Kenya Consumer Trends

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Friday, 26th August, 2011
Kenya Consumer Trends
BUSINESSDAILY
DAILY || Friday
August
26, 2011
BUSINESS
FRIDAY,
AUGUST
26, 2011
Kenya’s new growth
frontier: satisfying
the middle class
Clarion calls from development economists are a phenomena we’re all well used to.
Calls to liberalise. Calls to nurture our SMEs. Calls to tackle
our unemployment. But just recently the African Development Bank came at us with a somewhat new and different
call – that we notice our own consumers.
Africa’s middle class, it told us, had tripled in the last decade.
The continent is growing its own purchasing class.
Many still risk moving back into low incomes.
But millions of Africans are now emerging as middle-level
consumers, with far wider needs, with spending power, and
with a different take on quality versus price.
It’s our aim with this EDGE issue to examine this new spending, and these new consumers.
What markets are developing driven by which consumers,
and what scale of opportunity do they represent? Where are
the unmet needs in this shifting market place?
As we have researched this subject it has emerged that the
low-income market that captured the attention of the region’s manufacturers in recent years is no longer the region’s
growth story.
Today, the double-digit growth rates, galloping sales and
most new product launches are all emerging at the middle
and upper level of the market.
From branded schooling and private healthcare, through
cars, furniture and electronics, and on to entertainment
spots, clothes and fashion spending, the new African professional is an emerging sophisticate.
Educated, and well paid, his and her big balancing act is how
to afford both car and home. But beside that major spending priority sits an impatience of wasted time and of poor
quality.
The other theme that has run throughout is the emerging
spending power of a much younger generation of consumers, with little interest in saving and planning, but a very big
interest in spending and enjoying.
Experts have talked us through how each of these young
spenders change in their habits and perspective as they
grow older, even three and five years older.
But, across the board, from our youngest consumers to
mainstream, senior professionals, brand loyalty is nowhere.
It is simply absent.
Every purchase, every consumer engagement, is now a
product of the quality of the service offer, of how good the
product feels, of how well it works.
And perhaps that is our own clarion call from the Business
Daily, sat beside the AfDB’s comprehensive data on our new
middle class: for the producer that understands and delivers for these new consumers - in convenience, in solutions,
in comfort and in life enhancement - the future is now very
bright indeed.
OCHIENG’ RAPURO
MANAGING EDITOR
JENNY LUESBY
CONSULTANT EDITOR
“Good me≥chandise,
even hidden, soon
finds buye≥s.”
Titus Maccius
Plautus (254
- 184 BC), Roman
playw≥ight
“People don’t buy fo≥
logical ≥easons. They
buy fo≥ emotional
≥easons.”
Zig Zigla≥ (1926 -),
motivational speake≥
and autho≥
“In a consume≥ society
the≥e a≥e inevitably
two kinds of slaves: the
p≥isone≥s of addiction
and the p≥isone≥s of
envy.”
Ivan Illich (1926
- 2002), Aust≥ian
philosophe≥
THE NUMBERS
the edge: Consumer trends
QUOTABLE QUOTES
2II
WHAT KENYANS OWN
The Financial Sector Deepening Survey in 2009 found just two per cent of rural
Kenyan households owned refrigerators, compared to 18 per cent of urban
homes. Some three per cent of rural Kenyans own irons, compared with 38 per
cent of urban Kenyans.
The divide is similar in furnishings, with eight per cent of rural households
owning items such as wardrobes, compared with 25 per cent of urban
households.
Some four-fifths of the Kenyan population currently lives in rural areas,
according to the CIA fact book of the year.
URBAN
SOFA SET
RURAL
TV
22%
52.6%
URBAN
80%
90%
RURAL
RADIO
URBAN
RURAL
SOUCE: FINANCIAL ACCESS SURVEY 2009
“Consume≥s a≥e
statistics. Custome≥s
a≥e people.”
H. Stanley
Ma≥cus (1905
- 2002) Ame≥ican
businessman
36.1%
66%
RURAL
URBAN
YOUTH AND SOCIAL MEDIA
74%
Percentage of
youths in social
media
“Eve≥ything is wo≥th
what its pu≥chase≥ will
pay fo≥ it.”
Publilius Sy≥us (1st
Centu≥y BC), Latin
w≥ite≥ and acto≥
94%
Percentage
of youths on
Facebook
DRIVERS OF HIGH SHOPPING
On Saturdays and Tuesdays, shoppers are more likely to do
shopping worth over Sh 5,000. Accompanied shoppers tend to do
higher value shopping than lone shoppers. Male shoppers are more
likely to shop over Sh 5,000 than females. This is probably because
female shoppers always adhere to shopping lists.
“The best ad is a good
p≥oduct.”
Alan H. Meye≥ (19081976), US aviation
pionee≥
“A consume≥ is a
shoppe≥ who is so≥e
about something.”
Ha≥old Coffin (1905
- 1981), columnist
Shopping
Companion
Alone
Spouse
Friend(s)
Child/
children
Others
Shopping Value
100
100
100
100
100
100
Less than Sh 100
100
119
65
91
64
61
Sh 1001-5000
100
90
123
111
125
116
Above Sh 5000
100
50
195
120
191
228
HOW TO READ AN INDEX
100 INDEX = AVERAGE/AFFINITY/AVERAGE CORRELATION
ABOVE 100 INDEX= HIGHER AFFINITY/ HIGHER CORRELATION
BELOW100 INDEX = LOWER AFFINITY/LOWER CORRELATION
SOURCE: CONSUMER INSIGHT
Friday
August26,
26,2011
2011| |BUSINESS
BUSINESS DAILY
FRIDAY,
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DAILY
the edge: Consumer trends
KENYA
CONSUMER
TRENDS
p.6
In this issue
4
Look who’s driving retailer’s range and launches
in Kenya’s consumer market
Emmanuel Were finds out that the urban consumer market of 2011 is in the firm
grip of a middle class that is first and foremost spending at places of convenience
and only gives price a second thought
6
p.12
Is there a diploma so that I can qualify as a real consumer?
Jenny Luesby says : I’m not a consumer. I’m the one who likes the products that
no-one else buys. Take the raspberry-tainted mineral water – wow, was that ever a
product I loved.”
8
Retailers respond to middle class’ big shift in favour of
healthy foods
It has taken long coming, but the pace of the change in diets is now striking. Evidence of the huge health benefits attached to traditional vegetables has seen sales
in supermarkets rise eleven-fold over the last three years, writes Everlyne Kopaar
10
New breed of families don’t blink buying a better life
From private education, through health and fitness ,to designer living rooms, Kenya’s
expanding middle class is spending upwards, reports Bob Koigi
14
Quality education holds pole position as buyers chase
the best starting point
Victor Juma finds out that schools that offer international certifications such as
GCSE have become most popular with middle income families
16
The side of homes market that is in step with buyers’
dreams
Open spaces for children to play, personal parking lots and access to good primary
schools are the top selling points for residential property, writes Moses Michira
18
Selling insurance? Here’s what your prospective buyers
may be looking for.
Every purchase decision is fraught with risk and most consumers have suffered
irreparable damage after buying high value goods, writes George Omondi
WEEKEND EDITION, AUGUST 26th, 2011
Chief Executive Officer Linus Gitahi Group Editorial Director Joseph Odindo Managing Editor Ochieng’ Rapuro Consulting Editor Jenny Luesby
Production Editor Bobby Kiama Group Design Editor Kathleen Bogan Chief Graphic Designer Roger Mogusu Senior Graphic Designer Gennevieve Awino
Graphic Designers Chrispus Bargorett, Millicent Wachira, Ted Murimi Cover Design Davis Mulyango Photo Editor Joan Pereruan Illustrations Joseph Barasa
THE EDGE IS A QUARTERLY PUBLICATION BY BUSINESS DAILY
p.14
www.bdafrica.com
Follow your favourite stories online, plus more on
markets, industry, policy and agribusiness
3III
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BUSINESSDAILY
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August
26, 2011
BUSINESS
FRIDAY,
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26, 2011
the edge: Consumer trends
Look who’s d≥iving ≥etaile≥s’ ≥ange and
launches in Kenya’s consume≥ ma≥ket
EMMANUEL WERE finds out that the urban consumer
market of 2011 is in the firm grip of a middle class that
is first and foremost spending at places of convenience
and only gives price a second thought
O
n a cold Friday August morning, I set out to
meet Anne, who works for a local PR company,
for a breakfast meeting at Java on Koinange
Street in Nairobi’s Central Business District.
Anne had a story idea she wanted to pitch to me. She
chose the venue because it was convenient for her. The
PR company was located in Westlands and she passed
through the CBD on her way to work. It was easier for
her to get parking on that side of the CBD.
I had suggested we meet at 7 am because in my profession as a journalist it is hard to tell how the day will
pan out. A story can break and the editor puts you on it
with a strict deadline that cannot be amended.
I entered the profession by “accident” in 2007,
having left University the previous year. But the job
actually lifted me to rank among the country’s growing middle class.
With regards to the meeting, I was caught in two
minds on whether or not to attend for two reasons.
The week had been quite long and waking up at 7 am
was a punishment. But my main reason was because
I was short of cash.
The most I could raise was Sh300, just enough
for a small cup of drinking chocolate. With my
small budget, my plan was to make the meeting
brief. But it took longer and Anne actually offered
to cater for the breakfast. But what really caught
my attention that morning was how fast the coffee
house got packed. Within 30 minutes of my arrival
there was no sitting space.
Some 55 per cent of Nairobi residents say they
shop at a supermarket
that is convenient to
them compared to 15 per
cent who are swayed by
prices.
Convenience
We≥e is a co≥≥espondent with
the Business Daily
And here lies the untold story of the Kenyan urban
consumer market in 2011; the middle class is first
and foremost spending at places of their convenience and only second in consideration of price. It’s
a shift that is now emerging resoundingly in consumer surveys too. In a survey released this week
by research firm, Consumer Insight, consumers
were more motivated to shop at a supermarket because of its convenience and range than for its price
competitiveness.
The survey was carried out among 1,200 shoppers
across Kenya’s major urban towns and cities, including Mombasa, Machakos, Nairobi. Nyeri, Nakuru,
Eldoret and Kisumu.
Some 55 per cent of the respondents who were
surveyed said they shopped at a supermarket convenient to them compared to 15 per cent who were
swayed by prices. The other significant factor was
the variety of goods – cited by 24 per cent of the respondents as their reason for shopping at a certain
supermarket.
This represents a new kind of emphasis on product and access, and it’s a priority set that is being
driven by the country’s emerging middle class.
The same survey showed that the most common
profile of the shoppers, at 31 per cent, was aged between 25 to 29 years. Many of these consumers
SOURCE: VECTORGIRLS.COM/BDGRAPHIC
came to the job market between 2005 and
2007 when the Kenya economy witnessed its fastest
ever expansion. The middle class – defined as households which spend between Sh23,671 to Sh120,000
monthly – has increased to now 24 per cent of the
population, compared with 19 per cent in 2007, according to a survey by the Kenya Advertising Research Foundation (Karf).
Karf measures living standards on an individual’s
ability to buy and consume goods and services.
The priority accorded by these new consumers to convenience of location, extended shopping
hours and a wide range of products, is now driving
the range and development of the nation’s entire
retail industry.
Retailers who have expanded to set up shop closer
to consumers seem to be the biggest beneficiaries,
although many of these retailers are not public so
their financials are not disclosed.
