Crack A Business Kenya - Hardware Business Guide

Building The Cash: The General Hardware Business Guide
Hardware Shop Isinya -Courtesy image.
By Crack A Business Kenya
© CAB 2019
info@kenyaknowow.com
+254 712 473 455

All rights reserved. No part of this document may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without the written permission of the copyright owner: Crack A
Business Kenya.
We are now strictly enforcing our copyrights .
For queries contact Crack A Business Kenya through 0712 473 455 or email
info@kenyaknowhow.com
Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 2

Contents
Overview ....................................................................................................................................................... 6
Hardware Feasibility : Basic Market Characteristics .................................................................................... 6
Hardwares : Is There Sufficient Demand? .................................................................................................... 7
Demand from Maintenance Activities. ..................................................................................................... 7
Demand from Fresh Developments .......................................................................................................... 8
Do Consumer Habits Favour A New Hardware? ........................................................................................... 8
Who are the Consumers? ......................................................................................................................... 8
Contractor Outsourcing ............................................................................................................................ 9
Purchase Process ...................................................................................................................................... 9
What Influences Choice of Hardware Shop? .......................................................................................... 10
Willingness To Buy From A New Shop .................................................................................................... 11
How Consumers Discover A New Hardware Shop? ................................................................................ 12
Hardware Shop Satisfaction .................................................................................................................... 13
Consumer Needs versus Business Reality ............................................................................................... 13
Consumer Profile .................................................................................................................................... 14
Consumer Character vs. New Hardware Shop ........................................................................................ 16
What It All Means for A New Hardware Shop ........................................................................................ 17
What Exists In The Market? ........................................................................................................................ 18
Market Structure..................................................................................................................................... 18
Classification By Size; .......................................................................................................................... 18
Classification by Set Up ....................................................................................................................... 18
A Note on Physical Set Ups ......................................................................................................................... 20
Retailers: How Long They Have Existed .................................................................................................. 21
Retailers: Average Sales .......................................................................................................................... 22
Retailers: Biggest Sale ............................................................................................................................. 23
Retailer: Marketing ................................................................................................................................. 25
Basis of Competition ............................................................................................................................... 26
Strengths and Weaknesses of Existing Shops ......................................................................................... 27
The Margins ................................................................................................................................................ 28
Customer Switching Costs........................................................................................................................... 29
The Actualization Plan - Example ................................................................................................................ 30

The Goal .................................................................................................................................................. 30
Main Steps .............................................................................................................................................. 30
Which Location ....................................................................................................................................... 32
The Virgin Areas .................................................................................................................................. 32
Existing Towns..................................................................................................................................... 33
Specialization vs. General ....................................................................................................................... 33
The Products ........................................................................................................................................... 35
The Market Entry Strategy ...................................................................................................................... 36
Premises .................................................................................................................................................. 37

Overview
This guide focuses on the General Hardware Business. A general hardware is defined as a shop
selling a wide variety used in building and construction of houses. General is as opposed to be
specialized.
For part of the data study we sampled hardwares in some of the major towns and also fast
growing centers.
About 20 years ago hardware shops were easily identifiable by name and location, such that
they could be used as landmarks. Nowadays, hardware shops, in some locations have become
ubiquitous and in some places are almost competing with household retail shops.
The growth of hardware stores is linked to the explosion of the real estate sector from the mid
2000s. On the face of it one can assume if the real sector is doing well then hardware should
automatically survive and thrive too. But that is not always the case. The market is populated
with hardwares thriving, others struggling and even shutting down .
Reasons for the extremes will become clear in the guide.
Hardware Feasibility: Basic Market Characteristics

A general hardware business in a location will be considered feasible if:
✓ There is demand for products that hardware sells.

✓ The demand is sufficient both in the short and long term such that it can accommodate a
new player.
✓ Consumer purchase habits are such that they are flexible enough to shift from their
present suppliers.
✓ The margins in the market are good enough to sustain the business.
✓ Suppliers are accessible even to new hardware shops. And non have a disproportionate
advantage over the other in supplier access.
✓ The market is open and there are no protective behaviors among existing hardware
shops.
✓ The intensity of competition is not such that there are dominant players that leave no
space for new players.

Hardwares : Is There Sufficient Demand?
Hardware shops are the final points of distribution for key materials used in building and
construction. A rule of the thumb is that 23% of building costs make up labour while 77% are
in building materials.
All or parts of the materials are brought from some sort of hardware shop.
Hence, a hardware shop is almost fully supported by construction activity. If building activities
exist then there will be some demand for hardware business.
Broadly there are two types of construction activities that will utilize a hardware business:
Hardware
Maintenance Fresh
Development
Demand from Maintenance Activities.

✓ Existing buildings require occasional maintenance; paints, tiles, door locks, roofs, tanks,
pipes and such wear out and need to be replaced over time.
✓ Thus, where buildings exist, demand for hardware services will exist
✓ In repair and maintenance per capita purchases are comparatively small. However,
when the purchases considered as a total of the whole market it becomes considerable.
✓ For instance let us use one of the areas with a high number of hardware shops:,Kitengela
- Isinya areas to illustrate an estimate the maintenance market by the number of
existing houses in the location.
✓ According to the 2019 census, Kitengela has a population of 154,436 while Isinya has a
population of 14,429. Using Kajiado’s average household size of 3.5, and assuming each
household lives on its own then we can estimate that Kitengela has at least 44,125
houses while Isinya has 4,123 houses, making a total of 48, 248 houses.
✓ Here we have not considered commercial developments and residential houses located
away from the two major towns.
✓ If, as from consumer interviews, each household spends at least Kshs.4,800 annually on
some form of maintenance then the total spend on maintenance in the location is as a
minimum Kshs. 231,590,400 or an average of Kshs. 19,299,200 per month.

