Kenya’s upper-middle and high-income households are increasingly dropping premium brands across various products from their shopping baskets as a way of coping with the rising cost of living.
A survey by research firm Ipsos Kenya shows that 43 percent of households with a consolidated gross monthly income of Sh300,000 and above are holding off from buying certain items.
Thirty percent purchase the same items far less frequently while another 26 percent are switching to less expensive items that offer the same utility.
Retailers across the country indicate that de-premiumisation of consumption is a growing trend among Kenyan consumers who are facing significant budget constraints given the rising cost of living.
“Consumers are settling for more food purchases than other categories such as electronics and household. Participation of premium brands has also shed some prominence,” says Retail Traders Association Kenya chief executive Wambui Mbarire.
“Price is therefore becoming a key purchase consideration for shoppers and thus amplifying value propositions around affordability. Promotions for instance are now a key force in driving sales.”
Price-sensitive
Manufacturers, who are the source of the products being consumed, have reported feeling the pinch as premium products with high margins are abandoned in favour of those that are principally driven by volumes as opposed to margins.
Most consumers have become less loyal to brands and are more price sensitive with a majority seeking out products and brands at reduced prices or settling for less-preferred alternatives.
Kenya Association of Manufacturers chief executive Anthony Mwangi said: “94.7 percent of manufacturers witnessed de-premiumisation over the last 12 months. This can be attributed to consumers setting stricter priorities and reducing their spending given the looming recessions.”
“Many manufacturers in the premium goods category witnessing this declining demand can attribute it to the prioritisation of basic items of consumption for entire households,” he added.
According to the Ipsos Kenya survey, the less popular coping mechanisms among the upper-middle and high-income earners are bulk shopping at a wholesaler — scouting for deals or discounts both of which are reported as being exercised by only four percent of respondents in this income category.
Manufacturers say they have witnessed a growing demand for smaller quantities as well as dispensers, which have traditionally been the preserve of milk.
“The Kadogo Economy has sprouted in the middle class, a phenomenon that was only attributed to the bottom of the pyramid population. Many households are replacing fully packaged items that have become completely exorbitant with smaller dispensable quantities that serve daily needs,” says the KAM boss.
“Many supplier outlets have been faced with increasing demand for dispensers for key household items say edible oils, milk, and powdered soaps, among other items, according to need.”
Among those most adversely hit are the retailers who run 24-hour outlets banking on round-the-clock shopping.
According to the retailer’s association, many such players are now being compelled to find ways to optimise their capacity as consumer wallets come increasingly under distress.
“Retailers running 24-hour operations have resorted to optimising the time at night to scale up production in the bakery and deli sections. Effective cost management is critical in the management of 24-hour operations. Erosion of margins is evident from the change in mix, coupled with increased operating costs such as electricity,” Mbarire says.
The survey from Ipsos Kenya shows that Kenyans aged 35 and above opt for price comparison across substitutes as their priority mechanism of coping with the high cost of living while two age brackets (those between 15 and 17 years and those between 25 and 34 years) prefer to purchase the same items less frequently as a coping mechanism.
With the Finance Act 2023 coming into effect on July 1, households are bracing for even tougher times ahead following the measures contained in the Act.
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For upper-middle and high-income Kenyans, the introduction of new tax rates at 32.5 percent for monthly incomes ranging between Sh500,000 and Sh800,000 and 35 percent for those above Sh800,000 are expected to trim their take-home amount.
The introduction of the uncapped Housing Levy deduction at 1.5 percent of one’s gross salary is also expected to inflict further pain on workers.
With these changes poised to squeeze the consumer wallet further, manufacturers are hoping that they can cling to convenience offerings as brand loyalty is increasingly shrugged off by most.
“Consumers are increasingly becoming price-conscious focusing on value and quality and are looking for value. However, they are willing to pay more for quality products if they see the perceived value.
Factors such as convenience, availability, and ease of shopping are some of the parameters that consumers are using to make shopping decisions in these emerging markets,” says Mr Mwangi.
The survey by Ipsos Kenya was conducted between March and April 2023 and collected responses from over 1,000 respondents, 44.0 percent being female with the remaining 56 percent being male.
38.0 percent of the respondents were between 25 and 34 years; 29.0 per cent were between 18 and 24 years; 19 percent were between 35 and 44 years; 10.0 per cent were over 45 years while the remaining were between 15 and 17 years.