But for the few who disclose, their sales growth
is now being driven by expansions in product range
and location. Typical is clothing and household goods
retailer Deacons Kenya.
Deacons announced its net earnings grew 73.3
per cent to Sh45.6m for the six months ended June
this year, on revenues of Sh1bn, up from Sh745m a
year earlier.
The retailer has also announced plans to open
two shops at Nakumatt Junction and Sarit Centre
– two of Kenya’s leading shopping malls by consumer
traffic - in September, as it seeks to diversify its business further to include baby accessories that have
been the domain of dealers trading along Nairobi’s
Biashara Street.
The location of Deacon’s new outlets is a calculated move to be closer to its customers.
“We want to give parents the mall experience
when buying baby products, which is a convenient
shopping experience compared to Biashara Street,”
said Mr Muchiri Wahome, the CEO of Deacons, in an
earlier interview with the Business Daily.
Friday
August26,
26,2011
2011| BUSINESS
| BUSINESS DAILY
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Af≥ica’s newly
≥ich play catch
up with Eu≥ope
AFRICA- POPULATION
DISTRIBUTION BY INCOME,
2010
EAST AFRICA- POPULATION
DISTRIBUTION BY INCOME, 2010
SOURCE: AFDB
Survey finds that the middle class has
contributed to an upsurge in sales of
refrigerators, television sets, mobiles
and vehicles, reports Sarah Kenaiya
C
onsumer expenditure in Africa now stands at a third of
what it is in developing European countries, according to an
Africa Development Bank (AfDB)
entitled “The Middle of the Pyramid, Dynamics of the Middle Class
in Africa.” Growth in Africa’s middle class has taken place largely in
the last decade.
In 1990, the middle class stood
at 27 per cent of the population. By
2010, it had risen to 34.3 per cent
— or nearly 313 million people.
However, based on the Merrill
Lynch 2009 World Wealth Report, income inequality in Africa
remains very high. Based on this
report, about 100,000 Africans
had a net worth of $800 billion
in 2008, or about 60 per cent of
Africa’s GDP.
Unlike the Bottom of the Pyramid (BOP), whose daily expenditures fall in the $1-$2 range, the
middle class encompasses those
who spend between $4-$10 a day.
Using this definition, Kenya’s middle class is estimated at 14.6 per cent
of the population in 2010.
Demand
The middle class are able to
save and consume non-essential goods. This points to their
key role in stimulating domestic
demand and reducing reliance
on imports. For this reason, the
AfDB calls on African businesses to focus more on the domestic than export customers, and
for policy measures that will
enable this.
The bank’s report was issued
before evidence for a deepening recession in export markets such as
the US and Europe emerged. This
recession is bound to have an impact on international demand for
Africa’s goods. Until now, the BOP
was viewed as the biggest growth
market in Africa. A focus on the
growth opportunities at the BOP is
what led to innovations such as the
“kadogo” or “single serve” packaging that is now an integral part of
the product range of every serious
contender for market share in the
FMCG space. Now, however, in-
novation will be key, if African businesses are to capture a larger share
of the middle classes’ consumption
expenditure.
The AfDB report indicates that
the middle class has contributed to
an upsurge in the sales of refrigerators, television sets, mobile phones,
and motor vehicles in virtually every African country in recent years.
The challenge now is for innovation
along the value chain. The vehicle
assembly and textile industry value
chains can serve as examples because they stimulate productivity
in many other sectors.
Illustrative has been Tata Industries’ Nano. Whilst this car
was developed for India’s BOP, the
innovation in vehicle manufacturing purposely sought to fill a gap in
a market that no imported vehicle
had met. The AfDB report shows
that the number of motor vehicles
per 1000 people in Kenya tripled
between 2002 and 2007. Second
hand imported vehicles have become a ‘must-have’ for the middle
class Kenyan consumer. Yet such
vehicles were not built with the African customer in mind.
South Africa proved with the
Golf Chico that it is possible to
develop a vehicle with local conditions and purchasing power in
mind. The Chico, despite minimal changes in design,remained
a favourite entry-level car for over
a decade. Or take innovations in
garment manufacturing that leverage on local fabrics.
Protectionist measures might
not be the kind of support that the
Africa Development Bank is calling for, but some kind of policy
support will be needed for Africa’s
manufacturing capacity to grow.
For sustainable results, each region
in Africa needs to identify the industries in which it has competitive advantage. Moreover, many
middle class people tend to be entrepreneurs, an activity which in
itself can stimulate GDP growth.
As the late CK Pralahad pointed out
in his seminal work, ‘The Fortune
at the Bottom of the Pyramid”, low
income groups are extremely value
conscious.
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the edge: Consumer trends
Is the≥e a diploma
so I can qualify as
a ≥eal consume≥?
BY JENNY LUESBY
I
’m not a consumer. I’m the one who
likes the products that no-one else
buys. Take the raspberry-tainted
mineral water – wow, was that ever a
product I loved.
Taken off the shelves after three
short months because no-one else was
buying it.
Other consumers liked the lemon-flavoured version, which actually tasted like
battery acid. But they didn’t notice.
I’ve wondered, over the years, if this
strange aversion to the products other
people love amounts to me being some
advanced form of biodiversity, as in,
I am, personally, an entire biological
diversion.
Do my taste buds operate on different
levels to other people? Herbal teas make
me gag. Sodas make me gag. Chewing
gum makes me gag.
In fact, reading just a word or two
from nutritionists, I’m not actually a
human being, because all humanity is
geared to overindulge on sugar and fat.
But I don’t like sugar.
Like, hasn’t anyone ever noticed that
odd, tinny taste it leaves somewhere in
the upper outer side of their mouths?
Popular
Jenny Luesby
is a Consultant Edito≥ with
the Business Daily
Me, I like avocadoes, and tuna fish, lettuce, and nuts. Which just shows: weird,
not normal, not programmed right.
Mind, if it stopped at taste buds I’d
be OK.
But, seemingly, even my brain is
wired down different channels to other
peoples. Smart phones confuse me. And
I’m not really, absolutely stupid.
Phones for Smarties? Smart phones
for people so dumb they need to replace
all left-brain activity with ‘apps’?
Sorry. Apps are great, obviously. My
son has lots of them. One tapes anything
he says in a cat’s voice and play’s it back
to him complete with the cat being
knocked out by a cuckoo clock.
Ah yes, I see. A popular product.
Even the Internet finally brought
me to one, sole, sweet book, pitched
at web designers, entitled ‘Don’t make
me think!’
People show me auction sites, and
portals, and web concepts they are so
thrilled by the excitement is oozing, and
I can’t even work out which place I’m
supposed to click, to do what.
Was I born in the wrong age? Should
I have lived a simple life with just a sin-
gle bed and a wooden table and a sole
book to read each night for new levels of
meaning? I don’t even like soap operas
– OMG! They don’t make any sense. The
credits roll, and then the lead is standing
there pointing a gun at someone.
And I’m still grappling with which
psychotic gateway must have opened
in their inner head, but the opera’s already zoomed on to a room full of fat
people sat speaking very slowly about
some other character who has just been
gnawed to death by rampaging rats in
Embakasi.
What?!
Oh, I see. A popular product.
Obviously, it’s only me whose now
completely bewildered, worried about
rats, about what makes rats rampage,
about which characteristics of Embakasi
makes rats rampage...OK. I know. I have
a problem.
Occasionally, I do get some relief
to my consumer bewilderment. I read
about niche products, long tails, and how
real consumer success is the strangely
personal connection of total satisfaction
that only iconic products ever achieve.
Indeed, bearing in mind I clearly fail
all tests of consumer adequacy, I do pay
particular attention to any roving definitions of types of consumers.
Maybe I’m an early adopter so early
the sun didn’t rise yet? Or a laggard so
AT A CROSSROADS:
I don’t want a swivelling barbecue
table, and a toilet
seat like a throne
takes me back to
wondering about
other people’s
mental health.
late, it was all over by the time I got
there?
Because I don’t want a swivelling
barbecue table, and a toilet seat like
a throne takes me back to wondering
about other people’s mental health.
I don’t understand DVD player control manuals. Or why manufacturers
write them that way.
I can’t manage number-triggered answering services with my
touch screen phone that I can’t find
the numbers on without removing it
from my ear.
I can’t get out of shopping malls by
driving my car so my hand reaches the
hole in the exit machine to get the parking ticket in to make the barrier rise.
I often burn my fingers when I buy
vending machine coffee. Mangoes drip
juice on me when I eat them. And I
absolutely hate movies where screaming zombies kill every nice person in
sight.
But it’s OK. It’s been a while now
since they withdrew the raspberryflavoured water. And I’ve had time to
come to terms with my life as a consumer freak.
And biodiversity is good. Really, it
is. The market does not include me. I
am not a consumer. But I’m occupied,
anyway, trying still to unravel that rat
thing in Embakasi.
Friday
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26,2011
2011| |BUSINESS
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the edge: Consumer trends
7
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the edge: Consumer trends
Retaile≥s ≥espond to
middle class’ big shift in
favou≥ of healthy foods
KALES (SUKUMA WIKI)
Traditional vegetables are rich in nutrients such
as Vitamin A and Iron, which account for two
of the most common nutritional deficiencies in
Africa, especially among children and women,
and are responsible for hundreds of thousands of
deaths a year.
It has taken long coming, but
the pace of the change in diets
is now striking. Evidence of the
huge health benefits attached
to traditional vegetables has
seen sales in supermarkets rise
eleven-fold over the last three
years, writes Everlyne Kopaar
K
Eve≥lyne is a w≥ite≥ with
Af≥ican Laughte≥
enya’s rising middle class is changing what it eats, turning to healthier
foods and even traditional vegetables, as people become increasingly aware
of the nutritional benefits of what they eat,
and more selective in what they buy.
It has taken long coming, but the pace of
the change is now striking. Evidence of the
huge health benefits attached to traditional
vegetables has seen sales of the vegetables
in supermarkets rise eleven-fold over the
last three years, according to studies by
Family Concern, a Kenyan NGO.
Other recent studies, including research
by the Global Facilitation Unit for underutilised species (GFU), likewise report that
the overall market for traditional vegetables has doubled and even tripled in the
last four years.
Traditional vegetables are rich in nutrients such as vitamin A and Iron, which
account for two of the most common nutritional deficiencies in Africa, especially
among children and women, and held
responsible for hundreds of thousands of
deaths a year.
But as supermarkets have drawn in
these ‘wild’ vegetables, previously considered ‘food for the poor’, the uptake has been
extraordinary.
“In the last three years the demand for
indigenous vegetable has grown rapidly. In
2011 alone, since January to date, we have
had a 50 to 55 per cent increase in our daily
supply of managu (Solanum) and terere
(Amaranth),” said Edward Ireri, Branch
Supervisor of Uchumi Aga Khan Walk
Branch.
The demand for arrow roots and sweet
potatoes is growing at an equal rate, with
most customers who buy sweet potatoes
also buying arrow roots.
Uchumi has reported a 60 per cent
increase in their arrow root sales, while
Nakumatt reports rises of more than 60
per cent.
Indeed, so fast has been the sales rise
that Nakumatt, through its Fresh n’ Juici
initiative, is currently sourcing new supplies from all over the country, creating jobs
by turning to small scale farmers for more
traditional vegetables.