✓ On the face this looks like a big enough market for a hardware business. Nonetheless
you need to look at this in terms of competition, consumer purchase habits, margins and
what share of this market that hardware can win.
✓ To illustrate, in Kitengela and Isinya there are at least 119 hardware shops. And if the
total spend is shared equally among all the shops this results to Kshs. 162, 178 per
month. Mark you this is the revenue not the margin.
✓ Maintenance expenditure keeps the doors of a hardware shop open, but often is not
sufficient to sustain and grow the business.
Demand from Fresh Developments

✓ This refers to buildings being developed from scratch.
✓ Where there are real estate developments there will be demand for hardware products.
✓ Developments require hardware products in bulk.
✓ Construction activity is a good guide of the value of expected demand of products sold
in hardware shops.
✓ A relatively accurate measure of construction activity is the number and type of building
permits issued . Bureacacies make it difficult to get this data but anecdotal evidence is a
good indicator : level of construction activity in the area.
In most urban areas, by and large the market looks attractive and big enough. On the face it can
surely accommodate, and profitably so, a new hardware.
However, the market size is not a guarantee of success either in the short term or long term. If it
were no hardware would be closing down and all existing would be thriving.
The market size figures ignore consumer purchase habits, the rate of development, competition,
economic, political and related factors.
Market figures are a good indicator of the possible demand, but not sufficient. They show
what could go right if everything is right. However, actual success will comes from having the
right market fit; understanding consumers and competition, then upping them.
Do Consumer Habits Favour A New Hardware?

Who are the Consumers?
By understanding consumer behavior we will be able to establish if consumer behaviour allows
for a new hardware.
There are two main types of developments :

- Institutional funded
- Individual funded
Institutional Individual
• Facilitated by institutions such as • Facilitated by individual developers.

Pension Schemes, Saccos or such other. • Developed for own occupation.
• Developed for sale. • Sourcing often done at local retail level.
• Development by large contractors. • Owner supervised or outsourced to
• Sourcing often done at industrial level small contactor.
• More bureaucratic process
The type of purchase process and scale of developments mean that individual developers will
form the majority of consumers patronizing retail hardware stores; hence we will focus on
them.
Individual developers either personally manage their construction projects or outsource to all
manner of contractors. The latter is often the case.
Contractor Outsourcing
The nature of contractor outsourcing could take any of the following forms:
- Total outsourcing where the owner agrees on the end results then leaves everything to
the contractor; including choice of materials and purchase decisions.
For instance a home owner could outsource the construction of his house to XYZ
Construction. He will provide the contractor with architectural drawings and other
relevant details, agree on costs and timelines, and just make occasional visits to check
the progress. Payment could be one off or installments.
- Partial outsourcing where the owner is more involved in the building process. For
instance a home owner hires a foreman to be in charge of the building. The foreman will
be the link between the fundis and the owner.
In both cases the lead, who could be the foreman, contractor, supervisor, fundi or such other has
significant influence on purchase of building materials.
Purchase Process
The purchase process could take a form such as:
• Contractor buys the material in person and delivers to the site.

• Contractor asks foreman to buy the material; she gives the contractor money or buys on
short term credit.
• Owner buys material and delivers to the site.

• Owner accompanied by the lead goes to buys the materials.
• Owner asks foreman to buy the material.
But how likely, in all the above scenarios, is the purchase to be made from a new hardware?
What Influences Choice of Hardware Shop?

We asked a sample of project leads what is the key influences their choice of hardware shop:
Developer (Construction Lead) : Choice of Hardware
Price Conivinience Variety Capacity Other
5%
9%
9%
52%
25%
Generally there are two types of building wares:
“Materials” – These are what make up the building structure. Often these are standard
items; more or less the same irrespective of the seller. Brands and manufacturers could
be several but the quality not so varied. For example cement and metals bars.
“Finishes “– These are used to enhance the structure; add character to the building.
They have an aesthetic value. Their variety is wide as are consumer tastes .Finishes
include tiles, ceilings, and paints.
- Because materials are standard, and the developer is looking to keep his costs
under control then price will be a key consideration. Keeping everything
constant, then the developer is most likely to buy from the lowest priced source.
- On the other hand because finishes are about aesthetics and some emotional
value then variety will be important. Here the developer will balance between
the price and variety.
- Often the contractor in total outsourcing has a fixed budget, he wants to meet the
standard agreed with the owner, and turn a profit. Costs of wares are especially
crucial to him.
- Still, such a contractor will look at price vis a vis convenience too. Is it worth it to
go to Mlolongo from Koromboi to buy metal bars simply because they are

slightly cheaper in the former? Or is it more convenient to purchase from the
local hardware? Is the extra distant worth the time savings and cost of transport?
✓ Capacity refers to the ability to supply. Does the shop have the ability to supply 100
bags of cement on short notice?
Capacity is judged by perception and reputation. A new developer could look at the
physical size of the shop, or how well stocked it is and make a conclusion on capacity.
While a local developer could rely on reputation built over time buying from different
hardware shop; such that he knows if I want 100 bags of cement then Shop A is the place
to go.
Willingness To Buy From A New Shop

✓ All the contractors, fundis and foremen from the sample said they would be
willing to buy from a new hardware shop. But, this with caveats on price,
convenience and variety.
✓ However, as much as developers say they are willing to buy from new
developers, the importance of relationships can’t be understated; How the
developer relates with a particular hardware. The relationship could be by an
incentive of sorts to fundis and foremen, credit terms, business friendships built
over time or such other. Relationships take time to build.
✓ In an area with inflows of new developers such as the whole of the target
location, then relationships are not a strong barrier; the new developers are at a
point where they don’t have any relationships and are seeking to develop some.
✓ Willingness to buy from new shop indicates low levels of loyalty. Developers'
interests come first; and will shift to a new hardware if the interests are not
served as expected.
✓ Price is a key factor. Still price is not enough. Otherwise there would be more
developers opting for Nairobi where prices for some items are generally lower.
Convenience; distance to the hardware shop and how wares get to the site matters; sometimes
more than price. For instance, if during concreting of slab cement runs out then he is most
likely to purchase from the nearest hardware irrespective of the price, otherwise the time taken
in trying to seek lower prices in say a bigger town will lead to losses.
✓ Notable too is that developers rarely purchase all the hardware products from a single
shop. This is because seldom will a single shop provide all that a developer needs; not
only in range of product but also price and availability. . Shop A could have plumbing
items at a lower cost than Shop B which has cement at lower prices .Further the Tiles in
Shop A & B, might not be as attractive as the Tiles in Shop C.
✓ Developers tend to have a base shop; from where they seek to buy from, and then
second alternatives.

