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Kenya’s the Market for U.S. Consumer-Oriented Foods
By Henry Schmick
Kenya’s growing economy
is an East African oasis of opportunity for U.S. producers of
processed food products. Though per capita income in 1997 was
estimated by the World Bank at only $280 to $300, a rapidly
growing market for consumer-oriented items is developing.
The demand is driven by an expanding expatriate population as well as the emerging Kenyan middle class, which now makes up 5 to 10 percent of the population.
While this market was nonexistent just a few years ago, Kenya’s reduced import duties, rising disposable incomes and the appearance of several supermarket chains were indicative of change.
Reforms Made the Difference
With a little help from the International Monetary Fund (IMF) and the World Bank, economic reform has come to Kenya, pulling its economy back from the edge with a stabilizing and liberalizing agenda.
Gone are the import licensing and foreign exchange controls. The agricultural sector has been liberalized and trade barriers reduced.
Tight fiscal and monetary policies quelled further inflation, which has settled to a yearly 10-percent increase.
Besides undergoing healthy doses of fiscal responsibility, the country has made steady, though slow, progress in privatizing state-owned parastatals (government-owned business enterprises) and reducing the size of the civil service.
The new reforms rescued a nosediving economy in the early 1990s. By mid-decade, a declining gross domestic product (GDP) had turned around, climbing a respectable 5 percent yearly.
The upswing is still in effect, though not as high-flying the past two years. A drought in the 1996/97 crop year, election jitters in 1997 and El Niño-induced floods in 1998 capped yearly GDP growth between 2 and 3 percent.
Poor crop harvests in 1997 and 1998, resulting from the flood and drought conditions, had to be offset with large imports of grain. Despite these setbacks, tight economic policies have prevailed, and the economy remains basically in good shape.
Urban Dwellers Lead Middle Class
About three-fourths of Kenya’s 30 million citizens--either as subsistence farmers or as smallholder tea or coffee farmers--depend on the agricultural sector for sustenance.
As is often the case, city dwellers tend to be wealthier than Kenya’s rural folk. Residents in the country’s six urban centers, making up 10 to 12 percent of the population, have more disposable income than their rural neighbors. Women and urban youths are now joining the workforce in greater numbers and are upping the living standards for this group.
This urban population is the first generation to demand convenience items. They own microwave ovens and refrigerators and are beginning to discover dining out as an alternative to home meal preparation.
U.S. Bulk Exports Up
Of the $54 million worth of U.S. agricultural imports to Kenya, consumer-oriented items fetch at most a paltry $1 million in sales. Pretty small potatoes when compared to the $70 million worth of consumer-oriented products Kenya imports every year!
Though the recent droughts and floods that damaged Kenyan crops accounted for a doubling of U.S. exports in 1997, fiscal 1998 exports have increased by two-thirds. The increase was mostly for bulk commodities--white maize, wheat and soybeans.
Best Bet for U.S. Producers
Food products processed by local industries in Kenya and surrounding countries are priced right, but usually are not of the highest quality. Given the low level of disposable incomes, most Kenyans find this acceptable as they are more conscious of price then quality.
Upscale consumers are willing to pay for the pricier imported goods, mostly from South Africa and Europe. Though recognition of U.S. quality is high, so is the price, a concern even for affluent Kenyans.
Though domestic products don’t provide competition for U.S. products, those coming from South Africa and Europe do.
South Africa’s fresh fruit, wines, juices and cereals are readily available in Nairobi. Cheaper transportation costs make European products less expensive than comparable U.S. products, and Kenyan importers handily source the products in small lots from Europe.
Promotions: Helpful, Scarce
While promotional activities for imports in Kenya are limited, prominent hotels occasionally feature food items from particular countries. While the tourist industry has fallen off in the past few years, hotels in Nairobi and Mombasa routinely purchase imports of high-value processed foods. Here, quality and brand-name appeal, rather than price, are deciding factors.
While food items produced in Kenya are routinely advertised through television, radio and newspapers, as yet there are no consumer-oriented food shows in Kenya.
So far, the economic slowdown in Kenya hasn’t affected the demand for consumer-ready products. Consumer purchasing, abetted by the growing urban workforce, hasn’t slacked off. In fact, bet on further expansion.
There are some convenience items that this young market won’t support. Frozen foods haven’t caught on yet due to a lack of freezers; health drinks and fat-free snacks are limited only to the expatriate and upper-income Kenyans. On the other hand, demand for imported food ingredients, popcorn, packed nuts and chocolate products is increasing.
As in other emerging markets, persistent marketing efforts from U.S. exporters remain key to capturing market share.
Joint Ventures Work Well
Given the higher prices of U.S. goods in Kenya, a good alternative–one that establishes name recognition for U.S. products–is the joint venture with well- established local food distributors.
Unlike some nearby countries, Kenya has a large network of stores ranging from kiosks to the expanding supermarket stores that sell imported goods.
Multinational companies in Kenya finding the joint venture concept profitable include Unilever, CPC International, Del Monte and Nestlé.
While still in an early stage, the Kenyan food sector is the largest in the East African region and promises to be dominant there for many years.
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The author is agricultural attaché at the FAS Office of
Agricultural Affairs at the U.S. Embassy in Nairobi, Kenya. Tel.:
(2542) 751-613, ext. 2229; Fax: (2542) 749-590; E-mail: faskenya@form-net.com
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