Eu≥omonito≥ ≥epo≥ts that Kenyans
a≥e d≥inking mo≥e yoghu≥t,
d≥iving volumes up two pe≥ cent
f≥om 5.5 million lit≥es in 2009 to
5.6 million lit≥es in 2010
The race for new supplies, say the supermarkets, is being driven by a shift in eating
habits that is even seeing sweet potatoes,
cassava and arrow roots replace bread as
a breakfast staple.
Food retailers likewise report a far
greater uptake in dairy products, and particularly of yoghurt, which is rich in potassium, calcium, protein and B vitamins,
including B-12.
Yoghurt holds live bacteria that strengthen and stabilise the human immune system,
helping consumers in fending off ordinary
Friday
August26,
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2011| BUSINESS
| BUSINESS DAILY
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the edge: Consumer trends
YOGHURT INTAKE
5.6
m
litres
2010
2009
HEALTH BENEFITS
Evidence of the huge health benefits
attached to traditional vegetables
has seen sales of the vegetables in
supermarkets rise eleven-fold over the
last three years, according to studies by
Family Concern, a Kenyan NGO.
Euromonitor International
reports that Kenyans are
drinking steadily more yoghurt, with regular drinking yoghurt recording the
strongest growth in 2010,
up two per cent in volume
terms from 5.5 million litres
in 2009 to 5.6 million litres
in 2010, and 14 per cent in
value terms.
5.5m
litres
SWEET POTATOES
infections and illnesses.
Euromonitor International reports
that Kenyans are drinking more yoghurt.
Regular drinking of yoghurt was up two
per cent from 5.5 million litres in 2009 to
5.6 million litres in 2010.
This increased preference for yoghurts
has driven new roll-outs by local manufacturers, with Nakumatt reporting a sharp
rise in yoghurt ‘Store Keeping Units (SKUs)’
or product lines.
“In 2007, we had fewer than 100 SKU’s
specific to yoghurt brands but we now have
more than 354 SKU’s. This means that consumers have a wider choice,” said Mr Atul
Shah, Managing Director of Nakumatt
Holdings.
Yet consumers remain aware of price
and value. In 2009 and 2010 leading manufacturers and retailers raised prices for
drinking yoghurt by 11 per cent and spoonable yoghurt by 15 per cent.
This saw many consumers switching to
drinking yoghurt, driven by the relatively
smaller price rises.
Manufacturers have responded rap-
idly to this increased demand for drinkable yoghurt.
“All major suppliers, including Brookside, SpinKnit and KCC, have introduced
new yoghurt flavours, such as banana,
mango, pineapple and apricot. Other
suppliers such as Bio Food Products have
also expanded their store keeping units,”
said Mr Shah.
Another area of change driven by health
has been white meat consumption versus
red meat consumption.
Kenyans have traditionally favoured
red meat, with white meat - which covers
chicken and pork - accounting for only
19 per cent of the meat consumed in the
country according to the Meat Production
in Kenya 2005 report from EPZ
“This can probably be attributed to the
fact that chicken is more expensive than
red meat and also the fact that Kenya Meat
Commission has a greater penetration of
red meat supply,” said Mr Ireri. “Though
red meat is still preferred by most Kenyans.
there has been a 20 per cent increase in
demand for chicken.”
Together, these shifts towards traditional vegetables, yoghurt, and white meats are
indicative of an overall greater interest and
knowledge about nutrition.
“Kenyans are adopting more healthy
lifestyles. In tandem with such trends,
manufacturers have also kept up with
the changing times,” said Mr Shah.
It’s a trend that is set to have benefits
for both health and for the economy, according to technical report Dietary Diversity: Linking Traditional Food and Plant
Genetic Resources to Rural and Urban
Health in Sub-Saharan Africa.
The report cites the expected impact
of the current food trends as a population
consuming more diverse diets, consisting
of healthier foods and higher intake of micronutrients; reduced incidence of nutrition-related chronic diseases and conditions such as diabetes, obesity and cardiovascular diseases; and improved farmers’
livelihoods and agro-biodiversity at the
farm level.
-AFRICAN LAUGHTER
60%
The demand for arrow roots and sweet
potatoes is growing at an equal rate
X
10
BUSINESS
| Friday
August
26, 201126, 2011
BUSINESSDAILY
DAILY
| FRIDAY,
AUGUST
CASE STUDY
the edge: Consumer trends
This new b≥eed of
families doesn’t blink
buying a bette≥ life
From private education, through health and
fitness ,to designer living rooms, Kenya’s
expanding middle class is spending upwards,
reports Bob Koigi
K
enya’s expanding middle class is
spending its way to comfort: in
the home, in health and fitness, in
state-of-the-art schools, and in communication services.
Across Africa, the middle class has nearly
tripled in size over the last two decades, according to the African Development Bank.
And although many of these consumers
constitute a floating middle class, in that they
could easily slide back to low income, some
1.6 per cent of Kenyans now spend more than
$5,000 (Sh420,000) a year, which is the level at
which households begin to spend more than
half of their income on items other than food.
This has seen household durables that were
a preserve of the high end market a decade
ago now become common place in today’s
middle class homes.
Refrigerators, micro wave, carpets and
vacuum cleaners, dishwashers, washing
machines designer leather sofas that match
with wall units and plasma TVs have come to
characterise middle class sitting rooms, giving
birth to a host of interior design firms.
Millicent Kathambi, who runs an interior
design shop, is even overwhelmed by the demand for her services, for which she charges
Sh20,000 a day “and these new breed of young
families don’t think twice and are willing to
spend to have that final magical touch in their
living rooms,” she said.
Fitness spas and fitness clubs that were a
decade ago a niche product for diplomats and
international tourists are now widespread
and growing.
The women-only Taiyana Garden Spa
near the Windsor Country Club, the Aromatics Spa in Lavington and Red Fitness
Parlour owned by the Kenya Red Cross have
attracted both long-term and occasional
members, with clients paying typically
Sh8,000 or more for massages, manicures,
and deep heat treatments.
Hotels have also been branched out into
local membership to cater for this clientele.
Laico Regency for example currently has 250
members with the number of working people
joinging growing by 20 to 30 per cent a year
– in a pattern being replicated across all major fitness clubs.
On average, health clubs charge from
Sh1,000 per day for access to gym, sauna,
steam baths, swimming pool and other facilities and annual subscriptions as high as
Sh100,000. “We already have about 50 out of
our 200 members having paid their annual
subscription without batting an eyelid,” said
Dorothy Akinyi of Juansis Spa in Karen.
Likewise, the middle classes are buying
Above Left:
Inside a rural
middle class
home in
Kisumu
Above Right:
The interior of
an upmarket
home in Nairobi’s Runda Estate.
FREDRICK ONYANGO
into private high-end and international schooling, spawning several local school brands. Last
year, Braeburn School opened a seventh primary and sixth secondary school at Garden
Estate Nairobi, bringing to 13 the total number
of institutions under its brand with a student
population of 2,700.
Riara Group of Schools another rising brand
that has recorded similar growth to the current
3,000 students. “I want what’s best for my child.
I pulled him out of public school two years ago
because I didn’t feel he would get the kind of
education I wanted. I can afford to pay his fee
now,” said Bianca Mwende, a parent at Riara,
who is an IT Manager at one of the Internet
Service Provider companies in Kenya.
Managers of private schools say growth
has been at its fastest in the past seven years,
both for local children and for the rising population of expatriates in Kenya. The desire for
good quality programming and information
has also driven spending on communication,
across Pay-TV, Internet, and state-of-the-art
mobile phones.
Research by Euromonitor shows that in
2010 subscribers to premium TV grew by
25 per cent, compared with annual growth
of around 5 per cent ten years ago. Consumers part with an average of Sh5,000 for these
subscriptions. Smart TV is also rising, with 3G
enabled phones emerging as a favourite of the
middle class for checking emails and downloading music. The recently introduced Ideos
smartphone by Safaricom and Chinese technology company Huawei has sold 60,000 units
in its first six months in the market.
Personalised health treatment has also
topped the list of spending priorities. Private
equity investment into Kenya’s private hospitals and health management organisations has
more than doubled in the past three years and
is expected to peak at not less than Sh1bn by
end of 2012 buoyed by an increasing demand
for personalized and top notch health facilities,
according to health sector data.
Consultation with a doctor in these hospitals, including AgaKhan, Nairobi and Karen,
attracts a fee of Sh2,000 to Sh5,000, with outpatients spending and average Sh10,000 for
an ordinary illness like malaria.
The middle classes have also been driving
the growth in vehicle ownership, and in home
ownership. And for good measure, they have
been perfecting the art of partying. There has
been a surge in specialized bars, wine cellars
and food courts. Bars are adding VIP Services,
wine cellars are importing expensive wines to
satisfy the demands of this new group. Divino
club in Karen, Blancos in Nakumatt Galleria,
and Brew Bistro on Ngong Road are among
the many spots that have revised their operations to accommodate the expensive taste of
their new clientele.
Harun Kithi, a marketing manager in one
of the banks, aged 32, drives a Toyota Prado VX,
and spends between Sh20,000 and Sh25,000
a month on fuel. He has bought his wife a Toyota Harrier, and has a membership card at the
Hilton fitness club.
Kithi likes hanging out at social joints with
his favourites being Brew Bistro and Galileo
along Waiyaki Way. In one weekend he spends
Sh10,000 to Sh15,000 on entertainment, “and
that is when I have not taken my wife and my
son on a weekend holiday camp, which may
triple what I spend on an ordinary weekend,”
he said. Kithi is a prototype of the new Kenyan
middle class which is now defining which goods
and services will next be introduced into the
market. -AFRICAN LAUGHTER
Friday
August
2011
| BUSINESSDAILY
DAILY
FRIDAY,
AUGUST
26, 26,
2011
| BUSINESS
11XI
INSIGHT
the edge: Consumer trends
Luxu≥y ≥etail not pa≥t of India’s success
BY JUI CHAKRAVORTY
When Nita Ambani went shopping for
25,000 pieces of high-end Japanese crockery, she did not go to the Noritake store
in her posh neighbourhood of southern
Mumbai.
Instead, the wife of the richest man in India called a Noritake store in Sri Lanka,
where the upscale dinnerware for her new
$1 billion home would be far cheaper.
Ambani’s decision illustrates why
India’s growing number of wealthy consumers has not translated into riches for
luxury retailers such as LVMH or Prada
despite what, on the face of it, looks like
a no-brainer.
An economy growing at nearly 9 percent has spurred more than 200,000 millionaires, trailing only the United States
and China.
The total net worth of “ultra” high
net worth individuals -- defined by net
worth of more than $5 million -- is $1
trillion and is expected to surpass $5 trillion by 2016.
Yet India accounts for only half a percent of the global luxury market at $846
million. Greater China, on the other hand,
accounts for 10 percent of the global market at $17 billion.
Trying to sell expensive chic in India
faces several challenges: steep import
duties of up to 30 percent, inadequate
luxury retail infrastructure, real estate
regulations and a clientele that prefers
to buy its luxury overseas for reasons of
cash and cachet.
“India is a tough market, the system
is laborious,” Gayatri Ruia, Development
Director of Palladium in Mumbai, a mall
that houses several brands, including luxury and premium.
“And the Indian spending pattern is
different. In Japan or China, even an entry
level secretary would not be seen without
a Louis Vuitton bag.”
Wealthy Indians are not opposed to
spending money on expensive goods, as
can be seen in the proliferation of Porsches and other high-end cars in Indian
cities. But a rich businessman driving an
expensive foreign car may not spend lavishly on luxury branded suits, for example, Ruia said.