✓ Price+ Convenience +Capacity + Variety is the most ideal combination in choice of a
hardware shop, but rarely do developers in the area get a shop that fulfills all this.
✓ In the second level are terms such as short term credit and delivery offered by hardware.
How Consumers Discover A New Hardware Shop?
Discovering A New Hardware Shop?
Visibility References Sales Advertising
7%
14%
57%
22%
Most of the consumers discovered new shops through visibility. Visibility means that the shop
is located at such a place that potential consumers see it on the way to the site, passing or
running some other errand.
References mean that the shop was recommended by a colleague, friend or fundi.
Sales mean that a shop’s salesperson approached the developer, creating awareness.
Advertising mean signboards and branding. For some shops advertising and visibility were
related.

Hardware Shop Satisfaction
We sought to find out from consumers in some of the towns if they are satisfied with the
present hardware shops in the market
Are You Satsified With The Present Hardwares ?
Yes No
48%
52%
Almost an equal number of consumers are satisfied as they are unsatisfied with their present
hardware suppliers. The fact that the consumers bought from a range of hardware shops their
judgment was a perception of the market.
The reasons given for dissatisfaction are:
• High prices
• Lack of sufficient variety
• Lack of enough capacity
• Not delivering
• Poor service
• Unfriendly terms
Price, as expected was a major complaint. The perception was that the hardware shops were
greedy, adding more than fair margins.
Variety meant that the developer don’t get what they wanted, either in price range or actual
form.
Capacity meant that hardware didn’t have the ability to supply required quantities.
Consumer Needs versus Business Reality

On the face, it could seem that a new hardware coming into the market and satisfying all the
above points of dissatisfaction will win draw all the disgruntled customers.

However, you have to look at this from the view point of the hardware business and actual
consume shopping habits.
Consumers are looking for an ideal hardware shop; that fulfills all their needs. Nonetheless, it’s
not practical to have everything that a construction would need. There are hundreds of items.
From cement to chisels there are varieties based on brand and sizes. Does it make business
sense to stock say a particular brand of chisel because there will be the occasional customer
asking for it? What about metal bars? Does it make business to stock bars from the various
companies simply because there will be the customer who prefers bars from an obscure
company?
The bogeyman of hardware shops is slow moving or dead stock. The relatively margins in the
business leave little room for dead stock. And dead stock could swallow working capital when
it’s needed.
A customer could complain that a hardware shop doesn’t have capacity; just because in a rare
occasion when he wanted 300 bags of cement the hardware didn’t have them in stock .But why
should hardware have 300 bags of cement if the average consumer purchase is 10 bags? What if
space is limited? What if he doesn’t have sufficient working capital?
Same way with price. The price should relate to the cost of purchase, competition, operational
costs, volumes and business strategy.
Conscious of all the above factors you find hardware shops referring customers to each for
particular products.
It’s important to listen to the consumer, aim to satisfy as many of their needs as possible.
Nevertheless the aim should not be to satisfy all possible needs of all possible customers but to
meet the needs of as many as possible without compromising the business.
For products considered standard with low brand sensitivities is sufficient as much as there will
be the customer who is brand specific. For the finishes it’s a balance between price, variety and
trends.
Consumers are attracted to the one stop shop hardware, but this should not be at the expense of
the sustainability of the business.
Consumer Profile
From interviews we built a profile of the contractor and foremen in the location. This will help
in understanding the consumer better:
Habits & Characteristics Concerns

- Contractors likely to work on more - Price

than a single site in a year. - Quality
- If site within same location they will - Convenience
have ‘base’ hardware shops; those - Reliability
from previous experience, defined as - Variety
reliable. - Capacity
- If previous experience not satisfactory - Time
they will seek new shop by - Referral Incentives
recommendation, visibility, marketing, - Terms
trial and error.
- Very aware of the power they hold in
purchasing power. And some flout the
power.
- Open to try new shops the caveat being
that it’s equal or better than their
present.
- Often seeking one form or another of a
‘deal’
- Prefer buying electrical and some
plumbing items from specialist shops
rather than general hardware shops.
- A significant part of their income is
from their efficiency in sourcing for
building materials.
- Discovery by visibility , references,
networks
Consumption Cost
- Consumption by building stages. - Broad budget guidelines for materials.
- Avoids overstocking. - Low impulse purchase
- Choice of shop also influenced by - Sensitive about the cost of standard
experience during last purchase. items which can easily be compared.
- Choice also influenced by references. - For contractor cost influences his
- Choice influenced by relationship with profit.
shop. - Can pay a small premium for
- Levels of loyalty but not absolute. convenience.
- Can shift if better conditions are - From respondents highest recorded
available. purchase from a single hardware shop
- Choice of shop a factor of location of over Kshs.300,000 plus.
site
- Quality a balance between budget and
desired finishing.

