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					      KENYA SUPERMARKET                                  important sub-sector in the country, both
                                                         from the consumer perspective (important
       RESEARCH PROJECT1                                 part of the diet, the food expenditure) and
                                                         the farmer perspective (great income
                                                         potential for nearly 2 million small scale
             POLICY BRIEF                                producers in Kenya). Within this context,
                                                         this study aims to help answer the following
                                                         three strategic questions, each at a different
    By David Neven2 and Thomas Reardon                   level of the supply chain: (1) at the retailer
         Michigan State University                       level: ‘What is the importance of
                                                         supermarkets in food and FFV retailing and
                                                         what is the nature of the supermarkets’ FFV
                 Draft 01/13/05                          procurement system?’; (2) at the consumer
                                                         level: ‘What is the effect of the development
                                                         of the supermarket sector on the (urban)
Supermarkets3 in Urban Kenya: General                    consumers’ food and FFV purchasing
Research Approach                                        behavior?’; and (3) at the farmer level:
                                                         ‘What is the effect of the development of the
The research presented here focuses on the               supermarket sector on (FFV) producers’
impact of the rise of domestic supermarkets              behavior and net income?’.
on urban consumers of and supply chains for                       The data for this study were
fresh fruits and vegetables (FFV) in Kenya.              collected over 13 months of field research in
Kenya provides an interesting case study                 Kenya (January-November 2003, April
because it demonstrates how even in a low                2004, and August 2004). Given the absence
income country in Sub-Sahara Africa                      of secondary data on retail in general, and
supermarkets are growing with all the                    on supermarkets in particular, in Kenya, the
irrepressibility of an idea whose time has               bulk of the research effort focused on
come. In Kenya, we show here how                         primary data collection. A total of 1,174
supermarkets have grown from a tiny niche                respondents (retailers, farmers, consumers,
at the start of the 1990s to 20% of the urban            key informants) were interviewed.
food retail sector in 2003. Furthermore,
supermarket development in Kenya is                      The Rise of Kenyan Supermarkets and
currently in an early, formative stage where             the Evolution of their Fruits and
changes are taking place fast. This study                Vegetables Supply Systems
thus allows us to capture these fleeting
moments and provide a benchmark for                      Research Questions
future studies on urban food retailing in                Here we go to the heart of the phenomenon
Kenya. We focused on FFV because it is an                under     study,    the     importance    of
                                                         supermarkets, the drivers behind and
1                                                        patterns of their growth and the nature of
  This research received financial support from
                                                         their produce procurement system. The
the Rockefeller Foundation, the United States
                                                         specific descriptive and research questions
Agency for International Development through
the PFID-F&V and RAISE/SPS projects and the              are: (1) what is the importance of
World Bank.                                              supermarkets in terms of market share in
2                                                        food and FFV, growth rate and geographic
    Corresponding author (nevendav@msu.edu)              spread? (2) How does growth of a
3                                                        supermarket chain determine: (i) the choice
  ‘Supermarkets’ is a term used broadly here for
all self-service retail outlets meeting minimum          of the FFV supplier (in terms of their size
size criteria (150m2 in the case of Kenya) and           and place in the supply chain); and (ii) the
with food lines representing an important                use of contracts, quality and food safety
percentage of sales (>50%).                              standards and centralization of procurement?