“The average Indian wealthy person
sees no value in branded goods. The few
who do are in the habit of shopping while
vacationing abroad.”
Signs are that this will not change
soon. The Indian luxury market is expected to grow at an average of 5 to 10
percent between now and 2013, compared
with a robust 25 to 30 percent forecast
for China, according to consulting and
research firm Bain & Co.
Posh
Part of the problem is providing the Indian consumer with a luxury shopping
experience in a country where streets are
strewn with garbage and squalid slums
sit across from posh mansions.
Luxury retailers are attempting to
get around this by selling their wares
out of five-star hotels, international airports and malls built exclusively to sell
designer labels.
But only two luxury malls have been
built so far -- one in the capital of New
Delhi and the other in the southern city
of Bangalore.
Mumbai, home to some of India’s
richest, including the billionaire Ambani brothers and Bollywood actors,
does not have a single dedicated luxury
mall like those littering China, Singapore
and Western capitals.
- REUTERS
SOURCE: VECTOR GIRLS.COM
XII
12
BUSINESS DAILY
| Friday
August
26, 2011
BUSINESS
DAILY
| FRIDAY,
AUGUST
26, 2011
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
the edge: Consumer trends
the edge: Consumer trends
Ta≥geting the youths ma≥ket? Dig
deep into thei≥ lifestyle, aspi≥ations
MOST IMPORTANT THING IN LIFE
SOCIAL MEDIA
Access to Google, Facebook and Twitter allows information on demand
and has reinforced an aversion to delayed gratification.
To be rich
To be a professional
To have a family
To be famous
To be a leader
Our youth are obsessed with money and material affluence. Ugandan youth
are the hungriest for cash followed closely by Kenya, then Tanzania
KENYA
TANZANIA
STAYING CONNECTED
35% of all the youth in the region are connected to the
Internet. Of these, 68% are on the social networks with
the biggest proportion of that on Facebook
THE YOUTH OF EAST AFRICA
John Gachiri reports that expansion of
the middle class has put the youths at the
centre of rising consumerism in Kenya
Purpose for Internet use
53%
UGANDA
Chatting (instant
messengers/ chat
forums/ bulletin
boards)
I
n nearly all the publicity they get in the
local media, the Kenyan youth have
been portrayed as creatures who are
geared only to pleasure. If given Sh100,000,
some narratives have suggested, these are
people who would choose to spend the cash
on a trip to watch a concert in London or
rugby in Dubai, but not on a grade cow.
It is a picture painted by an older generation that measures success in terms of
a house, a car, and a decent education, seen
as basics today, but far harder to secure 30
years ago. However, understanding these
new consumers is set to be key to economic
take-off, with more than 70 per cent of Kenyans below 35 years.
The Constitution of Kenya recognises
a youth as anybody between the ages of 18
and 34 while the UN’s classification is 1524: combining the two definitions covers
35 per cent or 12 million Kenyans. Across
the world, the emerging economies anyway have the biggest youth populations,
with India at 234 million and China at 207
million. But Africa is set to be king by 2050,
when sub-Saharan Africa is projected to
have more adolescents than any other part
of the world.
65%
Gachi≥i is a w≥ite≥ with
the Business Daily
jgachi≥[email protected]
Today’s minimal obligations explain the reckless behaviour in
spending, even among youth who are not yet working, but are
getting money from a parent or a guardian
SOURCE: VECTOR GIRLS.COM
INCOME PER CAPITA
$56,000
income per capita in
Kenya remains a fraction of that of economies such as the
Tigers and the BRICs.
$7500
$3000
$1662
SINGAPORE CHINA
INDIA
KENYA
But one cannot remove factors such as
culture and economic development, said
Katindi. The point is that Africa’s youngest
adults are being thrust into the consumer
market as newcomers. In developed countries, children are given monthly or weekly
allowances from an early age and financial
training begins early.
By the time a youth from these countries starts working they are more comfortable handling money.
By contrast, Kenyan youth are less exposed to financial management training,
but at the same time they are connected
directly to the Western media, which is
steeped in the culture of consumption.
Moreover, access to Google, Facebook
and Twitter allows information on demand
and has reinforced an aversion to delayed
gratification. Indeed, digital connection has
made many things now instantaneous.
“The fact that
you can now get money
from another individual in minutes and
use it to pay for goods and services probably means that impulse buying is higher
than it was before,” said Ben Maina, chief
executive of Rupu.co.ke, a website that features discount vouchers usable at selected
businesses.
But while choices have shifted towards leisure products as this generation
has jumped into working life, the change
in pattern is the result of a growing middle class, not a change in culture, says Mr
Maina.
“Spending on leisure or luxury is part
and parcel of economic growth and is the
main indicator of a growing middle-class,”
said Mr Maina.
“It has happened everywhere from
China to Dubai to South Africa, the fact
that in Kenya it occurs mainly with
the youth is only as a result of the
population distribution.” Tapping
into this market, however, presents
real challenges. It offers a huge opportunity, but targeting this market has to take
into account the different maturity levels
amongst youths, which means that marketers must craft campaigns differently,
said Samuel Muthoka, Synovate senior
research manager.
Youth who are in school are not as mature as those who have started working and
to get to them campaigns have to harness
their rebelliousness and care-free attitude,
which is a good thing, since they are open
to experiment. “This is a massive call to
action for marketers to tap into their instincts,” said the Synovate team.
Unfortunately, the traditional approach of capturing consumers young
now delivers little, in that a teenage
customer today is not the adult customer of tomorrow: there is no brand
loyalty. “They tend to be ‘promiscuous’ with brands,” said Synovate.
However, the older they
get, the wiser and more
considered their choices
become. Globally, the
prevailing rejection
of ideas of delayed
gratification sees
many youth spend
beyond what they
can afford, which
has opened wide
opportunities for the
credit card industry
elsewhere. But in Kenya, this option for finance is not common.
The credit card industry remains largely
nascent until it can achieve models that
ensure repayment of the sums borrowed.
Moreover, unemployment in Kenya is 40
per cent, four times the rate in emerging
and developed economies. In the West,
“it is easy to get a job as a baby-sitter or at
a McDonalds,” said Katindi.
The fact is that income per capita in
Kenya remains a fraction of that of economies such as the Tigers and the BRICs.
Singapore, for example, has an income per
capita of $56,000, 333 times that of Kenya’s $1662. China and India’s incomes per
capita are also higher at $7500 and $3000
respectively.
46%
35% 35%
23%
Sending and
receiving emails
24%
21%
19%
10%
34%
15%
13%
11% 11% 12%
9%
Downloading music
8%
33%
Research/educational/
information
AGE GROUP
13-19 YRS
7-12 YRS
20-24 YRS
THE BEST THINGS IN LIFE
The youth would like to pay to go for dancing, drinking and
movies, but due to lack of money, they tend to hang out in
public parks, beaches, churches and mosques.
38%
40%
24%
7-12yrs 13- 19yrs 20-24yrs
40%
8%
16%
20%
21%
17% 16%
15%
13%
11%
9%
8%
SOCIAL NETWORKS
The recent advancements in mobile internet have made most young people
prefer WAP-enabled cellphones so that they can surf with them.
SOURCE: CONSUMER INSIGNT
Spending
Yet sociologists, marketers, researchers and
economists say that these youths have pleasure engrained in their DNA and that their
spending reflects this. “Youth expenditure
is irreparably egoistic and understandably
so since their prime concern is self-aggrandizement and indulgence meant to assuage
the raging and adventurous spirit of youth,”
said Dr Ken Ouko, a sociologist at the University of Nairobi.
Belonging to a generation that is digitally connected, alongside a fattening middle class and the treats that come with that,
such as easier access to money, is driving
this behaviour, say economists.
Katindi Sivi, the futures programme
officer at the Institute of Economic Affairs, a Kenyan-based think tank, says that
youths today, have more money to spend
on themselves than their parents had. The
generation that grew up after independence
formed the first urbanites and when they
began working, they had more people who
depended on them.
Family bonds were also tighter, which
meant that remittances would trickle beyond the nuclear family to relatives and in
some cases to villagers back home, which
is not the present case. Today’s minimal obligations explain the reckless behaviour in
spending, even among youth who are not
yet working but are getting money from a
parent or a guardian, said Dr Ouko.
XIII
13
74%
66%
59%
Discotheques
3%
13%
21%
Restaurants
9%
9%
20%
Shopping Malls
10%
12%
16%
Video Halls
11%
12%
12%
Hotels
9%
9%
14%
Movie Theatres
3%
5%
6%
Church/Mosque
75%
66%
59%
Sports grounds
37%
40%
33%
Beach
12%
14%
18%
Religious
Crusades
12%
16%
14%
Public Parks
11%
12%
12%
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
XIII
13
the edge: Consumer trends
MOST IMPORTANT THING IN LIFE
SOCIAL MEDIA
Access to Google, Facebook and Twitter allows information on demand
and has reinforced an aversion to delayed gratification.
To be rich
To be a professional
To have a family
To be famous
To be a leader
35% of all the youth in the region are connected to the
Internet. Of these, 68% are on the social networks with
the biggest proportion of that on Facebook
THE YOUTH OF EAST AFRICA
Our youth are obsessed with money and material affluence. Ugandan youth
are the hungriest for cash followed closely by Kenya, then Tanzania
KENYA
TANZANIA
STAYING CONNECTED
Purpose for Internet use
53%
UGANDA
Chatting (instant
messengers/ chat
forums/ bulletin
boards)
65%
46%
35% 35%
23%
Sending and
receiving emails
24%
21%
19%
10%
34%
15%
13%
11% 11% 12%
9%
Downloading music
8%
33%
Research/educational/
information
AGE GROUP
13-19 YRS
7-12 YRS
20-24 YRS
THE BEST THINGS IN LIFE
The youth would like to pay to go for dancing, drinking and
movies, but due to lack of money, they tend to hang out in
public parks, beaches, churches and mosques.
38%
40%
24%
7-12yrs 13- 19yrs 20-24yrs
40%
8%
16%
20%
21%
17% 16%
15%
13%
11%
9%
8%
SOCIAL NETWORKS
The recent advancements in mobile internet have made most young people
prefer WAP-enabled cellphones so that they can surf with them.
SOURCE: CONSUMER INSIGNT
that in Kenya it occurs mainly with
the youth is only as a result of the
population distribution.” Tapping
into this market, however, presents
real challenges. It offers a huge opportunity, but targeting this market has to take
into account the different maturity levels
amongst youths, which means that marketers must craft campaigns differently,
said Samuel Muthoka, Synovate senior
research manager.
Youth who are in school are not as mature as those who have started working and
to get to them campaigns have to harness
their rebelliousness and care-free attitude,
which is a good thing, since they are open
to experiment. “This is a massive call to
action for marketers to tap into their instincts,” said the Synovate team.
Unfortunately, the traditional approach of capturing consumers young
now delivers little, in that a teenage
customer today is not the adult customer of tomorrow: there is no brand
loyalty. “They tend to be ‘promiscuous’ with brands,” said Synovate.
However, the older they
get, the wiser and more
considered their choices
become. Globally, the
prevailing rejection
of ideas of delayed
gratification sees
many youth spend
beyond what they
can afford, which
has opened wide
opportunities for the
credit card industry
elsewhere. But in Kenya, this option for finance is not common.
The credit card industry remains largely
nascent until it can achieve models that
ensure repayment of the sums borrowed.