Consumer Character vs. New Hardware Shop
Attribute Impact What It Means For A New

Hardware Shop
Developer not necessarily There will always be a Success partially tied to the
working near the same site as developer looking for a ability to identify and win
last. hardware shop. such customers.
Or in having such customers
discover you.
Possible Strategies
Visibility
Proactive sales
Sweetener deals
Networks to spread the word
Ability to satisfy consumers:
price, convenience, capacity,
variety.
If site within same location Developers need to be enticed Major complaints presently;
they will stick to what they to defect from their current price, variety, quality, term,
have defined as reliable from suppliers by focusing on capacity.
previous experience. concerns.
Required
Trust signals to indicate price,
capacity, variety and quality –
Size, display, set up.
Resources to stock the most in
demand variety of items.
Visibility
Proactive sales.
Flexibility in terms.
Contractors, foremen, fundis, A good relationship required Forming relationships with

contractors seeking one form with subcontractors. fundis, foremen, contractors,
of a deal or another. sub contractors.
Enticing by incentives such as
‘commissions’ on reference or
leads.
Flexibility to price and
‘underhand’ deals.
Discovery by visibility, Need to be strategically

networks and references. located and build networks Visibility relative to the
‘paths’; and location of the
sites.

Proactively building networks
in the location.
Concerns : Price Will always be most Location of business should
Quality important factors in purchase. be convenient.
Convenience Intelligent sourcing to be able
Reliability to match competitor prices.
Variety Competing on more than
Time price. For instance offering
transport.
Indications of reliability –
availability, flexibility,
Purchases in batches say Every experience counts. Making sure the developer
weekly or stage of sticks with you from start to
construction finish.
Contractors, foremen likely to Size and frequency of How to satisfy as many of

be more loyal than individual purchase makes them more their needs as possible.
consumers. loyal if conditions met.
Broad budget guidelines For standard items will go for Have equal or lower prices
the shop selling lowest in than the competition for key
order to save on costs. standard goods such as
cement and metal bars.
They don’t (over)stock Items likely to get finished Importance of convenience.
unexpectedly. Could be by location or
facility such as transport.
What It All Means for A New Hardware Shop

- Visibility is important in discovery.
- Word of mouth spreads fast in the building community.
- There is little loyalty in the business. Although a consumer could be biased towards a
particular shop, it’s because he believes it can fulfill his needs better than the others. If a
consumer finds a shop that fulfills his needs better than the preferred then he will shift
accordingly. Loyalty is not a barrier
- Price is the most important consideration for the standard commoditized products. It
will also be a factor in finishes as much as variety comes into play.
- Variety is not only in aesthetics but price range. A variety that can fit different price
points.

- Consumer behavior is such that it allows for entry of a new hardware. But actual
conversion to a new shop depends on it being able to satisfy the consumer most
important considerations; price, convenience, availability, variety and capacity.
What Exists In The Market?
Market Structure
Hardware shops in the area can be grouped variously;
Classification By Size;
• Small – These are hardware shops in spaces less than 10m2. Because of the space
limitations they stock less bulky item like plumbing fittings.
• Medium – These are in slightly larger spaces, but with little room to wiggle. They have
enough space to store some bulkily items but only in measured quantities. (Between 10
m2 and 150 m2.
• Large – These occupy large space, which can be hundreds of meters squares. They have
sufficient space to store both the non bulky and bulky items. The larger of these, the
extra large, operate in open wide spaces which allow them to stock extra bulk items like
timber and large tanks.
✓ Size is at times used as a market entry and differentiation strategy. Getting into the
market in such a big manner that the consumer can’t fail to notice. A sort of shock and
awe strategy.
✓ Size is also used to give a perception of scale, variety and better prices as much as that’s
not always the case. Stocking timber and bigger tanks requires larger space.
✓ Smaller sizes are a function of capital, availability of space and product specialization.
✓ Although a bigger hardware is likely to make a sale, because of the variety, that is not
always the case.
Classification by Set Up
Hardware shops in the market can also be classified by type;
Hardware Type Description

General Hardware This stocks a wide variety of
items; almost everything that
could be needed in

construction; from brooms to
metal bars.
Electrical Hardware These specialize in all manner

of electrical items.
Plumbing Hardware These specialize in plumbing
products
Timber and Timber Hardware These have timber as the main
products, but could also have
other timber products like
plywoods and MDF boards.
“Ceramic Hardware” These specialize in ceramics

from floor tiles to toilet seats.
Glassware Hardware They specialize in glass and
glass products.
Paints Hardware These specialize in paint.
Steel Hardware They specialize in steel
products like metal bars.
Terrazo Hardware Specializing in terrazzo.
In the smaller of the markets the proprietors avoid being too niche for fear of losing a sale.
They want to sell something to every customer who walks in whether looking for metal bars or
pipes. Still a level of specialization gives consumers confidence; that they are likely to get more
in price advantages, product knowledge and variety of products in the specialized shops than
in the general.

For some products proprietors in the smaller markets avoid some types of specialization
because of consumer shopping habits .For products with some aesthetical value customers
look for variety and don’t want to be ‘ limited” by only what a single shop has in stock.
For instance, whereas consumers will consider a bag of cement to be the same whether in the
smalle Town A or the bigger Town B , they will want a wider variety of tiles to consider from
than what is stocked by specialized shop in Town A. The shop in Town A could have same or
lower price than a shop in Town B, but the consumer know that in Town B there are more shops
and hence a wider variety of items to choose from. For personal, as opposed to non commercial
shops, and for aesthetic items, consumers sometimes want more than just the standard.
A Note on Physical Set Ups

The traditional set up of a general hardware takes the form a sort of cramped shop. It could
have a hint of organization but due to space limitations and the variety of stock it looks
haphazard .
A sister to this is the shop which is basically an open room with stock such that even the
attendants don’t have space inside.
The shops could have some wares on the outside either for display or because of space
limitations.
Another kind of set up are the open spaces hardwares for instance those dealing in timber. Such
could have sections such as timber, cement, metal bars and other hardware items.
The showroom is another set up. The hardware shop is set up as a show room, where
consumers come choose a variety of goods which are then retrieved from the store or
warehouse.
This is common with wholesalers and especially those who are specialized. It’s also common
with large scale specialized shops.
The least common of the set ups is the supermarket model; where customers walk in, pick items
they want then check out. On paper this could look an attractive model but there are several
hiccups. One is the bulk nature of building wares. But the floor could have samples of the bulk
goods and after paying.
Two is the fact that to a large extent the hardware business operates informally. There are price
negotiations, informal commissions to be paid and lots of relationships. Thus some consumers
would be hesitant to shop in a formal setting. Still, and gradually so, the sector is moving
towards formalization.