                                                   -1-
                                                        use of more centralized procurement
Data and Methods                                        systems for FFV; and (iii) there is an
The data collection effort consisted of (1) a           incipient use of standards for food quality
supermarket survey (210 respondents in 79               and food safety, mostly linked to contracts,
urban areas); (2) a similar survey of                   the use of which is expected to increase
traditional retailers such as kiosks, over-the-         from the current 5% of FFV suppliers to
counter shops and market stalls (250                    70% over the next 5 years.
respondents); and (3) key informant
interviews. Descriptive analysis of this data           Supermarkets and Consumers in Africa -
set allowed for a reconstruction of the path            The Case of Nairobi, Kenya
of supermarket development in Kenya and
the identification of the key drivers behind            Research Questions
it. The nature of the FFV procurement                   The supermarkets’ gain in market share can
system is analyzed through case-studies of              only be explained by a concurrent shift in
the two leading supermarket chains in                   consumer behavior. The specific descriptive
Kenya, Uchumi and Nakumatt, who jointly                 and research questions are: (1) How
represent 90% of the FFV sold through                   important are the different income-
supermarkets in Kenya.                                  categories of consumers as a percentage of
                                                        the customer base and sales of supermarkets
Key Findings                                            for food in general and FFV in particular?;
                                                        and (2) What are the socio-economic
(1) Growing at rate of 18% per year,                    determinants of the consumers’ retail outlet
supermarkets in Kenya have grown from a                 choice and shopping frequency decisions (at
niche in the mid 1990s to 20% of the urban              supermarkets) for food and FFV?
food market and 4% of the urban FFV
market in 2003.                                         Data and Methods
                                                        The data for were collected through eight
(2) Supermarkets have spread from the                   consumer focus groups (54 participants) and
capital to intermediate and small towns, with           a consumer survey (445 respondents) in
44% of supermarket sales and 58% of                     Nairobi. The consumer focus groups
supermarket stores located outside of                   provided an initial understanding of the
Nairobi in 2003.                                        behavior of consumers. The data from this
                                                        survey were then used to: (i) describe the
(3) The leading supermarket chains in                   nature and motivations of consumers
Kenya are evolving, with a time-lag but at a            shopping in supermarkets versus traditional
comparable speed, to the same FFV                       retail outlets across product groups and
procurement system that has become the                  income classes; and (ii) test, in limited
dominant format for supermarkets in                     dependent       variable   regressions,   the
middle-income developing countries: (i)                 importance of different socio-economic
while the share of brokers (and the                     variables (including income) in explaining
smallholders they buy from) in the vegetable            retail outlet choice and shopping frequency.
supply of Kenya’s leading supermarket
chain (Uchumi) has gone down from 70% to                Key Findings
50% (and is expected to go further down to
only 10% by 2008), the share of direct                  (1) The poor are far more important in the
supplies by medium and large farms has                  development of supermarkets than is
gone up from 15% to 40% (and is expected                generally believed: in 2003 supermarkets
to go up to 65% by 2008) and the share of               derive more than a third of their sales and
smallholders as direct suppliers remains                more than half of their customers from poor
stable around 10-15%; (ii) both leading                 and low income consumers.
supermarket chains have moved towards the


                                                  -2-
(2) In general, supermarkets have penetrated           on kale, tomatoes and bananas (the two
much further and faster into the consumer              highest volume vegetables and the highest
market for processed foods as compared to              volume fruit in Kenya respectively). The
FFV. This is mainly because Nairobi                    second farmer survey, this time focusing on
supermarkets sell processed food much                  kale only and including detailed questions
cheaper than do traditional shops. By                  on input use and yields, addresses all three
contrast, supermarkets sell FFV at a higher            questions.
price (on average) and are not located as
close to consumers as are FFV shops.                   Key Findings
However, there are three factors that suggest
that Kenyan urban consumers will shop                  (1) The growth of supermarkets has
more from supermarkets in the future for               stimulated the rise of a new class of FFV
FFV: (a) younger consumers buy FFV more                farms in Kenya. These are mostly recently
frequently     from     supermarkets;     (b)          established, medium-sized farms which, in
supermarkets are increasingly price-                   terms of physical and human capacities,
competitive with many categories of                    differ starkly from the smallholder farmers
traditional retailers for high-volume                  that represent the bulk of the FFV
(commodity) vegetables like kale and                   production in Kenya. Especially farm size
tomatoes; and (c) supermarkets are                     and the presence of a modern irrigation
developing smaller retail formats which can            system were found to be critical
be located closer to consumers.                        determinants of participation in the
                                                       supermarket channel. This stark difference
Farm-level Perspectives on the Impact of               points to the presence of a threshold capital
Supermarkets in Kenya’s Fresh Fruits                   vector at the entrance of the supermarket
and Vegetables Supply System.                          channel.