Moreover, unemployment in Kenya is 40
per cent, four times the rate in emerging
and developed economies. In the West,
“it is easy to get a job as a baby-sitter or at
a McDonalds,” said Katindi.
The fact is that income per capita in
Kenya remains a fraction of that of economies such as the Tigers and the BRICs.
Singapore, for example, has an income per
capita of $56,000, 333 times that of Kenya’s $1662. China and India’s incomes per
capita are also higher at $7500 and $3000
respectively.
74%
66%
59%
Discotheques
3%
13%
21%
Restaurants
9%
9%
20%
Shopping Malls
10%
12%
16%
Video Halls
11%
12%
12%
Hotels
9%
9%
14%
Movie Theatres
3%
5%
6%
Church/Mosque
75%
66%
59%
Sports grounds
37%
40%
33%
Beach
12%
14%
18%
Religious
Crusades
12%
16%
14%
Public Parks
11%
12%
12%
XIV
14
BUSINESS
| Friday
August
26, 201126, 2011
BUSINESSDAILY
DAILY
| FRIDAY,
AUGUST
the edge: Consumer trends
Quality education holds pole position
Victor Juma finds that schools that offer
international certifications such as GCSE have
become most popular with middle income families
S
FREE PRIMARY EDUCATION
(FPE) ENROLMENT
ince Independence, education has
acted as a key factor in the upward
social mobility of millions of Kenyans, who have taken over most formal
jobs in the public and private sectors.
But increased access to education driven by more learning institutions, increased government subsidies, and rising
household earnings - has devalued basic
education in the labour market, driving
increased spending on undergraduate and
postgraduate degrees, both local and international, as students seek to stay ahead
of the pack.
The nation’s educational foundation is
in primary and secondary schools where
the curriculum is largely standardised
across public and private institutions.
Influx
2003
2009
20%
Increase in
enrolment
PUPIL TEACHER RATIOS
38:1
46:1
2009
The government’s introduction of free
primary education (FPE) in 2003 has
increased enrolment levels, which have
grown by 20 per cent in the past five years,
to reach 9.3 million pupils by last year.
Overall, the spending on education is
massive. Government spending on education grew by a third to Sh167.1 billion in
fiscal year 2009/10, from Sh127.4 billion
in 2007/08, while household spending on
education is also running into billions of
shillings annually.
Poor households, which constitute
the majority, tend to take their children
to public schools, which are cheaper and
where most costs, including teachers’ salaries and learning materials, are absorbed
by the State.
But the massive influx into public
schools has led to congestion in classrooms, compromising the quality of
learning. Pupil to teacher ratios have
risen from 38:1 in 2003 when FPE was
introduced to 46:1 in 2009.
This deterioration has in turn boosted
demand for private schools among the
middle class and wealthier households
seeking a better quality of education.
Within private schools, many offer
quality primary and secondary education in line with Kenya’s 8-4-4 education
programme in preparation for local university entrance, but others now offer international certifications such as the General Certificate of Secondary Education
(GCSE), which make it easier to pursue
tertiary education abroad.
The general effect of the rush for private schools, which include brands such
as Riara, Makini, Peponi, and Braeburn,
has been a rapid increase in fees.
The cost to a family with one child attending a middle or up-market private
Above: Pupils in
class at Hillside
School in Embakasi, Nairobi. Pupils
at Ndertu Primary
School in Garissa.
FREDRICK ONYANGO/ BD FILE
GOVERNMENT SPENDING
ON EDUCATION
Sh 167.1 bn
Public
Private
2009/10
primary or secondary school in Nairobi today ranges from Sh90,000 and Sh150,000
a year to as much as Sh1.5m a year.
For secondary schools, the figures are
around Sh200,000 a year, depending on
location and facilities, but likewise can top
Sh1m a year.
However, save for a section of pastoral-
COST OF EDUCATION
2007/08
Sh 127.4 bn
The gene≥al effect of the ≥ush
fo≥ p≥ivate schools, which include
b≥ands such as Ria≥a, Makini,
Peponiand B≥aebu≥n, has been
a ≥apid inc≥ease in fees
Primary
Secondary
free
Sh19,000Sh 26,500
Sh 90,000-1m
Sh 200,000-1m
University
Sh30,000
Sh130,000Sh400,000
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
XV
15
the edge: Consumer trends
as buye≥s chase the best sta≥ting point
“It is no longer a question of having an MBA,
but rather where you got it from. The market is
now saturated with MBA holders and employers are getting choosy about who to hire,” said a
senior lecturer at a public university.
Strathmore was among the first to offer
MBA programmes as economic growth fuelled
demand for highly qualified managers in the
private sector, especially in finance and the telecoms market.
But MBA holders come at a high cost and corporate Kenya has in the past one year retrenched
more than 300 middle level and senior managers in a bid to rein in costs in an increasingly
competitive landscape. Besides such lengthy
courses, Kenya has also taken to the culture of
short courses and seminars, mainly aimed at
beefing up specific skills among working professionals.
Insiders say the demand for these short
courses, focusing on human resources, strategy, marketing, finance, and communication
skills has been on the rise, earning institutions
millions of shillings.
“Demand for short executive courses has shot
through the roof,” said Dr Mulengani.
A survey by the Business Daily found that
the cost of these courses – usually delivered by
internationally renowned management gurus
- ranges from Sh40,000 to Sh700,000 per person
ist communities, quality education is a
high ranking priority for Kenyan families,
driving spending on school fees, and tuition loans.
The cost of education peaks at the tertiary level, where qualifications offer graduates a stab at the lucrative formal labour
market. Bachelor of Arts, Education, and
Business studies are the most popular degree courses and their cost varies depending on who is paying.
For government-sponsored students, the
fees average Sh30,000 a year, as the State
pays up to 70 per cent of the fees. Privatelysponsored students in public and private
universities pay anything from Sh130,000
to Sh450,000 a year depending on the
course, with degrees in engineering and
medicine coming in as the most expensive
in that they open doors to some of the best
paying jobs.
However, wealthy Kenyans are increasingly sending their youngsters to universities abroad in order to position them as
globetrotting professionals.
The government estimates that more
than 40,000 Kenyan students are studying
in Ugandan universities, led by Makerere
University.
Kenyan students have also favoured US,
UK, and more recently Australian universities, where they mainly seek undergraduate
and postgraduate degrees in Business and
Management, Engineering, Social Sciences,
Mathematics and Computer Sciences.
Data from the the Organisation for
Economic Co-operation and Develop-
for usually less than a week.
While the uptake of the internet is growing in
Kenya, pure e-learning courses are largely confined to short courses, with few universities yet
offering courses online. Foreign degrees are the
only ones delivered on pure online platforms.
“Only a few courses are delivered online, with
students taking the other courses the traditional
way. The cost of the e-learning is factored in the
total fees students pay,” said Dr Speranza Ndege,
the director of Institute of Open, Distance & eLearning (ODeL) at Kenyatta University.
Short online courses in business, IT, and
project management are, however, gaining
ground.
These courses, lasting up to three months,
cost a few thousand shillings and are accessed
on the websites of firms that have acquired the
distribution rights to content from international
institutions. “The demand from individuals is
slowly growing and we are looking at customising the content to companies and institutions
of higher learning,” said Bramwell Nyabera, the
business development manager at Octopus ICT
Solutions.
Juma is a writer with the
Business Daily
[email protected]
ment (OECD) also shows that Sub-Saharan African countries are a major source
of the growing number of graduate and
postgraduate mobile students.
Globally, the number of mobile students
stood at 3.3m in 2009, representing a 65
per cent growth jump from the two million students recorded in 2001, and this
despite the fact that annual fees and tuition costs in UK and US universities start
from Sh800,000 per year.
Growth
The quest for higher qualifications has
also ballooned in the local market where
more professionals are joining MBA
classes in pursuit of career growth and
higher salaries.
“Demand for MBAs is still high and
the primary reason for the trend is that
professionals want to take their careers
to the next level,” said Dr Allan Mulengani, a lecturer at the Strathmore Business School.
Kenya has thousands of MBA holders specialising in marketing, strategic
management, and other areas, while the
number of institutions offering the qualification has been growing.
There are five business schools in Kenya, led by Strathmore, the Kenya Institute
of Management (KIM), and the East African School of Management (EASM).
More public and private universities
have also started offering MBAs, but insiders warn that the golden age of the MBA
may be coming to an end.
Lightweight
Durable
[email protected]
Available at Servis Store - Moi Avenue, Nairobi
and Kenyatta Avenue, Nairobi
While Stock Lasts.
XVI
16
BUSINESS
| Friday
August
26, 2011
BUSINESSDAILY
DAILY
| FRIDAY,
AUGUST
26, 2011
the edge: Consumer trends
The side of homes
ma≥ket that is in step
with buye≥s’ d≥eams
Open spaces for children to play, personal parking lots
and access to good primary schools are the top selling
points for residential property, writes Moses Michira
A
bout 30 kilometres to the South of Nairobi, along Mombasa Road, Mr Charles
Wiathaka is putting in the second phase
of a 209-unit gated community targeting buyers seeking quiet lives outside the city.
Three quarters of the potential buyers who
came shopping for a home had one consistent
question; are there good private schools around
here, or would I need to drive into town with
my school-going kids every morning?
That’s when it occurred to him that the
eventual residents of Graceland in Athi River
would mostly be professionals below 40 years
old with young families, who would only be
able to place a down payment on the house
they would eventually call home.
“Most of the buyers are young people
working in town, but are very specific about
the availability of good primary schools,” said
Mr Waithaka recently, on a visit to the site set
some 200 metres from the Nairobi-Mombasa
Highway.
Specific
His case is replicated in dozens of new housing estates in the wider Athi River area where
developers are putting up hundreds of homes
for sale, with an emphasis on open spaces for
children to play and personal parking spaces
in the compound.
For all these developers two issues have
come to the fore. Buyers are specific on their
needs for space and quality finishing, and they
need a financing arrangement to top up their
savings to buy the home.
Mr Waithaka says his buyers will have raised
about a third of the total cost of the house from
Buyers are
specific on
their needs
for space and
quality finishing, and they
need a financing arrangement to top up
their savings
to buy the
home.
Othe≥ facto≥s d≥iving the move
out to the subu≥bs include the
inc≥eased secu≥ity in oute≥ city
a≥eas, and the availability of
financing.
their sources by the time of completion, allowing them to take a smaller loan from a bank to
finance the balance.
“You will find that the total of the instalments they have made when the house is
ready for occupation is about a third, and
they finance the rest through a mortgage arrangement,” he said.
Typical of a parallel trend is Joe Ariga, a civil
servant, who hopes to start building a home
on a small piece of land he recently bought
through the Sacco where he is a member - but
that will be after buying a personal car before
the end of the year.
Though he knows that his savings of four
years will be insufficient to cover the construction expenses, he is certain his monthly
income will allow him to access financing ,either from the Sacco or a bank, to accomplish
both projects.
His scenario is replicated by thousands of
other self-builders who have acquired plots
close to main roads in any direction out of
Nairobi for a radius of 35 kilometres.
Both trends speak to the prominence home
ownership has achieved in the past decade as
FILE/
MYDISNEYLAND.COM
individuals seek to escape landlords who until
the last two years consistently raised rents riding on the short supply of rental units.
Despite recent housing surveys pointing
to some cooling off in rents in Nairobi, rental
costs have now seen a majority of households
set their sights on living in their own homes,
and possibly becoming landlords too.
