Moderating effect of customer satisfaction on the relationship between informal sector employees and food processing smes performance in kakamega county, Kenya

Purpose: This study examines the moderating effect of customer satisfaction on the relationship between informal sector employee dynamics and the performance of food processing Small and Medium Enterprises (SMEs) in Kakamega County, Kenya. Methodology: The study adopted a cross-sectional correlational survey design. The target population comprised 68,420 informal sector employees working within food processing SMEs across Kakamega County. A sample of 384 respondents was drawn using Krejcie and Morgan's (1970) formula, with stratified random sampling employed to ensure representation across the county's twelve sub-counties. Data were collected using structured questionnaires and analyzed using SPSS Version 27 with Hayes' PROCESS macro (Model 1) for moderation analysis. Findings: The results revealed that informal sector employee dynamics (skills development, job security perception, and workplace conditions) significantly predict food processing SME performance (β = 0.342, p < 0.001). Customer satisfaction significantly moderates this relationship (ΔR² = 0.047, p < 0.01), with the interaction effect accounting for 4.7% of the variance in SME performance. The conditional effect of employee dynamics on performance strengthens as customer satisfaction increases, indicating that customer satisfaction amplifies the positive impact of effective employee management. Practical Implications: Food processing SME owners in Kakamega County should invest in both employee welfare and customer satisfaction simultaneously, as their interaction produces superior performance outcomes. County government policies should support integrated approaches to SME development that address both internal (employee) and external (customer) stakeholders. Value: This is the first study to examine the moderating role of customer satisfaction in the informal sector employee-performance nexus within Kenya's food processing subsector, providing novel insights for theory and practice in the 2026 context of devolved economic development.