Three is security; the fear of pilferage. Even with the toughest of set ups a supermarket setting
increases the chances of theft especially of small valuable items. This is the reason even in
mainstream supermarkets such items are kept behind a counter.
Nonetheless despite the above challenges there is room for a supermarket model but with
modifications to fit the consumer and guard against risks.
Retailer Conversations
To better understand the present hardware shops in the area we sampled a number based on
some key attributes:
Retailers: How Long They Have Existed

To understand survival in the market we sought to know how long the retailers have been in existence:

25 22
20 18
15 12
10
0
0-2 3 -5 Over 5
Retailers : Years In Business (%)
✓ That there are shops which have been in the market for more than five years is an
indicator that they have been making enough to survive. Still, the presence of many
younger shops shows that the market looks attractive. On the other hand it means that
competition is growing and will continue to do so.
✓ The older of the shops complained of reduced profits in the last two years. This could be
due to the increasing competition and the changing market structure; there is more
specialization which is taking away some business from the general hardware. It
could also be due to economic uncertainties.
✓ Growth in competition is sustainable if the market is growing. Indicators of growth in
market are an increase in development and population as seen by the new residential
areas and buildings in progress.
✓ A new hardware will be entering the market where there are shops, and some large,
which have been in the market for over 5 years. Because of their duration in the market
they will have collected consumer data to give them a head start. More important is the
relationships they will have built with developers, suppliers and fundis
Retailers: Average Sales

Related to the above we sought to know what were the average weekly sales from the sample of
hardware shops.

Retailer: Average Weekly Turnover ( Kshs.)
Over 30,000
60,001 -90,000
Retailer: Average Weekly

Turnover ( Kshs.)
30,001 -60,000
0-30,000
0 5 10 15
We acquired this information from retailer responses. It’s possible that the respondents
understated their weekly sales. Still this gives a broad idea of what to expect. Majority of the
hardware shops said they sold Kshs. 60,000 – 90,000. Kshs. 60,000 weekly translates to Kshs.
240,000 per month. Considering this is the turnover and not profits then after rent, labour and
related operational costs then such a shop could barely be making Kshs. 30,000 a month.
We will look deeper when looking at the financial aspects.
Related we asked the retailers what is the biggest sale they have ever made.
Retailers: Biggest Sale

Retailers: Biggest Sale Ever ( Kshs.)
Over 150,000
100001-150,000
Retailers: Biggest Sale Ever
50,001 - 100,000 ( Kshs.)
0 - 50,000
0 5 10 15 20
The lowest biggest single sale quoted was Kshs. 7,000 while the highest was Kshs. 300,000.
Developers will in many cases buy in volumes, making a comparatively high turnover common
in the business. The turnover is not necessarily and indicator of high profits.
For instance a developer could purchase 100 bags @ Kshs. 570 which translates to Kshs. 57,000,
with the gross margins from this being as low as Kshs. 4000.
Success in the business will require winning and keeping at least a few developers running
projects that require volume purchases.

Nairobi is the main source of supplies. Everything required to stock a hardware business at a
retail level can be acquired from Nairobi. There are many hardware owners who travel all the
way to Nairobi for supplies. Still, there are wholesalers within the major towns.
Competition in the hardware business both at the supply and retail sides has reduced barriers
to the business. There are multiple suppliers of each item, and they fight to supply to retailers.
On the other hand some manufacturers have cut out wholesalers to run direct to retailer’s
outlets.
Manufactures, Importers and wholesales have also become more flexible in terms of minimum
quantities such that capital barriers have significantly gone down.
Unlike 15-20 years access to suppliers and supplier terms are not a barrier to entry.
Retailer: Marketing
We sought to find out from retailers whether they conduct any type of marketing. This is apart
from the signboards announcing their businesses.
Retailers: Marketing ?
Yes
18%
No
82%

Only 18 % of the sampled businesses admitted to actively marketing their businesses. The
reality though is that most of the others are involved in marketing but in an unstructured
informal manner.
The unofficial marketing involves informal conversations that hardware shops have within
their networks, the efforts aimed at enticing fundis and developers such as offering them a
commission if they bring in a client and such.
Only 12 % of retailers admitted to having active salespersons approaching developers seeking

to sell to them.
Most of the hardware shops in the area operate in an unstructured manner; they see potential in
the market, open a hardware shop, open and wait for customers. With time they get customers
from foot traffic, build some relationships, get some repeat customers and grow.
To some extent this works, after all considering the level of building activities if you are in a
strategic visible location with the right kind of traffic then you are sure to get customers.
However, as competition becomes more intense then some hardware shops are taking a more
proactive approach in winning customers. Some have salespersons or owners going round
looking for potential customers among building sites or such other areas.
For the standard material then the most convincing of the sales pitch will be price, convenience
in terms of delivery, or ‘commissions’ offered to foremen, fundis or such other. This works by
getting the customer before he makes a purchase.
The unstructured sales efforts involve using own or friends networks to win customers.
In the future there will be more hardware stores using salespeople. And enticing them with all
manner of deals. We also in the future more formally set up hardware shops will come into the
market.
Basis of Competition
Looking at the market competition in the hardware business is based on:
Factor Detail
Location - Locating in areas with a high traffic of
hardware shops.(Location economies)
- Locating in areas with high traffic of
consumers.
- Locating in areas with factors that pull
in customers that are likely to buy
hardware items. For example lorry
transporters.
- Locating in highly visible areas.
- Locating in areas with less competition.

