Kenya is an enterprising nation. If you were to take a countrywide tour, you would find small general shops, small farms, and hotels that dot both the urban and rural parts of Kenya. The spirit of entrepreneurship lives on although it may take different forms depending on the region and the generation.
In the CBD, you will find the ubiquitous stalls that are largely occupied by small-scale traders who import products such as phones, clothes, hair products, etc. In middle-class residential areas, it is unlikely that you will miss a few liquor shops every two hundred metres. In the same estates, you will often find small cars parked on the streets (most middle-income estates do not have proper parking), popularly known as tududus.
The reality is that Kenyans often exercise their entrepreneurship communally. At the moment, digital taxi services, popularly known as Ubers, (although they represent multiple brands that offer the online service) – and liquor shops (also known as wines and spirits shops) are quite popular.
This article compares the monetary gains and pains that come with the two businesses. We talked to two entrepreneurs who run these businesses and did comparisons based on their feedback – with some independent corroboration research.
For the purpose of this comparative analysis, we picked two businesses operating in these respective fields - with nearly the same amount of startup capital.
The liquor store retail business involves purchasing alcoholic drinks and related products wholesale and then reselling them at retail prices. The main business target is to get high traffic which would then multiply your markups and leave you with a sizable profit margin. Most liquor stores operate through physical stores - although there is a growing number of fully-online businesses.
There are two ways when starting out in the liquor business. You can invest from scratch – get a store, brand it, and stock your inventory. The second option is to find an existing liquor business and purchase it as a business unit – including the stock and the brand name.
The retail liquor business is one of the most regulated with multiple licenses required during the start - and some with periodic renewals - usually annually.
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Some of the requirements include an annual liquor licence from the respective county liquor licensing board and the respective business permit from the county government.
For instance, a liquor license costs Ksh50,000 annually in Nairobi for a single retail shop. To get the license, you are required to submit the following documents:
1. Identification card
2. PIN certificate
3. Health certificate (Department of Health Services clearance)
4. Fire clearance
5. NACADA clearance
The fire clearance certificate costs Ksh4,500, while the health clearance certificate costs Ksh10,000 annually in Nairobi - for a single-unit retail outlet.
In Kiambu, the annual liquor license costs Ksh50,000 for retail outlets in municipalities ( Kiambu, Limuru, Thika, Ruiru, Kikuyu, and Karuri) and Ksh30,000 annual fees in the rural centres.
There is also a mandatory business permit required by the respective county government.
The single business permit for a retail wines and spirits shop costs Ksh15,000 annually in Nairobi and Ksh10,000 in most municipalities in Kiambu and Kajiado counties.
However, the permit varies depending on the size of the shop and its location - different counties have different rates.
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Whether to buy an existing unit or start from scratch largely depends on the urgency of your return on investment – an existing business will often make faster returns than one started from scratch - but this is not always guaranteed.
Other factors to consider is the premium you are charged on the existing business – locally known as goodwill. If the goodwill is too high or unreasonable, you could invest in a new store and invest what you save on marketing.
In the case of Ken Mwenda, he was lucky to find an entrepreneur who was selling a wines and spirits store in Kasarani as a distress sale. Ken bought the entire unit for Ksh500,000 and invested another 50,000 on refurbishing the store and marketing it (e.g. promos and advertising) to boost sales.
The digital taxi business is booming around the world. The main concept is that the entrepreneur buys a car licensed to operate as a public service vehicle (PSV). The entrepreneur then lists the vehicle on taxi-hailing platforms such as Uber, Bolt, Little Cab, and InDriver, among others.
The platforms help connect drivers to clients. However, they have some requirements, including the car's age and other checks to ensure that customers get quality rides. The digital service providers take a percentage of the fare as their commission.
The biggest starting capital in the taxi business is a vehicle purchase. Most providers will insist on a car not older than 10 years. Further, all vehicles must undergo inspection to ensure no physical or mechanical damage would put passengers in danger. The engine size will also be limited – most companies insist on 1300cc and below.
For Ruth Wanjiru, her venture into the taxi-hailing business started with a 2012 Mazda Demio. She bought the second-hand, locally used vehicle for Ksh480,000.
Next, she registered the car as a PSV through the National Transport and Safety Authority (NTSA). The requirements include the driver’s national ID and license and payment of a Ksh625 fee. She spent another Ksh15,000 tracker and an alarm system for the car. She also paid Ksh30,000 for annual insurance coverage and another Ksh25,000 for the general mechanical upgrade of the vehicle.
Since Ruth works full-time, she needs to hire a driver who takes care of the car most days. The pay agreement was Ksh1,800 as a daily guarantee. This means that anytime the driver is at work, he has to pay Ksh1,800 whether or not he made a profit.
In the same way, if he makes Ksh10,000 profit in one day, he will only remit Ksh1,800 to Ruth. The driver works six days a week and remits Ksh10,800 per week – a monthly average of Ksh43,200.
Out of her two days off from work, Ruth works as a part-time taxi driver once a week and makes about Ksh3,000 on a weekly average. The total monthly income comes to about Ksh52,200.
The driver takes care of daily expenses such as parking, fuel, car wash, and minor repairs below Ksh1,000. Ruth’s expenses include mechanical repairs exceeding Ksh1,000 and routine servicing of the vehicle. The car undergoes routine maintenance every 5,000 kilometres for Ksh3,500. To cater to this service, she saves Ksh2,000 per month.
The monthly expenses are, therefore as follows:
Total = 6,500
Uber Business Monthly Income and Costs
Ken is also permanently employed and has to rely on a permanent staffer at his liquor store. The attendant is paid Ksh10,000 a month and works for six days a week - getting an off day on Mondays or Tuesdays (days when business is low).
The average daily sales are as follows:
Mondays, Tuesdays, and Wednesdays (opens on 2 of the 3 days to cater for the staffer’s leave days - Ks16,000
The total comes to Ksh81,000 a week and about Ksh324,000 a month.
The wine and spirits’ profit margins are typically 30% per sale. The gross profit, in this case, is Ksh97,200 per month.
The monthly recurrent expenditure is as follows:
The total monthly expenses average is Ksh55,000.
In our case studies, in both businesses, the starting capital was the same (Ksh550,000). However, the two businesses may have markedly different starting capital depending on the entrepreneur’s needs.
Both entrepreneurs featured in our case study were involved in a main job and had to source an employee to take care of the business operations primarily.
In the Uber business, the gross revenue is Ksh52,200, while the total cost of operations is Ksh6,500 per month.
The net profit is approximately 45,700 monthly (8.3% of the initial investment).
Since the car loses about 20% of its value per year, this computation only applies in the first year - with the figures expected to drop continuously for a period of upto 5 years. We assume that the vehicle will no longer be feasible to operate in the taxi business after a maximum of five years.
In the Wines and Spirits business, the gross monthly revenues amount to Ksh97,200, while the monthly expenses amount to Ksh55,000. The net profit comes to Ksh42,200 (7.6 percent of the investment).
Unlike in the car business, the typical trend is that the value of the liquor store continues increasing over time - due to the brand value and so-called goodwill.
In terms of liquidation, the car is relatively easier to sell, although the selling price is affected by depreciation. A liquor store will involve multiple stock items, which may prolong the liquidation process.
The computations for the two business, however, are based on ceteris paribus (all factors remaining constant) and does not consider some external factors that may affect a business - including accidents, extortion, and forces of nature, among others.