Mr Joash Maangi, the vice president of Lemmna International, a residential buildings contractor, says demand for middle income homes,
especially in the outer city, continues to rise.
He attributes the situation to overpricing
on property rentals, which forced tenants to
review their priorities about living in rented
houses.
“Almost every block of apartments in the upper middle income segments of the market has
at least one empty flat, and this is because the
rents were too high for the intended tenants,”
said Mr Maangi. “Individuals would rather
build their own homes than let now.”
Other factors driving the move out to the
suburbs include the increased security in outer
city areas, and the availability of financing.
Joe and Waithaka’s buyers represent the
now typical middle income households in Nairobi, mostly comprising a working couple with
both spouses working in mid-level management positions, to whom a car and their own
house are now competing priorities.
With a reliable transport system in place,
own homes would be the more likely top priority for most middle class consumers today.
[email protected]
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
XVII
17
the edge: Consumer trends
A lobby at the Lake Elmenteita Serena Camp in
Naivasha during the opening ceremony.
FREDRICK ONYANGO
Whe≥e Kenyans sta≥t the tou≥ism jou≥ney
Paul Wafula finds that for millions of locals,
school trips are the first point of contact
with their country’s world famous tourism
industry
S
Wafula is a w≥ite≥ with
the Business Daily
[email protected]
everal school buses enter Nairobi
Museum’s new gate each day, carrying pupils from all over the country. For many Kenyan students, visits to
historic sites represent the first exposure
that they get to tourism, in a progression
that has seen domestic tourism double
in the last four years, and a surge into upmarket tourism driven by the country’s
expanding middle classes.
“School trips are the most basic level
that most locals are getting exposed to the
tourism industry in Kenya. Schools are
even getting more adventurous as they
go out of their way to find interesting sites
that leave a long lasting impression on
these kids,” said Ms Agatha Juma, the
Chief Executive of the Kenya Tourism
Federation. “This impression is what
fuels future appetite when they grow
up. The other is word of mouth. Some
people get to know about various products from the testimonies narrated by
their friends,” she said.
Nor are school trips any longer the
preserve of high end institutions, said Ms
Rosemary Mugambi, TPS Serena Groups’
Sales Manager. “Today, an average public
school can afford to send its students for
an excursion. Some have even embedded
it within their academic programmes.”
Social groupings such as churches,
clubs, committees, teams and companies are also providing an avenue for po-
LOCAL HOTELS
2009
2010
1.3m 2.9m
The number of Kenyan residents occupying local hotels has grown 50 per cent to
2.9m, up from 1.3m in 2008.
tential tourists to sample tourism through
organised visits for team building, leisure
or corporate events.
“Today, many hotels have reservations for wedding functions ,even as
honey moon vacations become more
widespread,” said Ms Mugambi. “Couples
are also increasingly turning to outdoor
weddings as opposed to the traditional
church ceremonies.”
It is such activities that are fuelling
the growth in domestic tourism that is
becoming the best bet for players in the
tourism sector seeking to sustain their
operations in low seasons.
Data from the economic survey 2011
shows that the number of Kenyan residents occupying local hotels has grown
50 per cent to 2.9 million, up from 1.3 million in 2008.
“The change is most noticeable in
business travel in Kenya as it has increased mainly because Nairobi has
now become the East African if not
African hub for many leading multinational and international organisations,”
said Ms Sapna Chandaria, the director
of Kenya Concierge, an online luxury
services company.
“To encourage more domestic tourists especially over weekends we are
customising our products to suit specific groups. This is especially so in the conference business,” said Mr Paul Norman,
General Manager Southern Sun Mayfair
Hotel. The hotel recently rebranded in
a bid to improve its standing in the increasingly competitive market. “For instance, we have special cuisines targeting
locals, Indians, and Chinese guests,” said
Mr Norman.
Corporate organisations are also trying out different locations for their staff
activities. Travel firms are increasingly
receiving orders for locations outside
Nairobi. The Maasai Mara, Naivasha,
and Laikipia are some of the locations
where organisations are now choosing
to hold their meetings.
“It is very fashionable today to have a
conference or a retreat in the bush. After
such a group function, a staff member can
decide to revisit the place on their own,”
said Ms Mugambi. Consumer tastes are
also shifting on the transport side from
road to air, even as buses serving tourist
destinations like Mombasa run to outdo
each other on comfort.
Some have introduced hostesses in
their fleets to serve passengers food and
drinks and extended this comfort to the
booking offices where customers wait for
the buses in luxurious lounges complete
with air-conditioning, plasma screen television sets and water dispensers.
Rising domestic tourism is also fuelling demand for specialised services, such
as helicopter taxis, limousine car services,
and personal shoppers, as well as technological services geared to making life easy
for the traveller.
They include Google maps, SafeNavigator, a Kenyan-based GPS navigation
system, an android-based smart phone
and a Microsoft Business Productivity
Online Site that helps you keep up with
office communications, live meetings and
cloud data storage.
The growing youthful population is
the other force driving current tastes. “The
youth, who form the bulk of the emerging
middle class, are a segment of the population that takes expenditure items such
as leisure and holiday as well as business
travel as an integral part of their life,” said
Tourism Minister Najib Balala.
Available data shows that one in three
Africans now belongs to the middle class,
which accounts for at least half of Africa’s
$1.6 trillion GDP.
These Kenyan consumers are increasingly asking for complete packages at the
point of sale including air or road transport and hotel. However, it is the growing
interest in fitness and beauty that looks set
to define the packaging and consumption
of tourism products in the future.
Health tourism has been introduced
for both women and men and made more
important because of the strains on health
caused by modern lifestyles. This has seen
players such as Tribe Hotel, Serena, and
a host of investors set up Spas as part of
their package for health tourism.
XVIII
18
BUSINESS
| Friday
August
26, 201126, 2011
BUSINESSDAILY
DAILY
| FRIDAY,
AUGUST
the edge: Consumer trends
Selling insu≥ance? He≥e’s what you≥
p≥ospective buye≥s may be looking fo≥
Every purchase decision is fraught with risk and most consumers
have suffered irreparable damage after buying high value goods
M
Geo≥ge Omondi is a w≥ite≥ with
the Business Daily
[email protected]
ary Chebichi, an employee of a local bank, says she never
hesitated in pursuing her long cherished dream of owning a house in Nairobi when opportunity presented itself
in October last year.
Her employer had just surprised her with an unexpected promotion to customer service manager, just weeks after being elevated
from teller to assistant manager in charge of personal banking.
The prospect of earning a six figure monthly salary was so overwhelming that in the following days, Ms Chebichi confidently withdrew the Sh4.2m she had saved in her first ten years of employment
to buy a three bed-roomed bungalow in Kiserian.
“The salary offer for the new appointment more than doubled
what I used to earn at the beginning of 2010 and this convinced me
to take the risk since it would take a much shorter time to recoup
my savings,” Ms Chebichi told the Business Daily in Kiserian a few
weeks ago.
But she was all wrong. As soon as she finalised the transaction,
she was transferred to Eldoret, forcing her to shelve her plan to move
into her newly acquired house and instead move into another rental
at her new work station.
“This house is almost worthless to me. I can neither stay in it nor
lease it to tenants who are only offering Sh6,000 for monthly rent
against the Sh17,000, which matches its standard,” she said.
While Ms Chibichi may count herself lucky for now, as the construction company that built her house has rented it at Sh10,000
per month as a temporary administrative office, her case illustrates
some of the risks consumers face every day.
Experts say every purchase decision is fraught with risk and most
consumers have suffered irreparable damage after buying high value
goods. Around every new purchase lurk risks of uncertainty over
future value, wrong labelling, loss, or exposure to damage.
Yet average Kenyan households continue to show a disturbingly
high appetite for consumption risk.
“Most consumers buy goods because they have extra money and
rarely have the time to appreciate the full magnitude of risks associated with the high value products since they are acquired in a hurry,”
said Mr Edwin Wanjawa, Chief Executive Officer at the Consumer
Federation of Kenya (Cofek), a local consumer rights lobby.
Mr Wanjawa reckons the local insurance industry and risk industry is not differentiated enough to offer the kind of protection that
could suit the case of Ms Chebichi’s, but that increased uptake of the
packages that are available could make a difference.
The group is currently consulting with local insurance companies
to come up with a joint programme to distribute public information
and education aimed at demystifying consumer insurance.
The target of the campaign is to make it automatic for anyone
contemplating buying high value products to simultaneously think
of buying a policy to protect themselves against possible unforeseen
risks. “At the moment, we have a big problem because most buyers
tend to take insurance policy covers for their property only where
the law compels them to do so; not out of any perceived benefit,”
said Mr Wanjawa.
Ms Rosa Njeri, an employee in a local auditing firm, blames this
poor perception on misinformation churned out by insurance salespeople. “Few people today believe their presentation because most
of the time they have lied to their customers in order to win a quick
sale,” she said.
It was due to this mistrust that she opted to buy third party insurance cover for her first car instead of the comprehensive cover
that her insurance broker proposed. She only realised much later
when she was involved in a minor road accident along Mombasa
Road that the cover she had bought cushioned any party other than
herself and her pricey vehicle.
However, “it is not always due to ignorance that people choose to
ignore comprehensive risk covers, but individual calculation as it is
TARGET: Anyone
buying a high
value product
should simultaneously think of
buying an insurance policy to secure it.
BDPHOTOMONTAGE
believed most firms do not settle claims,” she said.
Mr Stephen Wandera, CEO of British American Insurance discounts the view that insurance companies take too long to settle claims
and asserts that the range of products offered by the local insurance
industry sufficiently covers all the facets of the economy.
The fear over claims, he said, results from poor sensitisation and
is something the industry has grappled with for years as it seeks to
address the underutilisation of insurance products.
“The local industry has only left out what it views as obscure and
this means only Lloyds of London can be said to cover wider product
range than Kenya’s risk industry,” said Mr Wandera, who is also the
chairman of the Kenya Association of Manufacturers.
As it is, most consumers are only aware of mandatory insurance
products, yet the local industry now covers everything, ranging
from farm and household items to heavy equipment and industrial plants.
Nonetheless, it is often poor disclosure of product specifications
by manufacturers that exposes shoppers to the most consumption
risk. Some see relief on the horizon with the recently enacted Anti
Counterfeit Act and Competition Act. These create new enforcement
institutions to fight fake goods and force manufacturers of genuine
ones to disclose all product specifications to allow consumers to
make informed purchase decisions. However, experts say a lot more
still needs to be put in place.
“The conventional buying rule has been ‘consumer beware’ but
one cannot make sure under the present circumstances, where the
counterfeiters have access to advanced technology for copying
genuine products,” said Mr Allan Kamau, chairman of Kenya Anti
Counterfeit Agency’s board.
Mr Kamau said most of the products on the streets, ranging from
medical drugs to electronic gadgets, have been copied from original
producers using advanced technology making them appear genuine
even to the most discerning eye.
XIX
19
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
the edge: Consumer trends
Easy c≥edit bails out new consume≥s
Competition hasbecomeso vigorousthat
findingaloanrequireslittlemorethanawalk
throughthestreetstofindasalesteam
fromamajorbankwillingtosignupnew
customers,writes David Mugwe
O
btaining a loan in the
1980s and 1990s was
one of the most daunting
tasks any Kenyan could pursue.
The process was a preserve of the
well-connected or wealthy, and
started with opening an account
in a commercial bank, which not
only required some proof of income
but also a list of references.