Scale - Being bigger than other shops in the
locations.
- Scale draws attention
- Scale gives impression of capacity,
lower price and variety.
Sales and Service By selling and also offering service. This could
include installation, repair or just offering
knowledge. This is more common in electrical,
plumbing, glass and tiles.
Variety By offering a wider variety of items than other
shops in the neighbourhod.
Pricing By offering lowest possible prices considering
the competition.
Specialization By specializing in a product category like
plumbing or electrical.
Strengths and Weaknesses of Existing Shops

Weaknesses Strengths
Weaknesses among the hardware shops vary • Reputation developed over the years
from one shop to another. • Consumer intelligence
Still these are the most common of weaknesses • Networks within the industry
we identified from developer and retailer • Relationships with suppliers.
conversations. • Loyalty by some of the existing
• Limited variety consumers.
• Prices • Product knowledge.
• Capacity • Capital – Well funded
• Quality • First mover advantages in some
• Location – Out of the way location, locations.
inconvenient location, out of the flow
locations.
• Poor customer service.
• Lack of delivery.
Consumers reputation, network, loyalty and consumer intelligence are significant enough.
However when looked in relation to the weaknesses, size of market and the number of new
developers in the area they are not strong enough to become major barrier to entry. They could
slow growth but still offer room for survival

The Margins
To an extent the hardware business is similar to the supermarket; low volumes and high
margins. For instance a bag of cement can have a margin of Kshs. 40. But then it’s possible to
sell as many as 100 bags of cement in a day. Same with metal bars, paints and such other items.
On the other hand there are many items which are not bought in volumes for instance tools. The
margins for these could be slightly higher.
The bread and butter of a hardware shops are the first moving high volume low margin items.
On the other hand, and cumulatively so, the other items amount to significant profits.
The strategy, and especially in highly competitive markets, is to have the ability as many of the
customers who walk in to your shop. It might not be always possible to sell 100 bags of cement
on a daily basis, but possible to sell one litre of wood glue, a trowel, a kilo of grout, 10 hinges,
some ropes and such.
For the core items the margins are not so high but the potential for high volumes are high. The
variety of products, even for the slow moving, high volume, also makes it possible to make a
sale everyday even without volumes.
Construction requires materials in volumes, and the variety of products mean there is always a
chance of making a sale. The low margins are balanced by the possibility of high volumes and
variety of products.
(Figures in Excel Sheet)

Customer Switching Costs
A key barrier to purchasing from a new hardware shop is if there is a cost of switching from the
existing shops to the new one.
If the costs are high then the switch to a new hardware will take longer.
In the hardware business and keeping everything constant, the likely costs of switching are:
Credit - If a developer enjoys some level of credit then he will be reluctant to shift, irrespective
of whether the new hardware is offering credit too. This is because of the relationship he has
built with the hardware, he will feel a sense of betrayal if he switches. Still if the credit giving
hardware is out of stock then he could try the new one. Or if the prices of the new are very
attractive then he will be tempted to switch.
Loss of credit terms is a big cost of switching.
‘Incentives‘ – Fundis, foremen and others who may get a monetary incentive every time they
refer a client or buy on behalf of the ‘ boss’ will be reluctant to switch. The relationship they
have built with such a hardware take time break. To such pricing or variety are not as big
considerations as the incentive they receive. Still they will purchase from a new hardware if
their preferred has stock outs.
Unofficial incentives are a significant cost of switching.
Free Delivery – There are hardware shops which will offer free delivery irrespective of the size
of purchase. A customer enjoying such will be reluctant to shift.
Although these costs are important, in a growing market, and one with new developers coming
in then they are not high enough to act as a barrier to entry. There are also the kinds of costs
that can be replicated by the new hardware in the short and medium term.

The Actualization Plan - Example
The Goal
To establish a hardware shop that will be profitable and scalable. The hardware will have the
following main characteristics:
- Ability to attract both foot traffic and destination.

- Has sufficient variety.
- Has sufficient working capital to satisfy demand
- Is able to deliver to customers as need be.
- Is able to fulfill as many as customers.
Main Steps
Step Details Concerns
Step 1 Pick Location Market potential
Competition
Room for growth
Availability of space
Step 2 Determine the kind of hardware to Consumer habits
set up Alternatives in the market
Possible demand
Step 3 Determine the products to stock Possible demand
Growth potential
Differentiation

Volumes
Variety
Space available
Margins
Break even
Step 4 Determine market entry strategy Highest impact
Target customer fit
Meeting basics
Exceeding expectations
Visibility
Resources available
Step 5 Locate Suppliers Price
Convenience
Matching competition
Beating competition
Terms
Cost
Step 6 Look at Prices & Margins Survival
Competition
Customer concerns
Resources invested
Step 7 Identify possible manpower Human resources required
Skills required
Recruitment
Reward
Step 8 Identify possible operational Day to day activities
equipment Professionalism
Conducive work environment
Costs
Step 9 Identify possible premises Type of hardware
Size
Visibility
Frontage
Accessibility
Loading space
Security
Renovations
Cost
Terms
Existing building
Availability
Building from scratch
Step 10 Identify licenses required Smooth operation
Law abiding
Type of license
Authorizing body

