HRI - 2011 Annual Update

An Expert's View about Food and Beverage Services in Kenya

Posted on: 15 Feb 2012

Kenya‟s hotel, restaurant and institutional (HRI) sector will likely continue growing, mid-to-long term, faster than any other economic segment in the Kenyan economy.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 2/3/2012 GAIN Report Number: Kenya Food Service - Hotel Restaurant Institutional 2011 Annual Update Approved By: Stephen Hammond Prepared By: FAS/Nairobi Staff Report Highlights: Kenya‟s hotel, restaurant and institutional (HRI) sector will likely continue growing, mid-to-long term, faster than any other economic segment in the Kenyan economy. The Government of Kenya (GOK) established a goal of, and has undertaken activities to double the 1.5 million calendar year 2010 tourist visits to three million by 2030. The HRI sector‟s projected growth relies on a vibrant tourist sector but depends as well on strong growth of Kenya‟s middle class, where increasing numbers and disposable incomes will likely lead to more restaurant and hotel visits. Post: Nairobi SECTION I. MARKET SUMMARY 2007 2008 2009 2010 2011(E) 2012(F) 2013(F) Econom 1ic Indicators Population (millions) 36.9 37.9 38.6 39.5 40.5 41.5 42.6 Population growth rate (%) 2.8 2.76 2.46 2.46 2.46 2.46 2.46 Labor force (millions) 17 17 17 18 18 19 19 Total GDP ($ billion) 27.2 30.5 30.6 32.2 36 41 46 GDP per capita ($) 727 794 775 795 840 870 880 GDP growth rate (%) 7.1 1.7 2.5 5.6 4 6 5 Inflation 9.6 17.8 5.3 4.5 19 5 6 Exchange rate (Ksh/$) 67.3 69.2 77.4 79.2 89 95 99 Agricultural Products Import 2s Total Agricultural, Fish and Seafood products 1,138 1,470 1,633 1,547 2,000 2,200 2,400 imports from the world ($ millions) Total U.S. Exports of Agricultural, Fishery, and 86 77 193 99 100 140 150 Seafood products ($ millions) Major Competitors South Africa 46 112 341 109 80 100 120 EU 81 108 111 117 150 150 200 Uganda 84 70 50 85 90 100 100 Egypt 79 41 21 92 40 50 50 Total Fish and seafood Products Imports from the 8.2 6.3 6.1 7.3 10 10 10 World ($ millions) Total U.S. exports of Fish and Seafood Products 9.4 8.6 0 29.6 20 20 20 ($1,000) Major Competitors ($ millions) Seychelles 3.1 2.8 3.5 1.2 5 5 5 Singapore 0.5 1.3 0.0 2.2 2 2 2 Tanzania 0.5 0.4 0.4 0.5 1 1 1 EU 0.2 0.6 0.3 0.4 1 1 1 Data Source 1 Notes: CIA World Factbook and the March 2011 Economist Intelligence Unit Report; (e) and (f)=FAS/Nairobi estimates and forecasts, respectively 2 ; Global Trade Atlas (GTA) Kenya‟s tourism sector earnings will likely reach almost $ one billion by the end of calendar year (CY) 2013. The recent annual growth rate has averaged about 14 percent, even including the dramatic downturn due to December 2007 and early 2008 politically-incited violence. Many of the tourism operators prefer imported HRI products for use in their hotels and camps. They reportedly site consistent quality, brand familiarity and good shelf life as reasons to purchase imported products. Kenyans and tourists currently choose from over 70,000 restaurants, cafes, and coffee/tea houses to buy prepared foods and drink. The reputation and respectability of each has to be built every day with good and consistent foods and drink for tourists and the evermore-discerning and more affluent Kenyan middle-class. As a result, owners and operators look to find the best, most consistent and most consistently-available products in the market that satisfy their current and future customers. Data Source Notes: Kenya National Bureau of Statistics, and (E) and (F) FAS/Nairobi‟s estimates and forecasts, respectively. Characteristics of Kenya labor force (aged 15-64+), by income groups, 2007-2013 2007 2008 2009 2010 