May 9, 2017 – Research for this article was collected during William’s recent visit to East Africa. It is the first in a two-part series. The second instalment will be on Tanzania’s consumer market.


Nairobi, Kenya’s bustling capital, is a building site. Rapid development is evident everywhere. Advertisements punting opportunities to buy new high-spec apartments are a common sight along highways and boulevards that are increasingly home to an array of shiny shopping malls that would not be out of place in South Africa, or even suburban America.

Kenya now has more formal retail space anywhere in Sub-Saharan Africa (SSA) outside South Africa, and capacity continues to grow.

Emerging Middle Class

Much of this development is predicated on considerable optimism regarding Kenya’s prospects. In a context of lackluster growth across much of SSA, Kenya stands out as a rising star. A recent cross-industry poll of FrontierView clients with SSA business confirms this, with the largest share (35%) viewing Kenya as offering the best growth opportunity in 2017.

Such optimism is driving well-known Western retailers such as Walmart (through its subsidiary Massmart) and Carrefour to expand their footprints in the country, expanding choice for local consumers who increasingly are exposed to, and discerning about, the wide array of international brands on offer.

Yet many firms, particularly in the retail sector, are underperforming. Local chain Nakumatt is closing stores, while several Western FMCG companies have reported disappointing sales, often citing poorer-than-expected footfall in Kenya’s new shopping precincts. This raises questions about the true spending power of the middle class, its purchasing priorities and habits, and whether MNCs are pursuing the optimal market segmentation, product portfolio and channel strategies appropriate for this market.

Nevertheless, for MNCs seeking to grow in the market, there are several lessons they should take on board when formulating their Kenya strategies.

Win in, and learn from, the informal sector

Although formal retail is growing, most purchases still take place through traders with kiosks based in informal markets. Even salaried professionals will make some of their weekly purchases (usually fresh produce) from such traders.

These stalls are usually cheaper than mall-based supermarkets, as well as more convenient given they are often located near people’s home and offices. Moreover, consumers value the idea of supporting businesses in their local communities. MNCs in the FMCG space need to develop sophisticated, multi-channel distribution strategies to reach these traders, utilizing partners equipped with strong local knowledge (and fluency in local languages) and maximizing use of mobile-based payments and marketing platforms.

Some retail chains are also addressing the convenience issue by opening smaller versions of their stores within residential areas and gas stations (Kenya-based executives report these are performing better than their larger mall-based equivalents).

Adapt to fluctuating spending power

Incomes from formal wage-earning jobs give an incomplete picture of Kenyans’ spending power. Millions rely on informal businesses, while even those with formal jobs often supplement their wages with other income-generating activities. Depending on how these activities are faring, household incomes can vary quite considerably from month-to-month, or even week-to-week.

MNCs can adapt to this fluctuating spending power by understanding the ‘kadogo’ economy – a local term for offering small or flexible qualities that enable consumers to buy depending on the amount of money they have, a dynamic that mirrors the flexibility available in informal markets. A good example of this are the ‘milk ATMs’ available in supermarkets – machines that dispense pasteurized milk, even in very small quantities, depending on the amount of money paid.

Revisiting product sizes and packaging in this way is particularly important for targeting low and lower-middle-income consumers, while maintaining brand presence.

Invest in quality and customer service

Kenya boasts considerable product availability and variety, leading some to worry that demand in some segments is saturated. Yet there are still opportunities for MNCs introducing new products into the market to create demand. For example, anti-septic hand wash for use at home was uncommon only a few years ago, but is now ubiquitous, while demand for diverse varieties of cheese (not a usual part of the local cuisine) is growing, albeit from a low base.

These new products tend to gain traction best when consumers are guided on how to use them through in-store demonstrations or by offering ‘consultations’ with trusted customer service personnel, a strategy that leverages locals’ inclination towards word-of-mouth recommendations and preference for interactive retail experiences.

While introducing consumers to new products, such a proactive approach can also encourage consumers to switch from buying items in markets to instead buying from formal stores – for example, by explaining the convenience of stock being constantly available and of consistent quality.

Capture consumer growth beyond Nairobi

Rapid urbanization and its attractive scale has made Kenya’s capital and commercial hub the focus for Western MNCs.

Yet the populations of smaller cities and towns (such as Kisumu, Nakuru and Eldoret) are growing apace, and sometimes faster. They are also becoming wealthier as local counties gain a greater share of state financial resources (and public sector jobs) because of Kenya’s devolution process. In due course, consumers in the north will receive a further boost from employment and businesses linked to the nascent oil and gas sector, offering compelling opportunities for MNCs.

However, executives should assess carefully the business case for these underserved markets, taking into consideration the scale of the addressable market (in general, spending power will be lower and more volatile than in Nairobi), as well as route-to-market complexities linked to high logistics costs and greater informality in the retail space.

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