Step 11 Identify the total pre-operational Itemization of all the expenses required
costs to start the business.
Step 12 Compare the resources available Can it fit?
versus the pre-operational costs for What adjustments can be made?
the ideal setup
Step 13 Make the necessary adjustments What to reduce?
What to add?
Minimizing any negative impact.
Step 14 Operationalize the business As above
Which Location
The Virgin Areas
The virgin areas, the ones without centers and the smaller of the focal points have the challenge
of perception, access and consumer behavior. Consumers tend to be attracted to centers, rather
than the out of the way shops. Unless such shops have an attraction, a magnet; scale, product or
set up uniqueness, wide variety, major price advantages, or such other strong attraction.
Still, irrespective of any advantages, it will take longer for a significant part of the consumers to
change their habits in favour of the shop. This will require a long term outlook.
The shop in such a location will also have lesser foot traffic, and thus a lot more sales effort will
be needed to win customers, raising the cost of acquiring customers. On the plus side such
customers are likely to make purchases in bulk and often so, otherwise they would have stuck
to the more ‘conveniently’ located hardware stores. This increases their lifetime value despite
the initial high cost of acquisition. Again this requires a long term outlook.
Consumers could also perceive that a shop located in such a location has higher prices, limited
variety or less capacity.
Success for such a shop could be if it’s a destination; such that consumers come from a wider
area for the advantages that the shop offers. And these advantages have to be communicated to
potential customers in a clear, powerful and consistent manner. This could be through
outbound sales efforts or powerful advertising .Such as shop has to be a true one stop
destination.
A different option is for the shop is a distribution points of sorts; with the business delivering to
sites as need be. The hardware will require scale and signals of scale. The main products
would be the standard high volume wares, this could be lucrative and successful in the long
term .Yet this is also model that will have high customer acquisition costs and without foot
traffic struggle in the short and medium term.

Another possible model is to have strength, a bias, towards one or two products. This will
require the business is to have a wider, better variety of the product. The preferable product
will be one in high demand, or with barriers to access. Again this will require an aggressive
customer acquisition strategy. And if the hardware has the kind of products are not purchased
in volumes, frequently or with a premium margin then the customer acquisition costs exceed
margins per sale and the customer’s lifetime value. This results to losses.
In smaller towns none of the present hardware shops is fully able to satisfy customers. This
means as much as consumers could have a preferred hardware they will also shop from other
shops. Because there are fewer hardware shops in these centers it means that even a new
hardware has a higher chance of discovery. And if it consistently delivers on consumers needs
then it will grow in reputation, and gradually emerge as the preferred. The two small centers
offer some great potential for a new hardware.
Existing Towns
Bigger towns have wider catchment areas. They attract higher number of potential customers.
The high number of buildings creates noteworthy repair and maintenance market. This assures
some level of demand even when there is a downturn in major construction activity say because
of a slowed down economy.
However, they are more competitive market by the number and types of hardware. This leaves
little room for differentiation and exerts downward price pressure.
The number of existing buildings, the bigger size of the catchment and the number of potential
customers looking for construction materials somehow guarantees a certain minimum number
of consumers; a chance of survival but more is required to thrive. It’s a somehow brutal market.
Specialization vs. General

There are three broad kinds of hardware shops that can be set up in a location:
✓ General hardware
✓ Specialized hardware
✓ Super specialized hardware
A specialized hardware is a great way to differentiate, and also attract a particular kind of
customer. It’s a stamp of authority; an indicator of subject matter knowledge. And so with
specialization comes expectations of variety, capacity and price.
Nonetheless specialization requires a critical mass; a specialized hardware is targeting a niche

market, and the niche has to be big enough to make business sense. Alternatively the niche

could be small but the products attracting premium margins. But, if the margins are not big
enough to compensate for serving an even smaller niche then a critical mass of customers will
be required.
You have to remember too that often the specialized hardware is competing with the general
hardware, which by variety of items will most likely attract more foot traffic. And if the general
hardware is better stocked in the product of focus than the specialized then the latter will be at a
disadvantage.
All the above reasons make specialization in smaller markets riskier than in big markets.
Among the questions we ask ourselves are. Will a shop specializing in electrical items in a
small town attract enough customers to break even, make profits and grow?
If there is a gap in the electrical products segment within the center, is it big enough to warrant
specialization? Or would it be better to have a general hardware but with a bias towards
electrical?
Consumer shopping habits will also influence the decision whether to specialize or not.
A majority of the consumers who would shop at a specialized shop are experts, in their own
rights, in the products the hardware is selling. For instance, a plumber buying from a plumbing
hardware.
The craftier of these even understand the supply chain; they know where he is sourcing from,
and the wholesale price range. They could go to the wholesaler and pay lower prices. But, here
they are in Isinya, they want five elbows and two pipes ; they will buy at the local plumbing
hardware who has added a margin of Kshs. 15 – Kshs.20. The crafty plumber knows this and he
is okay, because they are paying for convenience and bulk breaking.
What happens then if they have a bigger contract and want to spend say Kshs. 20,000 on
plumbing items? Will they still shop at the plumbing hardware or opt to go to Nyamakima and
buy at wholesale prices, pay for transport and still make notable savings?
Such specialized shops, in areas with close proximity to wholesalers, will be at a disadvantage
when it comes to bigger purchases if all they can offer is convenience and not price advantages
and or other terms such as credit.
To an extent this also means that the specialized hardware, and especially the smaller ones,
derive a big part of their sales from the maintenance and repair market; they are likely to thrive
in areas with a high number of existing buildings than those without.
Nonetheless, not all specializations are the same. Keeping everything constant, some
specialized shops will have less competition than others. For instance, generally, timber yards

tend to be fewer than other kinds of hardware shops. This is because of capital, space and
supply chain knowledge. Thus a timber yard can make it in smaller markets.
Paint competition is also less crowded, partially because of capital and supplier terms. For
instance, if a paint company provides you with a paint mixing machine they expect you to sell
given volumes, and if not achieved they can take back the machine.
Plumbing and electrical items are the most common types of specialization. Largely this is
because of the relatively low capital requirement, and partially because they can be supported
by the maintenance market.
There are also fewer hardware shops specializing in high end and fancy finishing items. For
instance, kitchen finishes or extravagant taps and bathroom finishes. Although such items are
premium priced and thus with higher margins, purchase habits are biased towards the bigger
and more established suppliers in Nairobi.
Such hardware shops are destinations, relying on more than the immediate traffic. The
consumer flow does not favour such a shop in areas with low consumer traffic. Unless such a
hardware has such advantage and awareness that it will make consumers make the extra effort
to choose them.
Specialization is also a function of possible spend. What is the possible spend on the items in a
building? For instance in a three bedroom house how does spending on locks compare to the
spending on electrical items? And after the initial purchases what is the likelihood of the
consumer purchasing or replacing a lock as compared to an electrical accessory? In absolute
terms the locks market is smaller and thus requires a bigger catchment area or larger market.
An alternative to general is to specialize in a fast moving standard product like metal bars.
However, this we require a big advantage in pricing, an advantage that the other hardware
shops can’t access.
The Products
(See more in attached Excel Sheet)
Product Strategy Possibilities

