Depleted savings, high food prices to dampen 2024 business growth – report

Households are projected to remain highly price-sensitive next year.

In Summary
  • Despite the projected growth, EIU says online retailers’ profits will remain under pressure as regulatory woes challenge the sector.
  • Jobs will also face more challenges, according to the research body.
Fruits and Vegetables on display at Naivas Ojijo store
Fruits and Vegetables on display at Naivas Ojijo store

Kenya's retail businesses will record continuous growth next year defying the prevailing tough economic environment that has seen some businesses close triggering lay-off fears.

However, the growth will be characterised by shifting consumer trends, rising cost of commodities and depleted household savings.

This according to Retail Trade Association of Kenya (RETRAK's), CEO Wambui Mbarire, who says these factors, will likely dampen the growth prospects.

"Depleted savings, weakened shilling and increased commodity prices are not foregone factors in this projected growth," Mbarire said.

Her sentiments reflect that of global research unit Economic Intelligence, which in its 2024 industry outlook says the future of retail businesses specifically in developing economies is promising, with the slowdown in inflation expected to bolster volume growth.

It however says despite the projected growth, depleted savings and high food prices will dampen the prospects.

“Households have depleted much of their savings on the back of rising cost of living, so they will remain highly price-sensitive,” the report reads.

To ensure the businesses stay afloat, Mbarire says retailers will have to diversify on their offerings and way of doing business to match the shifting trends.

"Some of the retailers are already adapting to changes, as they are moving away from business hubs and relocating to residential areas, closer to the clients who are now diversifying from stock shopping to cut on expenditures," she said.

"Consumers are also cutting down on their shopping baskets to only prioritise on food items, a move that has prompted retailers to diversify into more of food markets compared to other household amenities such as electronics, moving from hyper markets to localised super markets."

Nevertheless, she adds that retail businesses will have to innovate around product offering to foster brand loyalty in retaining customers.

EIU's report shows the global retail sales will grow by 6.7 per cent in terms of value, and by two per cent in volume in 2024.

“Expansion in developing markets will lead to double-digit growth in global online sales in the period under review. However, online retailers’ profits will remain under pressure as regulatory woes challenge the sector.”

Jobs will also face more challenges, according to the research body.

Further, it notes a majority of consumers will shake off the Covid-19 fear and adopt more of physical shopping, a shift away from the online shopping that characterised the retail sector from 2020.

“Consumers’ preference for shopping at brick-and-mortar stores will bolster offline retailers, especially discounts retailers. Some will expand their footprint across geographies to accommodate the high footfall expected in 2024,” the report says.

It adds that the year under review will see the strongest pace of growth for offline retail since the post-pandemic rebound of 2021, driven partly by the return of international tourism, but largely by the cost-of-living squeeze.

Real estate consultancy firm Knight Frank, in its report early this year said the trend has renewed the appetite for retail outlets and driven up the occupancy of the premises.

Consumers’ increased search for lower prices and unwillingness to pay delivery fees and the prioritisation of basic goods such as food, are further reasons the report highlights that will lure many bargain-hunting consumers back to stores.

"This as food and beverage commodity prices continue to decline into better part of 2024," EIU says.

However, it notes that disinflation will not translate into much relief for consumers, as labour costs continue to rise across retail and warehousing jobs.

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