern Africa, it is 20 to 40 per cent.

This growth in Kenya is stimulated by a growing middle class, an urban population, capital injection by some retailers, and a stable currency that attracts investors to the sector.

Historically, modern retail stores, primarily supermarkets and hypermarkets, were located in central business districts. However, they are now found in neighbourhoods and even as standalone stores.

Despite the increasing number of modern retail stores, consumer behaviour appears to be lagging behind. Data from Sagaci Research shows that only 30 per cent of grocery expenditures by affluent individuals (social class A) are made in modern retail stores. The rest is spent in traditional stores. The percentage decreases through classes B (20 per cent), C (10 per cent), D (5 per cent), and E (2 per cent).

“Chains went from malls or CBDs to neighbourhoods and standalone locations and managed to conquer upper and middle-income households. Yet the lower middle class is still kept away from retail chains,” the research states.

The research shows that a majority of consumers visit the supermarket once a month, with 23 per cent of class A individuals and 32 per cent of class E individuals making monthly visits. Only eight and three per cent of class A and E individuals, respectively, shop in modern retail chain stores daily.

Supermarkets are relevant for some product categories, like yoghurt or deodorant, but less so for fruits. The research indicates that yoghurt, deodorant, and laundry products are largely bought from supermarkets, while hair care products are bought from both supermarkets and specialized stores. Fruits, carbonated soft drinks, milk, juices, and bread are primarily bought from kiosks or markets, while spirits are bought online or in supermarkets.

“Given what they buy, traditional trade is still very relevant, yet households are looking for a bargain on those products,” the research states.

Consumers expect easy access (geographical proximity), promotions and discounts, a pleasant shopping environment, suitable products (single doses), quality (not expired), and consistency in product range from modern retail chain stores. One consumer quoted in the research prefers traditional stores because they can visit them twice or thrice a day. 

“It’s my daily routine, and it makes me happy because I can find everything I need right next door from a merchant I know,” the quote reads.

Another consumer prefers traditional stores due to cash flow reasons. “I don’t have a lot of money and no fridge, so I shop day to day at the store near me depending on my needs (and means). The store near me has everything I need daily,” the quote states