Research Questions                                     (2) Supermarket-channel farmers have
Here we take the upstream, farm-level                  adopted more capital intensive production
perspective on the growth of supermarkets.             technologies which resulted in their average
The research question here are: (1) what are           land and labor productivity being 60-70%
the determinants of the farmer’s decision              higher than those of traditional-channel
regarding channel choice (supermarkets                 farmers. While they use 20% less labor per
versus traditional buyers) in terms of their           acre than traditional-channel farmers,
capacities (e.g. farm size, use of technology,         supermarket-channel farmers rely heavily on
use of hired labor, education of the farmer);          hired labor (80% of the workforce) and
(2) do farmers supplying supermarkets and              could thus become important in proving jobs
farmers selling to traditional supply chain            for rural households with little or no land.
agents use different production technologies;          Not withstanding differences in the capital
and (3) do farmers supplying supermarkets              intensity of their production technologies,
benefit from this market access in terms of            the two types of farmers have a comparable
net incomes and/or demand reliability?                 production cost per unit of output.

Data and Methods                                       (3) While most traditional kale farmers sell
Two farmer surveys (with 63 of the                     to brokers and get a price that lets them
interviewed farmers supplying supermarkets             break-even at best, supermarket-channel
and 103 supplying traditional markets),                farmers have a 40% gross profit margin.
complemented        with      semi-structured          These margins and lower market risks in the
interviews with supply chain intermediaries            supermarkets channel has resulted in a
and input suppliers, were conducted to                 strong growth dynamic for supermarket-
address these questions. The first survey              channel farmers which have doubled the size
takes a broader perspective, focusing mostly           of their operations over the last five years.


                                                 -3-
Implications for Development Programs                  and retailer level (e.g., small shops
                                                       aggregating to form procurement clubs that
(1) The growing market share of                        can then contract directly from groups of
supermarkets implies that they are becoming            smallholder farmers).
increasingly important as transformers of the
food markets facing small farmers, and thus            (5) In order to avoid the risk of an over-
as agents to include in development                    reliance on a single buyer and because
programs aimed at improving market access              supermarkets buy only the highest quality
to small scale farmers.                                grades, farmers should look at supermarkets
                                                       as one element in a portfolio of buyers.
(2) Small farmers, as individual suppliers,
are one of the less attractive options for             (6) Supermarkets, as they centralize their
supermarkets to turn to as their FFV sales             FFV operations over a wider regional store
increase, because of the former’s inability to         network and as they increase their scale of
deliver year-round and in the volumes and at           operations, will stimulate regional market
the quality level required by supermarkets.            integration and production specialization,
Development programs aimed at assisting                with the best suppliers for particular
smallholder farmers to access the                      products increasingly found farther away
supermarket sector would have to make sure             from the area of production (this includes
farmers meet the whole vector of                       increased imports and exports as chains
supermarket requirements. As this implies              move into new countries). When selecting
investment      and      working      capital          products and developing marketing plans for
requirements which mostly exceed the                   smallholder farmers, development programs
capacities of risk-averse smallholder                  should take these dynamics into account
farmers, development programs need not                 (both as opportunities and threats).
only organize farmers in groups but also
look for or develop new creative ways of               (7) Assistance programs focused on
keeping capital requirements low and                   agricultural diversification can help small
increase access to affordable credit.                  farmers with the necessary training and
                                                       equipment to produce those perishables for
(3) Supermarkets prefer to work with a                 which these farmers are likely to be
selected list of proven suppliers, who grow            competitive in the supermarket market-
along with them. As these farmers are                  channel. This assistance should be carried
already selected in the early stages of the            out in a way that walks the tightrope
development of the supermarket’s FFV                   between alleviating poverty and inducing
procurement system, there is a degree of               distortions in market. We show in this study
urgency in helping smallholder farmers to              that these products are mainly the highly
sell to supermarkets and build a long term             perishable products such as leafy greens
trading relationship.                                  (e.g., traditional African vegetables) in
                                                       which a correctly equipped smallholder can
(4) Supermarket-induced supply chain                   have an advantage. Assistance programs are
dynamics (such as increased investments in             likely to find further promising new market
irrigation, communication, transportation)             opportunities amongst the wide set of
result from an increase in scale and from an           produce items for which supermarkets are
increased market reliability (long term                eager to shift away from the current
relationships).   Development      programs            traditional brokers to more direct supplies by
aimed at creating similar dynamics in the              farmers (e.g., potatoes, carrots). By contrast,
traditional channel (which will dominate the           we expect rapidly increasing cost and
FFV market for the foreseeable future in               quality competition for small farmers
Kenya) should therefore look at investment             competing in this channel in bulk products
stimulating scale increases at the wholesale           such as bananas and tomatoes.


                                                 -4-

				
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