Have basics of what defines hardware. Cement
Metal Bars
Paints
Nails
Binding wire
Have most in demand products. Cement
Metal bars
Nails

Plumbing basics
Have priced based variety For example Crown paints & Orion paints.
Have measured ‘aesthetic’ variety. For example several tiles sizes and designs.
Keeping in mind trends. Paint mixing
Avoiding dead stock. No more than ‘fair’ quantity of slow moving
products. For example 10 wheelbarrows.
Look at margins vs. speed of selling. Have high volume low margin products like
cements and a ‘ fair ‘ share of low volume
high margin products like a wheelbarrow
Space available. Quantity and product type. Balance between
fast moving and bulky, for instance cement.
And slow moving and high margins. Aim is to
maximize space for profit.
Product demand based differentiation. Bias and strength towards high demand
product. For instance possibility of price
leadership in metal bars by sourcing
The Market Entry Strategy
Strategy Details Challenges

Visible & Accessibility Locating in a visible and Acquiring location.
accessible location.
Guarantees some minimum
sales.
Scale Getting into the market as the Possible capital limitations.

largest hardware in the Acquiring sufficient space.
location. As much as scale can lead to
Attracts attention. market leadership it’s not
Gives perception of variety, guarantee that the strategy
capacity and better prices. will work.
Can be real or by impression.
Real, hardware actually
bigger.
Impression is ‘fake’ scale.
Hardware could be smaller
but gives sense of big by
arrangement or design.
Variety By having a wider variety Deciding on products to stock

than other hardware shops. Risk of dead stock
Temporary edge. Can be

easily copied
Salespersons By having a formal sales Consumer behavior not used
strategy. to formal sales.
Aggressively pursuing sales. Changing consumer behavior.
Capturing the consumer way What to entice the consumer
before time of purchase. with.
Relying on more than the foot Higher costs.
traffic.
Set up Setting up in a manner Security
different from the Consumer habits
competition. Possible capital limitations.
Premises
The ideal premises should:
• Facilitate sales
• Attract customers
• Stimulate spending
• Act as a store
Hence, key considerations in choice or construction of a hardware shop are:
• Visibility
• Accessibility
• Size
• Design
• Security
• Cost vis a vis sales
Visibility Frontage
Location economies
Related pull factor e.g. Timber Yard
Road
Accessibility Roads
Congestion
No other blocks
Loading space
Size Display & Storage
Bulk items
Perception of well stocked

Design Room for renovation
Initial condition of the premises.
Design as marketing
Trust signals
Work flow
Contamination
Cost Rent vis a vis Expected sales
Terms
Security Shop among others
Location of premises
Cost
Security measures
Possible Renovations
• Shelving
• Display
• Counter
• Painting
• Doors reinforcement
• Branding
• Signage
Rent
• Rent + 2 Months Deposit

• Electricity deposit
Estimates in Excel Sheet

Crack A Business Kenya - Hardware Business Guide

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Crack A Business Kenya - Hardware Business Guide

Uploaded by

Copyright:

Available Formats

Building The Cash: The General Hardware Business Guide

Hardware Shop Isinya -Courtesy image.

By Crack A Business Kenya

+254 712 473 455

We are now strictly enforcing our copyrights .

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 2

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 3

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 4

Reasons for the extremes will become clear in the guide.

Hardware Feasibility: Basic Market Characteristics

✓ There is demand for products that hardware sells.

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 6

Demand from Maintenance Activities.

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 7

Demand from Fresh Developments

Do Consumer Habits Favour A New Hardware?

There are two main types of developments :

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 8

• Facilitated by institutions such as • Facilitated by individual developers.

• Contractor buys the material in person and delivers to the site.

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 9

What Influences Choice of Hardware Shop?

Developer (Construction Lead) : Choice of Hardware

Price Conivinience Variety Capacity Other

Generally there are two types of building wares:

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 10

Willingness To Buy From A New Shop

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 11

How Consumers Discover A New Hardware Shop?

Discovering A New Hardware Shop?

Visibility References Sales Advertising

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 12

Are You Satsified With The Present Hardwares ?

The reasons given for dissatisfaction are:

Consumer Needs versus Business Reality

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 13

Habits & Characteristics Concerns

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 14

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 15

Attribute Impact What It Means For A New

Contractors, foremen, fundis, A good relationship required Forming relationships with

Discovery by visibility, Need to be strategically

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 16

Contractors, foremen likely to Size and frequency of How to satisfy as many of

What It All Means for A New Hardware Shop

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 17

What Exists In The Market?

Hardware Type Description

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 18

Electrical Hardware These specialize in all manner

“Ceramic Hardware” These specialize in ceramics

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 19

A Note on Physical Set Ups

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 20

Retailers: How Long They Have Existed

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 21

Retailers : Years In Business (%)

Retailers: Average Sales

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 22

Retailer: Average Weekly

We will look deeper when looking at the financial aspects.

Retailers: Biggest Sale

Don’t invest blindly +254712473455 www.kenyaknowhow.com info@kenyaknowhow.com Page 23