Surge in demand for Kenya's consumer goods segment

Kenya’s rapidly expanding fast-moving consumer goods (FMCG) segment has been a major driver of industrial growth, benefiting from the particularly strong demand for food and beverages (F&B) and personal care products. This has led a number of international firms to enter the market or increase existing investments in recent years, most notably US firms including the Wrigley Company, PepsiCo and Coca-Cola. Although changes in the tax regime, ongoing currency depreciation and an increasingly competitive environment could impact future expansion, robust population growth and a burgeoning middle class are expected to keep the sector stable and strong. Higher sales at formal retailers and better distribution channels are also helping to improve sector visibility, therefore making it easier to adapt to local consumption and demand.

Growth Factors

According to a June 2014 report on FMCG in Africa published by KPMG, Kenya is one of 10 African countries with particularly high potential for FMCG expansion, as a result of surging demand in the food and beverage and personal care segments. Growth in the FMCG sector is driven by a number of factors, including Kenya’s rising middle class; the African Development Bank estimates that 17% of Kenyans are able to spend $2-20 per day.

Population growth, a well-educated workforce and a vibrant private sector were also cited as growth factors in the KPMG report, while security issues, inflation and taxation risks pose the biggest challenges. The shilling’s depreciation represents a significant risk factor, after declining by 22% against the US dollar in the year to August 2015, which will likely impact consumer purchasing power going forward.

Food & Beverage

Kenya’s F&B sector is considered well developed by regional standards, with domestic chains including Nakumatt, Tuskys, Uchumi and Naivas dominating the supermarket segment. The sector has also attracted a good deal of foreign interest in recent years, most recently in April 2015, when the Wrigley Company announced plans to invest $60m in a new chewing gum plant in Nairobi.

The largest domestic F&B firm in the country is East African Breweries Limited (EABL), a subsidiary of UK-based Diageo. EABL is the second-largest listed company on the Nairobi Stock Exchange, boasting total market capitalisation of $2.4bn.

Competition in the beverage sector in particular has ramped up as multinationals including Heineken and SABM iller attempt to capture a larger share of the market. Heineken launched a regional office in Nairobi in 2011 and was spending millions of shilling to promote its brand, according to local press reports. SABM iller also moved to re-enter the market in 2011 through its subsidiary Crown Beverages after leaving in 2002. It introduced Miller Genuine Draft in late 2011, following its acquisition of bottled water manufacturer Crown Foods in the same year.

Meanwhile, recent changes to the value-added tax bill and a reduction in tax incentives for EABL’s Senator Keg brand prompted the closure of over 3000 retail outlets, with the Kenya National Bureau of Statistics (KNBS) reporting in its “2015 Economic Survey” that total beer production in the country has fallen by a third since 2013 as a result of tax reforms.

Although it announced plans to invest KSh4.3bn ($47.3m) in capacity expansion in Kenya in 2012, EABL is now focusing on expanding its reach regionally, most notably into Uganda, Rwanda and Tanzania. Another domestic brewer, Kenya’s Keroche Breweries, announced over KSh5bn ($55m) of new investment in February 2015 for construction of a new plant in Naivasha, which will boost its annual capacity from 10m litres to 110m litres. The push by companies into the beverage segment, beyond beer, is understandable and the soft drink market is recording rapid growth, with the KNBS reporting that soft drink production rose by 14.2% in 2014 to reach 461.4m litres.