Weathering The Inflation Storm As A Kenyan Business Owner

Starting a business is fun, but running it is hard. This is especially true in Kenya, where 70% of Small-to-Medium sized enterprises (SMEs) fail within their first three years. The thrill of entrepreneurship often gets tempered by harsh economic realities such as inflation.

In October 2023, inflation rose to 9.6%, the highest since May 2017. And even though it has slowed since then, most households and businesses have not recovered. Consumer spending is under pressure and profit margins are tighter for businesses. 73% of Kenyans are financially distressed, according to Ifotrak. Hence, many business owners are wondering how to navigate these turbulent waters.

Let’s dive into the current inflation realities and how you as a business owner can survive and thrive despite it.

How Inflation Affects Your Business

We all know inflation as the progressive rise in prices of goods and services over time. And everyone talks about how these price surges affect consumers. But you, the business owner, are just as much in the crosshairs when inflation rises. Here are some reasons:

• Higher production costs: Your primary aim as a business owner is to deliver the most value at the lowest possible cost. But how do you achieve this feat when your input prices rise higher every week or two? Fuel is more expensive in Kenya than anywhere else in East Africa, making logistics expensive. As a result, many businesses end up with the dilemma of either increasing their prices or taking home less profit.

• Steeper borrowing costs: When inflation rises, the Central Bank often steps in to curb it by increasing interest rates. However, this move makes it more expensive for businesses to borrow money from banks, whether for expansion, investment, or even to cover operational shortfalls. Presently, Kenya’s interest rates are at their highest in 12 years.

A recipe for financial distress: Inflation erodes the value of money, making it harder to stay on top of your bills. It's no wonder so many Kenyan businesses are feeling the squeeze right now.

Now that you know how inflation impacts your business, what are you going to do about it? Throw in the towel? Certainly not! There are smart strategies to keep profits healthy, even in an inflationary climate. Here's how:

• Re-evaluate Pricing: Identify areas where you can adjust pricing without compromising competitiveness. But don’t just raise prices: be strategic. Consider offering tiered pricing structures for different product or service levels. Explore value-added packages that combine products or services at a discounted rate to incentivise customers who might be watching their wallets.

•  Supplier Renegotiation and Inventory Management: Don't be afraid to have conversations with your suppliers.  Renegotiate contracts to secure better deals on bulk purchases or explore alternative suppliers who may offer competitive rates. But don’t stop at that. Efficiently manage your inventory to reduce wastage and free up cash flow.

•  Embrace Operational Efficiency: Every penny saved is a penny earned. Look for areas to streamline operations and reduce overhead costs. This could involve renegotiating rent, exploring co-working spaces, adopting energy-saving practices, or, as stated earlier, implementing efficient inventory management systems that minimise storage costs.

Invest in Customer Loyalty: During economic uncertainty, customer retention becomes paramount. You need them to stick around whether or not prices fluctuate. Explore options like loyalty programs that reward repeat business. This can incentivise customers to choose you over competitors. Excellent customer service that fosters positive brand experiences will also give you an edge.

The most efficient way to win customer loyalty is by earning their trust. And one way to win that trust is by ensuring hassle-free logistics. This is where DHL comes in. DHL, with its deep-rooted presence and local expertise, provides invaluable insights and support to help your business grow. To get started open a business account today.