Some of the biggest and most visible players in any country are the supermarkets.
They employ thousands of people, have a wide geographic presence and interact with many aspects of the economy through supply chains and products sold.
Tuskys is one of the biggest in Kenya, and East Africa, and in this episode I interview Daniel Githua the CEO.
The interview was pencilled in to take 30 minutes, but there ended up being so much interesting stuff
that we continued recording, meaning it’s one of the longer episodes on the show to date.
I think part of the reason was the depth of insights that Daniel had, and the frankness with which he spoke about both opportunities and current downsides in running the business.
Some highlights from the interview include: the macro trends in formalising the retail sector in Kenya and how reaching new towns transforms the local economy, the biggest opportunities he sees for retail products across different categories, and how the market may change in the coming years, with the introduction of large international retailers like Carrefour and Shoprite
If you’re interested in other interviews about food and retail, look to episodes on Cooked Beans, Invoice Financing and especially on Coconuts which talks a lot about the struggles manufacturers have with payment terms when selling to supermarkets, something Daniel recognised that the retail industry has to address.
At times there might be a bit of shuffling, and sips of tea (the Tuskys staff were very accommodating) and so please excuse and slurps or shuffles which exist at the beginning – or at least when the tea was still hot.
Any way, without any further ado, please enjoy this insightful interview with Daniel
Accountant by background
Daniel started as an auditor with Deloitte. He then wanted to look at entrepreneurship, and considered the two companies Nairobi Women’s Hospital and Tuskys.
Tuskys is a mass-market supermarket
Furniture, clothing, amenities and fresh food. Currently 63 stores in the region, looking to grow to Ethiopia and the east of DR Congo.
My Mum is a milk farmer
She sells her milk to a local processor which then has it appearing on the shelves in Tuskys. For this, you need advanced IT systems and processes.
Tuskys began with a small grocery store
A few hours from Nairobi in Nakuru. The focus was on training local people, his sons joined and they grew from there.
We open shops to empower communities
Many times Tuskys becomes the largest employer in town – it transforms the local economy.
What determines opening a new store?
1. settlement patterns 2. trade routes. A high volume of traffic is what makes a new site attractive.
This was helped by Kenya’s devolution of power, which gave greater power to local government, such as with Narok.
How Tuskys transforms a town
By creating jobs for 300-400 employees there are ancillary services (such as housing) which need to be met.
Increasing demand through availability
In the case of Narok, there historically wasn’t the option for premium products such as, say, mouthwash.
By Tuskys opening there is some simple switching from the informal sector (fruits) and others are products which previously only existed in the capital Nairobi.
We don’t have many own label products
This loses our focus. Our main objective is to create the market where consumers meet the manufacturers.
Whilst the market is yet to be exploited we don’t wish to conflict with our suppliers.
When you have your own product, you begin limiting what the consumer has.
Listing as a supplier
Quite simple really. Starts with having government approval. Then want clarity on the types of customers that you want. Can you show in your product that you’re going for. How does this compare with the competition? How do you match with them?
Gross margin on foodstuff
Is roughly 16-18%. The time it spends on the shelf differs by category. Fresh is for 2-3 days. Dry foods 14 days. Clothing 45 days.
“The best yoghurt in town”
This is how a Dutch Private Equity investor sold his vision of creating one of the leading brands of yoghurt in Kenya. He said it’s going to be expensive, but it’s going to be the best. He’s doing very well.
Other opportunities lie in…
Processed meats (bacon, sausages), cooking oils (premium olive oils are now on every table), premium pasta, fruit jam, personal care items (shampoos, lotions)
Human capital gap
It’s impossible to find a good buyer locally. The skills to negotiate with buyers are low.
There isn’t the experience, and so Tuskys have decided to train them, often on projects abroad.
This is a big issue for retailers as there are no established processes in place. How inventory moves around is still quite informal.
International retailers are coming!
This brings a different kind of competition to the market. The biggest effect is that payment terms needs to be more disciplined. Manufacturers no longer tolerate the long payment terms and so retailers need to get better at paying on time.
Consolidation in Kenya retailers
There are likely to be “Tier 2” retailers in the sector who will merge to get better buying power with manufacturers.
Certain standards for being good retailers: payment terms, transparent payment terms, treatment of workers, CSR etc.
Electronics, personal brand items and textiles are moving quickly. Logistics isn’t an issue, as customers want to come by to the Tuskys store.
Lessons & Insights
Surprises: gaps in human capital and pilferage of stock
Biggest lesson: “It is shocking how much opportunity exists in food retailing in Kenya”
Biggest insight: only 30% of retail in East Africa is formal. This is increasing 2% each year which presents a big opportunity.
Overview of Food in East Africa: Lessons from interviewing Food entrepreneurs in East Africa.