EFFECT OF PRODUCT INNOVATION ON THE PERFORMANCE OF FOOD AND BEVERAGE SECTOR IN MANUFACTURING SME INDUSTRIES IN NAIROBI COUNTY, KENYA

Small and Medium Enterprises (SMEs) in the food and beverage manufacturing sector play a significant role in Kenya’s economic growth through employment creation, income generation, and industrial development, particularly in Nairobi County. Despite their contribution, many SMEs continue to face challenges related to stiff competition, changing consumer preferences, and limited innovative capacity, which negatively affect their performance. This study sought to examine the effect of product innovation on the performance of the food and beverage sector in manufacturing SME industries in Nairobi County. The study was guided by Schumpeter’s Theory of Innovation and the Resource-Based View (RBV) theory. A descriptive survey research design was adopted, targeting 107 formally registered food and beverage manufacturing SMEs within Nairobi County. The study utilized a census approach where all the SMEs were included in the study. Primary data was collected using structured questionnaires and analyzed using descriptive and inferential statistical techniques, including regression analysis. The findings established that product innovation had a positive and significant effect on the performance of the food and beverage sector in manufacturing SME industries in Nairobi County (β = .181, p = 0.023). The study revealed that SMEs that frequently introduced new products, improved product quality, adopted attractive packaging, and diversified product lines experienced increased sales, customer satisfaction, and market competitiveness. The study concluded that product innovation is a critical driver of performance among food and beverage manufacturing SMEs in Nairobi County. The study recommends that SMEs should continuously invest in research and development, customer-driven product improvements, and innovative product differentiation strategies to enhance their competitiveness and overall organizational performance. JEL: O31, O32, L25, M21, L66