Kenya: Distribution Landscape (2/2)

Nairobi

Walking down the Nakumatt supermarket on Mwanzi Road in Nairobi is not easy. I am tempted left and right by a varied assortment of products jostling for space in the crowded shelves. Westgate Mall one street away paints a similar picture as I am spoilt for choice by the many local and international brands vying for my attention. The retail sector in Kenya is highly competitive for multinational companies, as are the healthcare, construction, agriculture, services, and tech industries. Indeed, with major African markets such as Nigeria and South Africa undergoing acute economic challenges, investor attention across industries has turned towards Kenya. Competition is heating up.

Although Nairobi presents the largest opportunity for multinationals, multiple opportunities are appearing in Tier 2 cities across the country. Fueled by the devolution of power away from Nairobi to 47 counties, helped by infrastructure construction, and boosted by a diverse local economy, demand across industries is rising in cities such as Nakuru, Eldoret and Kisumu. As a result, multinationals are establishing a comprehensive route-to-market strategy for nationwide coverage.

Distribution in Kenya is organized along the southern trade corridor, which begins in Mombasa – where most goods are imported – and spans a route encompassing Nairobi, Nakuru, Eldoret, and straight to Uganda. Most distributors warehouse their products in Nairobi and operate sales calls throughout the country by travelling up and down the corridor, with only the most mature multinationals operating a hub-and-spoke model out of Tier 2 cities. While most distributors have the physical capabilities to cater to opportunities across the country, they are also confronted with a tough business environment.

As mid-sized banks, such as Imperial, Dubai and Chase bank, are placed under central bank financial custody because of loan misreporting and corruption allegations, distributors who use these banks’ services are faced with disruptions in their cash flow and delayed payments. Scandals in the banking sector not only undermine already-weak distributor financials but also point to prevalent corruption issues in the country.

Tender issuance and government relations strategies, which are frequently in the distributor’s purview, are likely to be disrupted as the country gears towards the 2017 elections and the President embarks on an anti-corruption drive to win popularity. Whether in securing import approvals, getting goods to market, or accessing the right decision-maker, distributor activities are likely to encounter corrupt practices, rendering it crucial for multinationals to put in place clear guidelines and strategies to mitigate partner corruption risk.

Multinationals should also determine whether their Kenya distributors have the right attributes for success. Capability gaps are common, particularly around information sharing and demand planning, meaning multinationals should be prepared to invest in developing their local partners’ skillset. This investment will help ensure growth despite tough competition and enable distributor access to new opportunities effectively.

In fact, the companies dedicated to Kenya are already investing in cutting-edge practices for their distributors. For example, information sharing is a weak capability for distributors across industries, as most distributors share quantitative information, such as sales data, inventory levels, and KPI trackers, but seldom qualitative information around end-customer feedback and competitive activity. This is due to weak information-collection capabilities and multinational reliance on third-party intelligence providers. Cutting-edge multinationals recognize that distributors have their ears close to the ground, understand the market, have personal relationships and as such, are well-positioned to offer insights at scale.

With the right investment in the distributor relationship, multinationals can transform obstacles into opportunities for growth. As interest continues to grow in Kenya, the focus on the right distribution, route-to-market, and opportunities beyond Nairobi will be key. Multinationals should therefore educate and align their teams on the distribution landscape, and comprehensively assess the skillset required to service that environment, before gearing up into expansion mode.


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