2011(E) 2012(F) 2013(F) Popu 1lation (1,000) 36,914 37,954 38,610 39,560 41,000 42,000 43,000 Labor Force (1,000 2) 17,000 17,000 17,000 18,000 18,000 19,000 19,000 Income Group 2 s $150,001+ 8 8 7 8 10 10 10 $70,001-80,000 3 3 3 3 3 3 3 $30,001-40,000 16 16 15 16 20 20 20 $7,501-10,000 86 83 82 83 90 90 100 $1,501-2,500 3,522 3,470 3,453 3,519 3,600 3,800 4,000 Other Income band 3s 13,365 13,421 13,440 14,372 14,000 15,000 15,000 Da 1ta Source Notes: CIA World Factbook 2; The Euromonitor International (March 2011 3 Edition); FAS/Nairobi defines "Other Income bands” as incomes not elsewhere included and/or specified in the Euromonitor‟s classification; and FAS/Nairobi estimates (E) and forecasts (F). Kenyan Market Demographics and Lifestyle Statistics 2007 2008 2009 2010 2011(E) 2012(F) 2013(F) Urban population („000) 8,028.2 8,354.3 8,699.1 9,063.4 9,000 10,000 10,000 Urban population (%) 21.3 21.6 21.9 22.2 20 20 20 Population aged 0-14 (%) 42.7 42.8 42.8 42.8 40 40 40 Population aged 15-64 (%) 54.6 54.6 54.6 54.5 60 60 60 Population aged 65+ (%) 2.7 2.7 2.6 2.6 3 3 3 Consumer expenditure 21,811.9 24,218.5 25,204.7 26,365.6 29,000 30,000 40,000 ($ millions) Annual gross income ($ millions) 23,719.6 26,472.8 27,522.5 28,856.2 32,000 36,000 40,000 Annual disposable income 20,552.9 22,892.8 23,811.5 24,965.1 28,000 32,000 38,000 ($ millions) Internet users (1,000) 3,001.5 3,361.0 3,996.1 4,515.2 5,000 6,000 6,000 Tourism receipts ($ millions) 917 752 800.1 831.5 900 900 900 Tourism spending ($ millions) 265 266 292.3 311.3 300 300 400 Data Source: Euromonitor Internationa; (E) and (F) FAS/Nairobi estimates and forecasts, respectively Advantages and Challenges Facing U.S. products in the Kenyan market Advantages Challenges Growing tourism and Higher prices for U.S. food products relative to hospitality sectors will demand local market and/or imports from Egypt, South quality HRI products Africa, and EAC neighboring countries Tourists and Kenyans alike recognize U.S. food products as high quality Kenya will increasingly provide gateway services to regional markets SECTION II. ROAD MAP FOR MARKET ENTRY A. Entry Strategy Most consolidators/importers source U.S. products in the United States, United Arab Emirates (Dubai), Europe and South Africa. Many of these consolidators become familiar with U.S. food products at trade shows in Dubai, Europe and the United States. That trade-show contact may, reportedly, be one of the most positive factors in familiarizing Kenyan consolidators with U.S. food products. B. Market Structure The HRI sector relies largely on local importers, distributors, agents/wholesalers, and supermarkets for their product needs. Most of the hotels and restaurants have central purchasing departments that handle food and beverage purchases. Consolidator of U.S. product Importer/Distributor Wholesaler HRI Sector Retail Sub-Sector Profiles 1. Hotels More and better - Kenyan and international entrepreneurs continue constructing new hotels and improving long-standing structures. Reportedly, Kenya has more than 500 licensed hotels, with ratings from one-to-five stars. Additionally, there are many new hotels under construction and “on paper.” Many of the new hotels will address the structural deficit in Nairobi where, rooms during February 2012, for example, are in short supply. Kenyans voted to adopt a new constitution with the first scheduled elections coming in December 2012 or early 2013. Reportedly, almost all Kenyans understand the importance of transitioning into this improved political environment without discord. The progressing transition will feature devolution of powers and finances to the local level and the