The Economics Of The “Kadogo Economy” In Kenya


The retail market in Kenya is characterized by both formal and informal developments. Despite significant investments by Fast Moving Consumer Goods (FMCG) multinational giants; the informal sector particularly micro-retailers known colloquially as “dukas” remain to be the true drivers of the sector. It is estimated that the micro-retailers sell a total of USD 11 trillion worth of goods annually in developing countries. In Kenya, dukas account for over 67% of annual retail sales and about 80% of annual FMCG sales.

Across many African economies, dukas are the most popular retail outlets operating as roadside storefronts. They are mostly managed by educated women and youths who account for over 50% of the population in the continent. The dukas not only empower the owners financially, but also those that work and shop in them and by extension the communities which they serve. As of 2019, Kenya recorded more than 250,000 dukas employing over 1.5 million people.

Typical dukas are small but stalked with a wide variety of household products retailed in small volumes. Dukas fast moving products are largely food (54%) and beverages (17%). Flour, cooking oil, toiletries, milk products, diapers, tea leaves and sanitary essentials top the list. More than 95% of shoppers in Kenya are served by these dukas. To over 28 million Kenyans living in informal settlements, dukas are a primary source of goods because their small volumes match the population’s limited purchasing power. This population makes up the bottom-of-the-pyramid (BOP) communities that are often not addressed by large retailers.

From the dukas’ small volume trade, the term “Kadogo economy” was coined. The “Kadogo economy” is characterized by selling products at their lowest divisible level; and allowing consumers to make small daily purchases as opposed to pricing them out of the market with large unit prices. This economy is thriving and continuously evolving. According to a 2019 market insight by Nielsel, over 70% of FMCG purchases were products retailing at less than KES 55; a strong indicator that the Kadogo economy is robust in the country.

With this realization, giant local brands among them Safaricom, Unilever, Bidco, Kapa Oil Refineries, Ketepa Tea, have been actively tapping into this lucrative market. Safaricom introduced the low priced mobile airtime bundles to the market in a bid to expand its market share in the mass market consumers segment. This strategy helped the giant telco to strengthen its position in the market; and also increased its competitiveness. Unilever and Bidco also launched small packages of products such as detergent and cooking fat, in order to increase their customer base; with the goal of brand positioning and increasing their visibility.

Opponents of Kadogo Economy have argued that it serves to perpetuate a vicious poverty cycle among the BOP population; as they end up paying more than higher income classes for similar units of products. While the argument may be true, it highlights the inherent challenges in the Kadogo economy which stems  from the fragmented nature of the sector. Among these challenges include, supply chain limitations, lack of access to capital and business management struggles. Most dukas operate independently and purchase in small volumes which means they cannot enjoy discounts from large volumes of purchases or qualify for credit purchases. Financial institutions deem them risky borrowers and are mostly reluctant to extend capital to them for expansion. This is partly because  majority of dukas lack knowledge and best practices on business management, such as record keeping.  Such factors play out in how the dukas will quantify and price their products despite the small profit margins they make off each unit of product they sell.

These challenges present massive opportunities for collaborative initiatives by relevant stakeholders to bolster the micro-retail sector. The Smart Duka Initiative provides a benchmark for supportive programs that the micro-retail sector can borrow from. The multinational program helping to develop the informal retail sectors of Kenya, Tanzania, Nigeria, and Côte d’Ivoire was established through collaborative efforts of Elea Foundation, Moody’s Foundation, MasterCard Center for Inclusive Growth and TechnoServe among others.

In 2019, the Smart Duka program provided 1,025 Nairobi dukas -more than half of whom are women -with support and training they need to start and maintain sustainable business models and generate profit to support their families. The program was conducted through digital and on-the-ground training which empowered the duka owners with important elements of financial management, among them supply chain handling and shop management practices. The initiative helped to reduce unemployment, boost local economies and transform lives.  Currently the program is working towards equipping over 100,000 entrepreneurial owners across Kenya with business and financial management skills.

Such initiatives are key in ensuring the Kadogo Economy remains relevant in the retail ecosystem that is constantly evolving and transforming.

Author: Inzillia Sasi