Consumer goods producers benefit from Kenya's growing middle class

Increasingly a mainstay of the manufacturing and retail industries, Kenya’s fast-moving consumer goods (FMCG) have shown considerable expansion in recent years, buoyed by a rising middle class, significant opportunities for regional expansion and local brand loyalty.

Spending Power Rising

According to a May 2016 report by US think tank the Brookings Institute, Kenya’s demographics are the single biggest contributing factor to FMCG growth. The country has a low urbanisation rate, which drives up distribution costs and lowers consumption, with only around 25% of Kenyans living in cities, compared to 47.8% in Nigeria and 64.8% in South Africa, according to the World Bank. However, Kenya’s middle class – defined by the African Development Bank as those earning an annual income of $3900 or more – accounts for 44.9% of the population, compared to its neighbour Uganda with 18.7% and an average of 22.6% for East Africa more generally.

This has translated into higher consumer spending. According to World Bank data, Kenya was one of the largest consumer markets in Africa in 2013, with $44bn in annual consumption. That figure is the result of a steady rise in spending; Kenyan domestic household consumption rose by a compound annual growth rate of 12.2% between 2000 and 2013.

However, what seems to be an inexorable rise in spending does not always translate to high sales, and the range of challenges producers face in the country can make it difficult to realise their targets. In a 2014 report, South Africa-headquartered Standard Bank concluded that foreign FMCG producers have unrealistic expectations for the African market, suggesting that poverty levels for the 11 African countries studied were actually two times higher than official estimates. “The majority of FMCG sales in the Kenyan mass market are in the C and D class, which we consider very price-sensitive. The A and B classes, who will buy products at a higher price point, are quite loyal to the brand we have built, but competition in this demographic is increasing,” Neer Chandaria, director at locally owned tissue and hygiene products firm Chandaria Industries, told OBG.

Taking Off

Increased household spending has attracted a number of new FMCG producers in recent years that have launched personal hygiene, household cleaning, pre-packaged foods and cosmetics products to an increasingly enthusiastic consumer base. Although the largest FMCG multinationals, such as Unilever and Coca-Cola, are already present in Kenya, others have been slower to enter the market. Kellogg’s, for example, was reportedly considering an expansion into food manufacturing in Kenya in 2015, though the firm has since acquired new units in Nigeria and Egypt.

Some of the most aggressive moves have come from local producers, who have eked out a sizeable proportion of activity, both domestically and regionally. Kenafric Industries, for example, launched operations in the country in 1987 and today operates as one of Kenya’s largest manufacturers and distributors of branded consumer goods, including OYO food seasoning and Obama Pop lollipops, with products sold in 22 countries across Africa. Bidco is another one of the fastest-growing FMCG producers on the continent, specialising in edible oils, cooking fats, detergents, laundry bars and animal feed. It is expanding its operations to 17 African countries under 48 different brands, and is now planning to make a foray into the soft drink industry with a new manufacturing plant built in Madagascar in 2015, followed by construction of a plant near Nairobi that broke ground in mid-2016.

Kenyan-owned Flame Tree Group, which began FMCG operations only a decade ago, provides a similar case study, having launched hair care and body lotion products in Rwanda, Ethiopia, Mauritius, Mozambique and Dubai. Flame Tree made a number of acquisitions in 2015 and 2016, including Kenyan cosmetics company SuzieBeauty, Beauty Plus Trading East Africa, and snacks and spices producer Chirag Kenya, demonstrating the segment’s high potential for scalability and diversity.

 

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The Report: Kenya 2017

Industry & Retail chapter from The Report: Kenya 2017

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