Regional expansion not a priority, says Naivas as it hits 110 outlets

Naivas Ltd Chief of Operations Peter Mukuha is quick to downplay the supermarket chain’s latest milestone.

“One hundred is just a number,” he says of what he thinks about Naivas being the first retailer to surpass the 100 stores mark.

“For us what is important is creating a sustainable business.”

A sustainable business, according to Mr Mukuha, is not about growing the number of branches. It is about meeting the promises made to the suppliers and carrying along the staff hired throughout the growth.

“Those elements are what matter, not the number of branches. Of course, in retail, you can only grow by expansion, but I think having a sustainable model is what really matters,” he says.

With a workforce of 12,000 permanent staff to complement the number of outlets, the retailer is arguably one of the largest private employers in Kenya.

This spirit of growth also extends to employees, according to Chief Human Resources Tim Kajume.

“We do not believe in giving jobs. We give opportunities to grow your career. Most of the employees we engage join us as their first job or while young in the industry. We run programmes from day one and based on the role they have joined, they almost know what their career path is going to be,” he says.

Naivas opened its 110th store at the mixed-use development, Tatu City in Kiambu County, last week, a bold step at a time when most of the erstwhile giant retailers are closing shop.

There have been concerns that the retailer is too aggressive in its expansion drive, a factor that was blamed for the downfall of some of its predecessors.

The expansion campaign is seen as laying the ground for a possible foray into the region. 

But the retailer’s Chief of Strategy Andreas von Paleske is not necessarily looking into going beyond the Kenyan borders, although he admits if the opportunity arises, the retailer would grab it with both hands.

“We definitely have big ambitions because we have a very strong proposition, but I think in the short to medium term, Kenya will be our focus,” he says.

Mr Paleske reveals the conversation of crossing the border has crossed their, minds but they are careful not to follow the footsteps of their predecessors, such as Tuskys and Nakumatt.

Naivas being a family business, he reckons, still needs to continue getting the basics right before venturing beyond the Kenyan borders.

“It would be fantastic for a Kenyan business to expand across the border. I think there are some very interesting markets next door,” he says.

“But we have seen many players who have stretched themselves perhaps too far, going to too many different countries and collapsing.”

The conception of Naivas, is no different from other giants in the retail space, having started 35 years ago from a small family store back in Rongai, Nakuru County, which is synonymous with several other supermarkets.

Mr Mukuha, a descendant of the founders made up of four siblings, admits that when it comes to expansion, Naivas has been a bit conservative.

He details how the second store came into existence in 1994 in Naivasha town, as Naivasha Self-Service Store, from which it draws its name Naivas. 

Naivas landed in Nairobi in 2001 along Ronald Ngala Street, and another store followed in Machakos.

Mr Mukuha says Nairobi offered a lot of lessons, which then informed their strategy of expanding in small towns.

“There were a lot of learnings in Nairobi. The cost of doing business is high, and that means your margins are very small. But when we went to Machakos, we realised people were underserved. In some of these small towns, were being exploited,” he shares.

“That is when we changed our focus and started venturing into these small towns like Machakos and Eldoret.”

This strategy appears to be the retailer’s long-term approach as they expand nationwide. According to Mr Mukuha, the expansion is intentional and well thought out.

While Nairobi offers higher purchasing power, he notes that lower profit margins make high sales volumes essential. Additionally, the cost of doing business in cities is high, particularly due to rent.

“People say we have expanded aggressively, but I don’t see it that way. If you look at the retail sector, many players have exited, creating opportunities. Some of the stores we’ve taken over previously belonged to Nakumatt or Tuskys,” says Mr Mukuha.

Was the expansion a response to emerging opportunities, or was it already in the pipeline?

“I don’t see it as aggressive. We’ve simply been the first to seize the opportunities. Our strategic plan targets 10 new stores per year, though we sometimes open eight or nine, and occasionally 11. This expansion has been planned for a long time,” he explains.

Mr Mukuha adds that Naivas is shifting from large shopping spaces to smaller convenience stores to match changing customer preferences, a trend also noted by real estate consultancy Knight Frank.

“The opportunity to open large stores has declined. Of the 10 new stores we open, only one is a large-format supermarket. The rest are smaller convenience stores,” he says.

He highlights a growing segment of consumers who prioritise convenience over large shopping spaces and predicts rising demand in areas like Kileleshwa and Kilimani, where more developments are emerging.

Knight Frank’s market update for the second half of 2024 confirms this shift from malls to smaller outlets:

“Supermarkets, traditionally key footfall drivers for malls, are adapting by diversifying their presence. Instead of large stores in malls, they are opening smaller outlets in residential areas, petrol stations, highways, and near major traffic hubs.”

Naivas’ chief of strategy, Mr. Paleske, affirms this approach, citing the Tatu City outlet as an example.

“We’re bringing stores closer to where people live or commute. You’ve seen us open outlets in residential areas and petrol stations, catering to people on their way to or from work,” he says.