election of a President, replacing the current coalition Government. These political achievements, which appear to have helped propel investment in the hotel sector, will do much to underpin political stability that will engender future economic progress, including within the HRI sector. Hotel Beds: Night Occupancy 2005-2012 2005 2006 2007 2008 2009 2010 2011 (E) 2012 (F) Total Occupied („000) 4,476 5,922 6,939 3,699 6,243 6,662 7,000 7,000 Total available („000) 10,846 13,004 14,712 14,234 17,125 17,162 18,000 20,000 Occupancy rate (%) 41 46 47 26 37 39 40 40 Data Source Notes: 2011 Economic Survey and FAS/Nairobi estimates (E) and forecast (F). 2. Restaurants While the preponderance of Kenyan restaurants serve Kenyan staple foods, including corn meal and barbecued meat and chicken, consumers can experience Indian, Italian, French, Chinese, Ethiopian, Thai, Japanese, and U.S.-style food and restaurants in all major five major metropolitan areas. As an example, in August 2011, the KFC franchise out of South Africa opened two outlets in Nairobi, sourcing the chicken and most other food ingredients locally or from South Africa. Diners, reportedly, are very willing to tolerate long lines for the opportunity to buy the KFC food offerings. FAS/Nairobi forecasts KFC outlets at eight by the end of CY 2013 (please see table below). Forecast of Kenya’s Fast Food Restaurant Chain Outlets in CY2013 Company Name Number of Location Purchasing Agent(s) Outlets Kenchic Inns 220 Most major Local suppliers cities Innscor Kenya Limited (Creamy Inn, 20 Nairobi and Local suppliers; and direct Pizza Inn, Nandos, Chicken Licken, Mombasa importation of spices from & Galitos) South Africa Dormans Coffee House & 15 Nairobi and Local suppliers Restaurants Mombasa Java Restaurants & Coffee Houses 15 Nairobi Local suppliers Steers 10 Nairobi and Local suppliers and direct Mombasa importation of spices from South Africa Kengeles Bar and Restaurant 10 Nairobi Local suppliers Savanna Coffee/Tea House and 10 Nairobi Local suppliers Restaurant KFC 8 Metropolitan Local and South Kenya African Data Source Notes: FAS/Nairobi‟s estimates 3. Institutional FAS/Nairobi will further explore this sector in future reports. SECTION III. COMPETITION European and South African suppliers of HRI foods form the major axis of competition in the Kenyan market. Consolidators supply U.S. product to the market when they find “good deals” on U.S. products warehoused on the Arabic Peninsula or sourced directly out of the United States. SECTION IV. BEST PRODUCT PROSPECTS The best product prospects include snack foods, fruit and vegetable products, and mixed condiments. In the table here below, FAS/Nairobi included trade by volume and value to highlight the product-quality differences by origin. CY2010 Global Trade Atlas Data 1Product Catego 1ry Major Supply Strengths of Key Supply Advantages and Disadvantages of (Qt and Value – CY Sources Countries Local Suppliers 2010) Snack Foods (Excludes 1. Egypt: 26% by Egypt has preferential Local brands are well-recognized Nuts) value and 31% by tariff advantage under the in the market and supply is Imports: 6,895 tons volume COMESA trade consistent, though quality can be $17 million 2. South Africa: agreement problematic 12% by value and 6% by volume 3. India: 12% by value and 16% by volume Breakfast 1. U.S.: 54%* by The UK and South Insufficient capacity and high cost Cereals/Pancake Mix value and 78% by Africa provide most by of local production Imports: 7,609 tons volume retail cereals to the $6.1 millions 2. UK: 18% by Kenyan market value and 7% by volume 3. South Africa: 10% by value and 3% by volume Red Meats 1. Brazil: 73% by Brazil