It started small when inflationary squeezes set in with rising commodity prices. But now retailers are registering a full-blown scramble for discounted products in their stores amid strong shifts in consumer spending.
Retail chain owners say shoppers, hard-pressed for money, are favouring discounted products, smaller packs or cheaper options to stockpile and hedge against future price jumps.
“What we are seeing is that Kenyans have become bargain hunters when a product is put on sale promotion they buy a lot of units. This pantry stocking means that the frequency of buying goods is going down because customers have already had products for a long time,” Naivas Supermarket Chief Commercial Officer Willy Kimani told Smart Business.
"About 80 per cent of our customers have retained brand loyalty but are buying lesser packages and only 15 percent have actually switched brands,” he noted. The trend is feeding concerns in the retail sector, which is exposed to rising prices and shaky supply chains.
Middle-class consumers in Kenya are particularly fanning a new craze as they adapt to tougher economic times through the purchase of discounted items.
Some retailers, especially of fast-moving consumer goods (FMCG), are likely to be squeezed by steep discount offers to keep customers coming while some could in the long-term be left with excess stocks of premium-price products.
“Innovating value-driven products with multiple usage occasions, right pack and price offering is critical for FMCG players. It is also critical for marketers or brand owners to drive more brand saliency given that there is likely to be more planned shopping trips in 2022 as consumers seek value to compensate for price increases” Osato Igbinadolor, Country Manager of data, insights and consulting firm, Kantar Worldpanel East Africa told Smart Business.
Record high prices have been witnessed globally on post-pandemic consumer demand, ongoing supply chain shortages, geopolitical events such as the war in Ukraine, and the weakening of the Kenyan currency that has pushed up the cost of imports.
The financial squeeze as a result of the Covid-19 scourge coupled with price increases over the past couple of months has led to a drop in quantities being bought off supermarket shelves, shrinking basket size, and frequency of purchases.
They have also meant that consumers are now more interested in cheaper alternatives such as promotion deals and lower quality products that has owners of premium brand.
Smaller basket sizes and lower shopping frequency are a nightmare for FMCG makers who earn small margins but push inventory to earn from economies of scale.
Most times, inflation eats away at the lower wrung of the consumer who quickly switch to cheaper products or the kadogo economy where bulk products are broken down to pocket-friendly sizes.
“Inflation tends to be felt very much in the retail sector as people switch to the kadogo economy where bulk products are broken down a bit more. We are a very pocket-led economy because of low consumer power and for the typical consumer it is more about price than brand,” Chief Executive at Retail Trade Association of Kenya (RETRAK) Wambui Mbarire said.
However, the current situation is creeping up the ladder coming on the back of the Covid-19 menace that has decimated jobs and burnt through savings. In 2020, about 1.2 million Kenyans sunk into extreme poverty due to the economic fallout of the Covid-19 crisis-- surviving on less than $1.9 (Sh220) a day according to the World Bank macro poverty outlook.
However, nearly half a million Kenyans were lifted back out of extreme poverty last year as the country bounced back from the ravages of the crisis. Although the recovery of the economy has seen those who lost jobs in 2020 return to gainful work, it will take longer to recover from a pandemic-induced economic contraction in 2020.
The annual economic survey by the Kenya National Bureau of Statistics (KNBS) shows private companies raised average monthly pay by 2.24 per cent in 2021 the slowest pace in 11 years.
Kantar Worldpanel’s data shows that Kenya’s more affluent consumers have tightened their purse strings the most – spending 10 per cent less in 2021 than they did in 2020 – possibly due to having a more prudent financial nature in uncertain times. The growing middle classes remain resilient and have moderated their behaviour less.
Mr Kimani said although manufacturers are yet to react to the changing shopping trends, as a retailer they are looking to encourage offerings of value packs.
A value pack is where- multiple items are grouped for significantly lower prices. The affluent are also abandoning brands due to shortages that have hit supermarkets on disrupted supply chains.
For instance, the price of milk in supermarkets, went up this year on supply shortages with the price of 500ml fresh milk that was selling at Sh45 increasing up to Sh55.
Retailers argued that there has been a shortage of the commodity with some of the brands such as the Ugandan-based Lato now missing from shelves.
The Ministry of Agriculture through the National Food and Nutrition Security Report had in March recommended a one-month window for the importation of milk to address the current shortage that has seen processors operate below their installed capacity.
The ministry said there was generally reduced milk productivity as a result of poor rains and it wanted processors to be allowed to import UHT and powder milk to ease the situation.
Some consumers have however not been grossly affected by the tough times. East Africa Breweries Limited for example reported a surge in sales in its financial year ended June 2022--partly propelled by uptake of pricy drinks by customers stepping out of lockdowns and the economic fallout of Covid-19--pushing the brewer’s after-tax profits for the period to Sh15.6 billion—124 per cent jump compared to the previous year.
“EABL’s largest market, Kenya, delivered 30 per cent net sales growth, mainly on the back of strong beer recovery and continued growth in spirits – fuelled by premium and upper mainstream segments,” the brewer said in a statement.
There is however hope as commodity prices begin falling amid fears of a global recession.