THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY

Voluntary - Public

Date: 12/18/2018 GAIN Report Number:

Kenya

Post: Nairobi

Tourism to create opportunity for U.S. products Report Categories: Food Service - Hotel Restaurant Institutional Approved By: Shane Townsend Prepared By: Carol N. Kamau

Report Highlights: ’s hotel, restaurants, and institutional (HRI) sector is growing rapidly and attracting local and international brands. The trend will likely continue due to continued growth of the middle class, a recovering and expanding tourism sector, rapid urbanization, and a strong Kenyan economy.

Executive Summary: year and the number will likely continue growing. Market Fact Sheet: Kenya The Ministry of Tourism says the sector will grow by Kenya is an economic powerhouse in the East 16 percent in 2018 due to the increased air African Community (EAC) and the Common Market connectivity within , visa-on-arrival policy for for Eastern and Southern Africa (COMESA) trading Africans, direct flights to New York, and improved blocs, in terms of GDP, manufacturing, logistics, and security. PWC Hotel Outlook Report 2018-2022 says technology advancement. Analysts estimate Kenya’s tourist arrivals should increase by 8.8 percent in economy will expand by 5.8 percent in 2018 and 6.0 2018 and should sustain a 6.9 percent compound percent in 2019 due largely to rising consumption, annual growth rate to rise to 2.06 million by 2022. investment in infrastructure development, and tourism. Imports of Consumer-Oriented Agricultural Products Kenya’s hospitality industry ranks the second largest Kenya is a net importer of agricultural and food foreign exchange earner after agriculture. The sector products. In 2017, total imports of consumer-oriented contributes 10 percent to the GDP and employs 10 food products were US$ 418 million, largely from percent Kenya’s workforce. The industry consists of Uganda, , Egypt, and Europe. U.S. the food and beverage sector (restaurants, fast food origin imports had 3 percent market share. In 2018, outlets, and catering); accommodation; travel and U.S. imports are expected to reach US$ 455 million. tourism. The hospitality sector is expected to grow Quick Facts on Kenya's Food Service Sector by 8 percent in 2018 due to the entry and refurbishment of international hotels, an expanding Consumer Food Service, 2017 food service sector, and a rebounding tourism US$ 1.1 billion (by retail sales prices) sector. Top Foreign Fast Food Chain Brands in Kenya Food Service: Hotel, Restaurant & Institutional ((by number of outlets and regional expansions) Kenya has 68 global hotel brands, the second largest - Simbisa Brands (Chicken Inn; Inn; Bakers number in Sub-Saharan Africa after South Africa. Inn; Bakers Inn; Galitos) 121 outlets Global brands and local investors are looking to meet - Kentucky Fried Chicken (KFC =34); Kenya (19); growing demand for business travelers in Nairobi – Uganda (9); Tanzania (5); Rwanda (1) which is Kenya’s fastest growing consumer market - Subway (12 outlets); 9 in Nairobi and a major conference and events center – and - Domino’s Pizza elsewhere. Available rooms in Kenya will increase - from 18,600 in 2016 to 21,000 in 2021, a 2.5 percent - Cold Stone Creamery compounded annual increase, according to the 2017 - Burger King PWC Hotel Outlook Report. At least 20 global - Big Square (9 outlets in Nairobi); plans to have 30 brands are expected to add 3,444 hotel rooms in by 2022 Kenya by 2023, with 14 of the hotels to open by - Debonair’s Pizza 2019. - Ocean Basket

Kenya’s food service sector is fragmented and Top Retailers in Kenya information is sparse. Reportedly, Kenya has some - Tuskys Supermarkets Ltd. 2,300 fast food and sit-down restaurants that offer - Naivas Supermarkets Ltd. local and international cuisines in the main urban - Chandarana Supermarkets centers. The expansion of urban restaurants and fast - Choppies Supermarkets food chains is driven by demand for convenience and - Carrefour Supermarkets favorable prices. Traditional outlets (e.g. food kiosks, - Game Store canteens) still dominate in rural and urban areas. GDP/Population (2018 est.) Tourism Sector in Kenya - Population: 51 million From 2011-2015, terrorist attacks crippled Kenya’s - GDP (Nominal): US$ 83.7 billion tourism industry with arrivals dropping by a third - GDP per capita (ppp): US$ 3,464 from 1.8 million to 1.18 million; but the sector rebounded in 2016-2017. Now, 1.5 million tourists Sources: Euromonitor International; Economists visit Kenya’s 19 game reserves and coastline each Intelligence Unit (EIU); Section I: Market Summary In 2017, Kenya had a GDP US$74.9 billion and had an economic growth of 4.9 percent. The Economist Intelligence Unit (EIU) forecasts Kenya’s business environment will improve in 2018-2022 and that the country will become the 12th largest economy regionally and 75th largest globally. Sustained expansion in consumer demand, urbanization, regional integration, structural reforms, and infrastructure development are expected to drive economic growth at a 6 percent annual rate between 2020 and 2023.