supplies red meats The GOK protects Kenyan (Fresh/Chilled/Frozen value and 68% by at low prices producers Imports: 250 tons volume $603,837 2. Italy: 13% by value and 22% by volume 3. Germany: 12% by value and 10% by volume Red Meats 1. Italy: 47% by Brazil supplies at low The GOK protects Kenyan (Prepared/Preserved) value and 29% by prices and Italy with producers Imports: 101 tons volume known products $232,272 2. Brazil: 37% by value and 57% by volume 3. Mauritius: 8% by value and 8% by volume Dairy Products 1.Uganda: 65% by New Zealand and The GOK protects Kenyan excludes Cheese value and 80% by Switzerland export producers Imports: 8,844 tons volume quality, well-known $14.8 millions 2. New Zealand: products 15% by value and 9% by volume 3. Switzerland: 3% by value and 2% by volume Eggs & Products 1. South Africa: South African proximity The GOK protects Kenyan Imports: 25 tons 78% by value and and freight advantage producers $28,084 98% by volume 2. UK: 14% by value and 0.2% by volume 3. China: 5% by value and 0.1% of the volume Fresh fruits 1. South Africa: South African processed Kenyans can produce most fruits Imports:17,065 tons 65% of the value and products prominent in and juices but haven‟t developed $9.2 millions 48% of the volume the Kenyan market the sectors to their fullest capacity 2. Egypt: 15% by value and 8% by volume 3. Tanzania: 5% by value and 30% by volume Fresh Vegetables 1. Tanzania: 63% Tanzanian exporters Kenyans still developing the Imports: by value and 80% don‟t pay tariffs vegetable sector 11,119 tons by volume $4.5 millions 2. China: 25% by value and 15% by volume 3. South Africa: 7% by value and 0.4% by volume Processed Fruits & 1. Denmark: 37% Expatriate-driven Limited Kenyan fruit and vegetable Vegetables by value and 16% products demanded from processing Imports: 8,581 tons by volume Europe $10.7 millions 2. China: 10% by value and 19% by volume 3. South Africa: 8% by value and 4% by volume Fruit & Vegetable 1. Egypt: 24% by No tariffs for Egypt and Limited Kenyan fruit and Juices value and 39% by Ugandan exporters and vegetable processing Imports: 5,542 tons volume very competitive fruit $4.8 millions 2. South Africa: processing sectors 21% by value and 13% by volume 3. Uganda: 16% by value and 18% by volume Tree Nuts 1.Tanzania: 43% Tanzanian proximity and Kenya‟s macadamia and cashew Imports: 3,549 tons of the value and U.S. production of nut sectors remain strong $1.04 million 93% by volume almonds processors and exporters, likely 2. U.S.: 19% by importing Tanzanian product for value and 1% by further processing volume 3. Vietnam: 8% by value and 2% by volume Wine and Beer 1. South Africa: South African breweries Kenyan brewers compete well in Imports: 8,038,364 liters 46% by value and strong in the Kenyan the marketplace $13.1 millions 39% by volume marketplace 2. Netherlands: 10% by value and 13% by volume 3. Chile: 6% by value and 5% by volume Fish & Seafood 1. Singapore: 30% Price Strong tilapia production, Red Imports: 14,473 tons by value and 13% Snapper catch but little else $7.3 millions by volume 2. Seychelles: 17% by value and 44% by volume 3.Tanzania: 7% by value and 10% by volume Data Source Notes: Global Trade Atlas (GTA) Full-year CY 2011 data not yet available--*Most U.S. cereals imports noted above consist maize meal and corn-soy blends distributed as food aid. SECTION V. POST CONTACT AND FURTHER INFORMATION Office of Agricultural Affairs Embassy of the United States of America United Nations Avenue, Gigiri P.O. Box 606, Village Market 00621 Nairobi, Kenya Tel: 254-20-363 -6340 Fax: 254-20-363 -6349 Email: AgNairobi@usda.gov Website: www.fas.usda.gov
Posted: 15 February 2012