Private investors offer lifeline to retail sector

Tuesday, October 11th, 2022 09:00 | By
Shoppers at a supermarket. Prices of commodities have risen dramatically in the past few weeks. PHOTO/PD/Library

Local retail sector is presenting a mixed bag of fortunes for players in the space as firms exit, new entrants join and others turn to mergers and private equity (PE) firms to fund their expansion.

The latest major investment by a private equity fund into a local retailer has seen PE firm Oak Habour Holdings Ltd acquire controlling stakes in Nakuru-based Gilani’s Supermarket Ltd.

Competition Authority of Kenya (CAK) announced the sale deal on Friday, marking a new era for the 48-year-old family-owned retailer. It, however, did not reveal the value of the transaction.

“The Competition Authority has authorised the proposed acquisition of control of the business and assets of Gilani’s Supermarket Ltd by Oak Harbour Holdings Ltd,” said CAK in a gazette notice.

The Gilani’s deal marks a radical shift for the iconic retailer on Nakuru’s Club Road, which has been serving customers since 1974. This comes on the back of increased market activities this year evidenced by the aggressive expansion by major local and international retailers.

Renowned retailers

Kenya Retail Sector Report 2022 reveals that there has been a renewed appetite by Kenyan retail outlets to grow their operations. fter the initial collapse of renowned retailers, the emergence of supermarkets such as Naivas and Quickmart have risen to fill the space left by the fallen giants.

Private equity firms have been on the forefront in providing fresh capital for expansion and offering managerial expertise to sustain operations.

In early September, leading local retail chain Naivas Supermarkets okayed the sale of 8.5 per cent stake at an estimated $32.29 million (Sh3.8 billion) to a consortium of international investors to raise capital for expansion.

Despite the fact that some of the retailers have been on an aggressive expansion, Kenya has become a tough market for foreign players forcing investors to tread carefully. This has been evidenced by the rate of expansion of the firms compared to the homegrown counterparts. Carrefour for instance, had six branches in 2018 rising to 16 in 2022 compared to local retailers like Naivas that grew its outlets to 85 in the same period from 46.

Quickmart grew from 10 outlets to 51 in the period while Chandarana also grew to 28 from 14.

Tough market

For foreign players, penetrating the Kenyan market remains an uphill task as the firms cite the country as a tough market.

A research by Cytonn shows that in the past four years only one (Carrefour) out of the four international stores that ventured into the country is operating optimally.

The planned exit of retailer Massmart is set to add to the growing list of firms from Southern Africa to close shop in Kenya.

It comes a few months after Shoprite, another Southern African retailer, closed shop barely two years after launching operations in Kenya. Shoprite cited underperformance of its supermarkets for the closure.

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