If a consumer did manage to
go through the account opening
process, the average lending interest rate, which hit a high of 32
per cent in 1994, was still prohibitive - to all but a very few. Today,
following successive government
and legislative changes and rising
disposable income among Kenya’s
middle classes and youth, the competition to lend has become so vigorous that finding a loan requires
little more than a walk through any
town to find a sales team from a
major bank willing to sign up new
customers.
At the same time, the growth
of savings and credit cooperative
societies (Sacco) and micro finance
institutions have also expanded the
deposits and loans market.
“Credit is a lot more available
today than in the 80s and 90s and
credit terms have also loosened,”
said Robert Bunyi, chief executive of financial consulting firm
Mavuno Capital. The consumer
credit market is also expanding in
types of lending to include unsecured loans, credit cards, and loans
against salaries and other assets with banks able to lend higher
amounts of money using other
assets as collateral compared to
Saccos that usually only lend up
to an individual’s savings, said Mr
Bunyi. But stringent terms and
relatively higher interest rates at
banks put them at a disadvantage
compared to the Saccos and micro
finance institutions (MFIs), said Allan Mulengani, Director of the Institute for Strategy and Competitiveness at Strathmore School of
Business. “Saccos and MFIs are also
popular because they are focused
on a specific group of people.”
This more personal approach
saw the five deposit taking microfinance institutions holding
Sh15.2bn in half a million loan accounts and Sh9.6bn in 1.4 million
deposit accounts by June this year,
compared to Sh14.9bn in loans and
Sh8bn in deposits six months earlier. At the same time, the country’s 3,983 Saccos held Sh210bn
in assets, with 227 operating front
office services holding Sh171bn by
the end of last year.
Investment groups, popularly
known as chamas, are also used
to mobilize savings and are formed
on the basis of trust by a group of
individuals who know each other
well. Many take the form of merrygo-rounds where the individuals
contribute a specific amount of
money periodically, which is then
given to a particular member.
“Investment groups are popular because it is easier to tell your
group that you are having problems
with school fees for example but
you cannot do this with a bank,”
said Dr Mulengani.
According to a consumer protection diagnostic survey released
early this year by Financial Sector
Deepening, merry-go-rounds give
the most disclosure on charges or
penalties on savings products and
a high number of respondents said
the charges, interest and penalties
were clearly explained.
Consumers also maintain rela-
MICROFINANCE INSTITUTIONS
The five microfinance institutions saw their loan and deposit accounts
increase in the first half of the year
JUNE 2011
15.2bn
9.6bn
Loan accounts
JANUARY 2011
14.9bn
8bn
Deposit accounts
tionships with chamas for the networking as well as to save and invest
with like-minded friends. But formal lending institutions have also
now focused their lending activities
on the personal and household sector, with loans of Sh296bn by June
this year compared to Sh235.5bn a
year earlier.
Yet it is this formal slice of the
credit market which also holds the
highest balance of non-performing
loans, standing at Sh18.8bn by June
this year compared to Sh18.1bn a
year earlier. This may be a problem
of consumer education, according
to Cassim Jivraj, a financial consultant at PFP Financial Services.
“The banks are actually pushing
the loans whose total cost is actually
higher that the interest rates that
have been disclosed,” he said, pointing to the fact that few consumers
yet understand the difference between a flat fixed rate on loans, a
fixed rate on a reducing balance
basis, compounded interest and
variable rates.
XX
20
BUSINESS
DAILY
| Friday
August
26, 201126, 2011
BUSINESS
DAILY
| FRIDAY,
AUGUST
the edge: Consumer trends
PRESSING
NEEDS OF
CONSUMERS
Need 1: Medical
insurance for older
people
Analysts in the insurance industry say age limitations by insurance service providers have been excluding potential clients aged more than 60 years
after they have retired and lost their medical insurance from their former employers.
“Insurance companies make a mistake of equating age to risk when young people are dying at an
equal rate if not faster than retirees,” said Faiza
Devji, research and product development manager
at AON Minet Insurance Brokers.
She says most of the old people who
can
afford insurance have been
ignored by most insurance
companies in the country.
Even companies that
do accept their applications subject
them to procedures and tests
that force some
to opt out.
Need 2: Insurance for
low income earners
Only about five per cent of Kenyans have embraced
insurance. The high cost of insurance and suspicion
relating to the clarity and consistency of insurance
policies are among the issues raised by customers
as reasons for not buying.
Recent efforts by the insurance industry to provide low cost insurance have so far achieved little
awareness. Typical has been the recent launch of
weather-based index insurance.
“Low income earners remain largely unattended, new products such as weather based insurance
products may help tap this market,” said Mr Ashok
Shah, CEO, APA Insurance.
Need 3: Financial
services for
adolescents
Research in the second quarter of this year by
Synovate East Africa found that even though
young people below the age of 18 are
not allowed to hold a bank account,
they are the biggest savers, using mobile lines that are not registered in
their names.
Adolescents between the age
of 15 and 19 carry out more transactions than those between the ages of
20 to 30. They represent one of the
largest untapped markets by financial
institutions.
“The findings indicate that adolescents below the age of 19 are using MPesa for saving money at a higher rate
than adults above the age of 20,” said
Samuel Muthoka, senior research manager with Synovate East Africa.
Synovate claims banks have lost communication with young people as they have failed to use
new channels such as mobile Internet and mobile
phones. Formal banking is associated with many
barriers that do not favour dynamic youth.
Twelve-year-olds will soon have the right to
own a national ID card if proposed amendments
to the Registrations of Persons Act go through.
However, it is not clear if financial institutions will
then open their doors to the age group.
Need 4: Low cost
owner occupier
housing
BY RAWLINGS OTINI
The greatest consumer
successes of tomorrow will
be borne of the needs consumers
have today, which are not yet being
met. We offer the taste and feel of an
unmet need with this selection from our very
own consumer market.
Kenyans, due to the tough criteria that lock out middle income earners.
The average cost of housing in Nairobi has
grown by more than 100 per cent from Sh10
million to Sh21 million over the last decade,
while average wage earnings only increased
by about 50 per cent, according to data from
the Kenya National Bureau of Statistics.
The lowest cost of a modern house in Nairobi is around Sh3 million. Rapid urbanisation
has additionally pushed up land prices, raising
the cost of owning a home.
Mabati Rolling Mills is among the industry players now targeting low cost housing
with prefabricated buildings that may cost
as little as Sh100,000 per house. These solutions will mean home owners only need
acquire land and then the movable house
will be brought by the manufacturer.
Need 5: Accessible
solar equipment
Need 7: Distance
learning in higher
education
Many qualified students remain outside higher
education due to the shortage of spaces in the
country’s universities. But the necessary infrastructure for distance learning has yet to be put
in place.
Out of the 81,000 students who scored the
minimum university entry grade of C+ and above
in last year’s Kenya Certificate of Secondary Education (KCSE) examination, only 20,000 were picked
for the government’s direct entry programme.
Many more opt for the expensive parallel degree programmes, while the largest proportion is
simply locked out.
[email protected]
Dealers in the solar energy market say the high
cost of imported raw materials has slowed the
growth of the renewable energy market.
A decision by the government to lift duty
on imported solar equipment left out equipment
such as solar lamps which could help the poor
at a time when paraffin prices have increased
significantly.
The minimum cost of installing solar power
panels on roofs is around Sh150,000, way out of
reach for most Kenyans.
Need 6: Low cost
business hotels
Property prices have risen beyond the reach of
many middle class Kenyans in recent years, with
mortgage facilities available to fewer than 2,000
remain far beyond the reach of the average SMEs
and point to a gap of under investment in two and
three- star hotels in the country.
The Ministry of Tourism is calling for investors in low cost hotels. The high class hospitality
industry has left out middle level companies that
cannot afford high end hotel rooms for their business executives.
Small and medium enterprises, which employ
the majority of Kenyans, say the cost of hotel rooms
August
26, 2011
| BUSINESS
DAILY
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
XXI
21
LUXURY
the edge: Consumer trends
What Kenya’s newly ≥ich a≥e buying
BY GALGALLO FAYO
No Kenyan featured in the Forbes
magazine list of the richest people in
the world, which featured 14 African
individuals. However, this
doesn’t mean Kenya is short
of high net-worth individuals running for luxury goods,
nowhere more so that in the
home.
For the expanding clutch
of businesses specialising
in high-end kitchen fittings,
growth is strong, with luxury
kitchens costing up to Sh14
million on a steady rise. According to Mr. Bill Odhiambo,
managing partner of Kitchen
Designs System, the sale of fitted kitchens that cost between
Sh9m to Sh14m have been rising at the rate of between 10
per cent and 15 per cent a year for a
few years now.
“I would say that the market is definitely going up and up,” said Mr Sam
Wanjoi, managing director of the Foresight Group, who points to the boom
in the number of apartments as a significant factor in the high order of fitted kitchens.
“The current boom in the property market has spawned a new class
of home buyers and home builders,
who want the most for what they are
paying.”
Exposed
According to Mr. Odhiambo, the most
expensive kitchen they sold this year
was for Sh28m six months ago to a Kenyan who lives in Mombasa. The kitchens usually have inbuilt dishwashers
and panels.
“It is not the usual small kitchen,
some are 200 square feet and even bigger with finer finishes”, he said. “We
usually import almost all the materials that we use to build the kitchens,
except the granite.”
Equipped with top-end kitchens, Kenya’s upper classes
are spending more on
dining too, with the
sales of wines rising steadily
in recent
years.
“Kenyan residents
LIVING THE LIFE
Kitchens
10% - 15%
Increase in the sale of
kitchens costing sh9
million to Sh14 million over
the last few years
28 million
Sh
Most expensive kitchen
sold by Kitchen Design
System to a Mombasa
resident
Wines
1000 - Sh6500
Sh
Price range for high end wines
25%
Growth in this alcohol category,
according to Atul Shah, Managing
Director, Nakumatt Holdings
Luxury Cars
10000
Number of cars sold by new dealerships
Mercedes
Leads the pack in terms of sales
are exposed to fine dining practices
and this also drives them to seek fine
wines and spirits”, said Mr Atul Shah,
managing director at Nakumatt Holdings. “The trend on our alcohol category
has been steadily growing at a rate of
about 25 per cent a year.”
Prices range from Sh1,000 up to
about Sh6,500 for Champagne, with
a wine like Durbanville Hills Wines
from South Africa retailing at about
Sh1,770.
“We also have fine blended and
single malt whiskeys, which cost anything between Sh2,500 to more than
Sh20,000”, said Mr Shah.
Some of the most expensive brands
include Glenlivet, Glenfidich, Johnnie
Walker Green and Blue, all in high demand.
Celebrities
Similarly, in the car market, “there is
an increased demand from high net
worth individuals and the private sector where directors and senior managers
are buying more luxury cars,” said Mr
Roy Kyalo, a sales manager at Bavaria
Auto Kenya.
Last year, new car dealerships sold
almost 10,000 cars, with Mercedes
leading the way in numbers, followed
by Mitsubishi.
Mr Frank Okemwa, a business manager at the Kenya CarBazaar, says the
upper class members of society are going for European cars, with the Mercedes brand topping the list.
Mr. Okemwa identified the Aston
Martin, Audi, Porsche Cayenne, Range
Rover Sport/Vogue, Lexus, Jaguar, Cadillac, Ford Kuga/Vertrek, Mercedes
Benz ML, CLK, C Class, E Class, BMW
X6, Toyota Landcruiser VX, Prado as
some of the cars now on the move in
the Kenyan market.