Tourism drives HRI sector growth and sector earnings will likely reach US$ 1.4 billion in 2018.

Kenya's Tourist Arrivals and Earnings 2000 2000 1500 1500 1000 1000

500 500 Thousnads 0 0 2013 2014 2015 2016 2017 2018 2019 US$ Millions Axis Title

Arrivals Thousands Earnings US$ millions

Source: Kenya National Bureau of Statistics, 2018 Economic Survey; 2019 FAS estimates

Kenyan Market demographics, Incomes, and Internet Users Statistics

2015 2016 2017 2018E 2019F Urban population (‘000) 12,110 12,633 13,175 13,728 14,305 Urban population (%) 25.6 26.1 26.5 26.9 27.4 Population aged 0-14 (%) 41.3 40.9 40.5 40.6 41 Population aged 15-64 (%) 56.1 56.5 56.8 57 57.2 Population aged 65+ (%) 2.6 2.6 2.7 2.7 2.8 Consumer expenditure ($ millions) 51,563 57,114 61,159 66,000 71,000 Annual gross income ($ millions) 60,555 67,081 71,830 78,000 83,000 Annual disposable income ($ millions) 52,344 57,982 62,084 67,000 72,000 Internet users (1,000) 6,679 6,871 8,472 9,100 10,000 Source: Euromonitor International; (E) and (F) FAS Nairobi estimates and forecasts, respectively

Incomes and living standards are improving. Consumers are spending more on luxuries. So, Euromonitor International expects hotels and catering to grow at 6.3 percent annually from 2018- 2030. Further, during that period, Euromonitor says total disposable income will increase by 105 percent in real terms and that consumer spending will increase by 107 in real terms.

Summary of emerging trends in the HRI sector  The burgeoning middle class in Kenya – as is the global trend – has developed a culture of eating out. This is driving the growth of new trendy restaurants and fast food outlets.  The growth in food delivery is supported by internet penetration and industry partnerships. According to Hellofood Kenya, 60 percent of deliveries go to offices in Nairobi and Mombasa.  Restaurants and fast food outlets are partnering with gas stations to meet fast food demand. For example, Vivo Energy (Shell license in Kenya) has Subway, KFC, Java House or Innscor.  Supermarkets increasingly offer freshly prepared foods at in-store bakeries and delis.  Changing consumer tastes continue to drive demand for food products and beverages.

Advantages Challenges Consumers associate U.S. food products with U.S. suppliers have limited knowledge of the premium quality, consistency, reliability, and Kenyan market requirements, which may wide choice. temper their eagerness to engage and realize market opportunities. Continued growth in Kenya’s tourism and Bureaucracy and time-consuming import hospitality sectors will increase demand for procedures. quality HRI products. Kenya’s ban on genetically engineered (GE) products excludes many U.S. products from the market. Opportunities Threats Kenya will increasingly provide gateway Competition from the local market, services to regional markets. Many foreign neighboring countries, and imports from the companies use Nairobi as a base for their European Union, South Africa and Egypt. regional operations. Kenya has a weak food supply chain; food GOK’s protection of local producers, mainly service operators with variable capacity and in meat and poultry sub-sector. experience; inconsistent and irregular supplies. No direct presence of a U.S. food distribution company. Kenya has a large, unsaturated consumer market open to new products. Kenya’s expanding modern food retail sector will provide market for U.S. food products.

Section II: Road Map to Market Entry

A. Entry Strategy Most hotels and restaurants source U.S. food products from local importers who source the products in the United States, United Arab Emirates (Dubai), Europe and South Africa. Many buyers become familiar with U.S. food products at shows in Dubai, Europe, South Africa, and the United States.

B. Market Structure The HRI sector relies on importers, distributors, agents, and supermarkets for their product needs. Most hotels and restaurants have central purchasing departments to handle food and beverage purchases.