Some earn their own attention as the
cars of celebrities such as Kenyan international soccer players, Dennis Oliech,
who owns a Toyota VX and Chrysler 300
and Macdonald Mariga, who drives a
Toyota VX and a Hummer. The Kenyan prime minister’s son, Fidel Odinga,
drives a Range Rover Sport while comedian Churchill drives a C200.
-- AFRICAN LAUGHTER
XXII
22
BUSINESS
DAILY
| Friday
August
26, 201126, 2011
BUSINESS
DAILY
| FRIDAY,
AUGUST
the edge: Consumer trends
Weak p≥otection laws leave
consume≥s ba≥efooted in a
ma≥ket of many landmines
BY STEVE MBOGO
U
ntil Kenya wrote and brought
a new Constitution into force
in August last year, the country’s consumers stood among the least
protected in the world.
Their right to clean, healthy and
authentic products or services had no
grounding in primary law setting them
up for abuse in the marketplace.
The range of consumer losses in the
Kenyan market has included overpricing of goods and services, sale of counterfeits as genuine products and even
sale of defective goods.
The value of losses suffered far outstrips personal theft, mugging, pickpocketing and break-ins, according to
a recent survey by the Kenya Institute
for Public Policy and Research Analysis (KIPPRA).
“If we measure in a scale of one
to 10, our consumer rights protection level will at best score a two,”
said Stephen Mutoro, the Secretary
General of the Consumer Federation
of Kenya, the most active consumer
rights organisation in Kenya. Until the
new Constitution came into force, the
government, which is meant to act as
the anchor consumer rights protector, had left consumers at the mercy
of rogue traders.
The depth of this neglect was evi-
denced by the existence of a law most
visible as cautionary notes on purchase
receipts that read: “Goods once sold
cannot be returned”.
By contrast, the new constitution
guarantees the rights of Kenyan citizens to quality goods and services.
However, a year into the new Constitution, the government’s hand is yet to
be felt in consumer protection, meaning systemic consumer theft remains
commonplace. Typical is the case of the
Department of Weight and Measures
at the Ministry of Trade. Today, buying
one kilogramme of meat in different
areas of Nairobi and comparing them
with a properly calibrated weighing
machine gives underweight margin
of up to 200 grammes, based on comparisons by the Business Daily.
The disparities are highest in low
income areas, meaning that the poor
are paying more for less.
Another example is public transport, where no attempt has been made
to compute the most reasonable fare
that Matatus should charge based on
their destinations. As a result, consumers pay inflated bus fares, draining their household income.
By contrast, in Tanzania, the government protects vulnerable consumers by requiring public service vehicles
to print fares on their bodies.
In Kenya, where there are 30 Acts of
The range of consumer losses in
the market includes overpricing of goods and
services.
BD PHOTOMONTAGE/
Parliament on standards of goods and
services, enforcement is currently poor,
and many of the laws are structured
towards protecting suppliers rather
than citizens. “Most of the laws on consumer standards are more concerned
with reducing loss of revenue for government and corporates by protecting
their intellectual property and are very
shallow on protecting the rights of the
consumer,” said Samuel Ochieng’, the
CEO of Consumer Information Network (CIN) in an earlier interview.
As a result, the 2010 survey by KIPPRA and the United Nations Office on
Drugs and Crime revealed that 21.9
per cent of Kenyans polled consider
themselves victims of consumer fraud,
THE NUMBERS
20.9%
Kenyans who say they face consumer fraud in market.
10.4%
Kenyans who say they are victims of personal theft.
15.4%
Kenyans who say they are victims of corruption.
MWACHIRA
compared to 10.4 per cent as victims of personal theft, and 15.4 per cent as victims of
corruption.
“Our challenge today is that we are lacking national policy on consumer rights. So
most consumers are still not aware of their
rights,” said Mr Mutoro.
But activists argue that it is also difficult to protect consumers when the traders themselves are not protected from substandard products, because of the failure
of the regulatory authorities.
This failure has seen Kenyans exposed
to some of the riskiest and most costly
consumer frauds seen anywhere in the
world, such as the sale of medicines that
are banned in other countries. These frauds
are responsible for deaths that need never
have happened.
Likewise, weak consumer protection
has stymied many steps forward in consumer welfare.
An example are LED lighting devices
that have the potential to reduce household
spend on expensive batteries.
Kenya allows the importing of substandard devices that break up within days or
hours, generating costs for low income
people like watchmen and rural households who buy the equipment to replace
environmentally and medically harmful
lantern lamps.
Even where laws exist to protect consumers themselves, the penalties are weak,
with the Anti-Counterfeit Act termed by
the Pharmaceutical Society of Kenya
(PSK) as completely inadequate through
soft penalties.
The law prescribes five years imprisonment for first offenders and a fine equal
to three times the value of the counterfeit
goods. Repeat offenders face a sentence of
15 years and a fine equivalent to five times
the value of the goods.
But within Kenya’s criminal justice system most counterfeit goods suspects are
treated as first-time offenders, as a result
of difficulties in retrieving their files and of
their records being misplaced. In 2009, several manufacturers urged the government
to replace the manual profiling system with
electronic tools to ease the retrieval of data
and help to kick out the country’s masterminds of counterfeit products.
For those most concerned at consumer
fraud, the biggest hope, however, is that
Chapter 46 of the new constitution, which
states that consumers have the right to
quality goods and services; and have right
to information so as to gain benefit from
goods and services, will be the catalyst for
an upgrade in consumer rights.
The new Constitution states that consumers should be accorded compensation
from loss and damage arising out of consumption of defective goods.
“We expect to see more litigious consumers,” said Cathy Mputhia, a lawyer with
Muthoga Gaturu & Company Advocates.
“Signs like “Goods once sold cannot be
returned” (even if they are defective) will
now be a thing of the past.” She also urges
that professional bodies are consulted
when coming up with consumer laws so
that minimum acceptable standards for
goods and services can be set up within
each sector and used as reference when
there are claims of substandard goods
and services.
smbogo@ke.,nationmedia.com
23
August
26, 2011
| BUSINESS
DAILYXXIII
FRIDAY,Friday
AUGUST
26, 2011
| BUSINESS
DAILY
INTERVIEW
the edge: Consumer trends
Becoming a global playe≥ in the
consume≥ elect≥onics ma≥ket
I
n 2000, executives at South Koreabased LG Electronics set the goal of
becoming a top-three player globally
by the close of the decade. One year early,
in 2009, the company achieved its goal.
Revenue has jumped from $5.6 billion
in 2004 to more than $13 billion in 2010.
Michael Ahn guided the branding effort
for LG Electronics North America before
stepping down as regional president and
CEO last year to become a senior adviser
at LG Electronics USA. He named patience, consumer-targeted marketing and
achieving synergy among the firm’s different divisions as the factors catapulting
LG Electronics from a relatively obscure
maker of commodity goods to a premium
global brand.
KNOWLEDGE @
WHARTON
Competitionintheconsumerelectronicsindustryoftenseemstofocusonfindingthenextbigblockbusterproduct,
suchastheiPod or theWii.Isitpossible
forallelectronicfirmstocreatesuch
products?And,ifnot,howshouldthey
positionthemselvesinthismarket?
The consumer electronics industry (was
previously) divided [into] hardware, software and content.
However, there is a trend to combine hardware, software and content
in (products) like in a smartphone or
“smart” TV.... The trend is providing
total service to consumers ... so that
consumers can get information anywhere, anytime.... I know that smartphones have become so popular and
the next generation of television could
be a “smart” TV.
Doyoubelievethatthenextbigblockbusterproductwillbeasmartphoneor
smarttelevision?
Yes.
Howwillitchangethecompetitivedynamicsoftheconsumerelectronics
market?
In the consumer electronics industry,
the next blockbuster will be smart TV at
home and smartphones for consumers
[outside] the home. So far, the company
was [divided] content wise, software wise
or hardware wise.
But in the future, the three areas will be
combined, so we need a big corporation
[covering] the different industries -- content, software as well as hardware. And
consumers will buy and shop for service
[accordingly].
Can you explain what you mean when
you say consumers in different parts of
the world are different? How are they
different and how does that drive your
productstrategy?In home appliances, a
consumer’s needs are different market by
market, even region by region. So we do
better if we ... develop new products based
on those differentiation points.
But with mobile phones, it’s almost the
same all over the world. Television sets are
also very similar, but the timing of [how
they are rolled out] is different country by
country and market by market.
ComingtoLGElectronics,underyour
leadership,thecompanysawitsrevenuesincrease20%yearonyear,from
$5.6billionin2004tomorethan$13
billionin2010.Couldyouexplainyour
strategyindrivingthisperformance?
When I came to the US in 2004, the LG
brand was almost unknown and I thought
that without having a premium brand,
growth would be limited and we couldn’t
make a profit with a low-end brand like
GoldStar.
So we thought that building a premium,
well-known brand was the most important (factor) for future growth. We have focused on building LG as a premium brand
over the last several years and we were very
successful in brand management.
Whatistheroleofleadershipinbrand
building?
The leader’s role should be consistent in
brand management and brand building.
Brand building takes a long time and costs
a huge amount of money. Building consumers’ perception ... takes a long time.
That’s why we should be consistent in
strategy and philosophy. If not, consumers [can get] very confused....
ideassurfaceandareimplemented?
If we want to build a premium brand, we need to
be different and have innovative products and
services. Without innovation and differentiation, we cannot build a premium brand.
So we challenged the R&D centre, the design
center and the product-planning group to develop differentiated, innovative products every
year. We not only challenged but also encouraged those people and supported them.
Some years later, we have seen the result. For
example, washing machines. We came to U.S.
with our differentiated washing machine
about seven or eight years ago. And in frontloading washer dryers, we became No. 1 four
years ago, with 24 per cent market share. We
are still No. 1.
BOARD OF TRUSTEES
NATIONAL SOCIAL SECURITY FUND
PARKING TO LET
NSSF PARKING COMPLEX
Whatwerethemainobstaclesyou
facedinbuildingLG’sbrandintheUS
andhowdidyouovercomethem?
We talked about that issue with colleagues. Most obstacles [involve] people
in the company who are not patient about
brand building. It takes a long time. But
they were not so patient. They needed big
revenues and volumes in a short period.
That was a big obstacle for us to overcome.
We needed patience to [become] a premium brand.
Howdidyouovercomethatobstacle?
We tried to get a consensus. We tried hard
to [convince] people to be more consistent and very patient about achieving results.... Even sales people wanted to sell
big quantities at low prices because they
were compensated by incentives based on
sales volume. So they didn’t [care] about
brand building. They [cared about] their
incentives. That was an issue.
Strategically located at Community/Upper-Hill commercial hub, 5
minutes drive from Central Business District and within walking
distance to major commercial/government offices in the area.
Almosteverycompanyswearsbyinnovation.WhatwasyourapproachtoencouraginginnovationatLGElectronics?Howdoyouensurethatthebest
Email: [email protected]
Fax: 2729882 or 2722013
Tel: 2729911/2832499/2832571
Parking spaces are available for both short-term and long-term lettings
at competitive rates.
For inquiries contact our Property Management office on:
XXIV
24
BUSINESS
DAILY
| Friday
August
26, 201126, 2011
BUSINESS
DAILY
| FRIDAY,
AUGUST
the edge: Consumer trends