C. Distribution

Importer of U.S. product

Importer/Distributor Wholesaler

HRI Sector Retail

D. Sub-Sector Profiles – International Chain Hotels and Resorts

In 2018, the Ministry of Tourism’s Hotel Classification Program awarded star-ratings (1-5 stars) to180 establishments. These hotels held 22,731 beds and accounted for 57 percent of Kenya’s total 40,000 beds. Below is a limited list of leading HRI establishments in Kenya, with links to their websites.

Hotels & Resorts

1. Serena Hotels & Resorts 2. Sarova Hotels & Resorts 3. Fairmont Hotels & Resorts 4. Heritage Hotels 5. Intercontinental Group Nairobi 6. Marriot International Nairobi Hyatt Place (173 rooms) and Hyatt House (60 suites) are set to open in 2020 in Nairobi 7. Radisson Blu Group 8. Hilton Group 9. Movenpick Hotel & Restaurants 10. Alliance Hotels 11. PrideInn Hotels & Conferencing

Restaurants/Fast Foods While the demand for convenience foods is rapidly expanding, traditional outlets that serve ugali maize meal, grilled meat, and other Kenyan staple foods dominate the foodservice scene. Increasingly, consumers can experience Indian, Italian, French, Chinese, Ethiopian, Japanese, American and Thai-style cuisine in restaurants in the major cities and towns. Find Kenya’s leading restaurants and fast foods at https://eatout.co.ke/restaurants

Foreign and leading Fast Food Chain Brands & Pizza Outlets 1. Simbisa Brands (Chicken Inn; ; Creamy Inn; Galitos); 122 outlets 2. Kentucky Fried Chicken (KFC) 3. Subway 4. Domino's Pizza 5. Pizza Hut Kenya 6. Cold Stone Creamery Kenya 7. Burger King (first outlet opened in 2016) 8. Big Square (9 outlets in Nairobi and plans to expand to 30 by 2022) 9. Debonairs Pizza 10. Ocean Basket

Coffee Shops 1. Java Coffee House and Restaurants (64 outlets: 43 of which are in Nairobi) 2. Artcaffe Coffee and Bakery 3. Dormans Coffee House and Restaurants 4. Savanna Coffee/Tea House 5. Kaldis Coffee 6. Gibsons Coffee House 7. Cafe Deli 8. Pointzero Coffee

Section III: Competition Kenya’s agricultural sector supplies the HRI sector with a variety of fresh fruits and vegetables, dairy, poultry and meat products. The food processing sector supplies other products and beverages. However, demand for many of these products exceeds supply and is growing, so the Kenyan market looks to imports. European and South African suppliers of HRI foods compete in the Kenyan market. Importers supply U.S. product when they find “good deals” on U.S. products warehoused in UAE (Dubai,) Europe, South Africa, or sourced directly out of the United States.

There are opportunities for the United States in meeting the HRI-related demands of many products – from wine and spirits and blueberries to wheat (that would be ground locally into flour and processed into baked goods) and many products in between.

Section IV: Best Product Prospects

A. Products Present in the Market which have Good Sales Potential  Snack foods  Breakfast cereals and pancake mixes  Dairy products  Pasta  Sauces and condiments  Wines, spirits, beer, and other alcoholic drinks  Processed fruit and vegetable juices  Nuts and dried fruits  Berries (blueberries, raspberries, strawberries, etc.)  Fish and seafood

B. Products Not Present in Significant Quantities but have Good Sales Potential  Meat and poultry, and related products mainly chicken and beef  Some dairy products such as specialized cheeses; skimmed milk powder; ice creams;  Bourbon and other alcoholic drinks  Blueberries

*And all the product categories mentioned in (A) above.

C. Product Not Present Due to Significant Barriers  GE food products such as soy-based food ingredients, food flavors, etc.  Meat and poultry and related products  Some dairy products such as milk powder

*See the 2018 Exporter Guide and 2017 Retail Food Sector reports for more details.

Section V: Key Contacts and Further Information

 United States Department of Agriculture/Foreign Agricultural Service- Nairobi  Euromonitor International  Economist Intelligence Unit  2018 Economic Survey Kenya  Kenya Association of Hotelkeepers & Caterers  Knight Frank Hotel 2018 Report  2018 Pipeline Report by W. Hospitality  PWC Hotel Outlook Report 2018