The Rise and Fall of Uchumi Supermarket

By Soko Directory Team / May 16, 2016



uchumi-supermarkets

Barely five years after emerging out of receivership, Uchumi supermarket, the once vibrant retailer chain started showing signs of going back to the same dark place and this time round, in a worse situation.

It all started by the retailer terminating its Managing Director’s contract, for claims of gross misconduct and negligence, then the position was filled by the then General Manager. The Chief Finance Officer’s contract was also terminated and the company’s Human Resource Manager faced a suspension.

Since Uchumi’s comeback in 2011, it has only paid dividends once out of the results of 2014, largely because it does not have the money. The retailer has been operating under negative capital ever since. Supplies for goods to be sold have been cut off and for the critical ones, the management has had to beg for time and has even renegotiated payment terms.

Part of the trouble started after senior managers began supplying most of the goods sold in the dozens of outlets owned by Uchumi. It started with a trickle, but with time, the trend got so ingrained that it was hard to pull back.With senior managers doubling up as suppliers, it became difficult to separate business interest and self-interest. By virtue of the senior management team positions within the company, payments for deliveries associated with them were fast-tracked and often at ‚exaggerated prices. The trend is currently being investigated by the board, which has indicated it may have initiated criminal proceedings against those found culpable.

Read: Uchumi Supermarket Sets a New Low of KES 3.75

Exaggerated prices in that arrangement, Uchumi bought and possibly still does, buy commodities at prices that were higher than the eventual selling prices. The board of directors reportedly cracked the whip and an insider of the company confided that the former CEO was forced out during a board meeting

The company reported a Sh263 million loss in the half year ending December 2014, down from a Sh106 million profit in the previous comparable period. High finance costs, salaries and rent were cited as the reason for the falter. The Kenya Commercial Bank (KCB) and Co-operative Bank of Kenya had jointly lent Uchumi over Sh1 billion to help cure cash flow problems that had threatened to end deliveries. A supplier like the Kenya Power, which had a working relationship with the firm in which Uchumi sells its prepaid electricity tokens and collects payments for postpaid customers, had severed ties with the chain over delayed payments. Loss of the dealership, which Uchumi has held for a couple of years now could be catastrophic as it signals the loss of a significant revenue stream.

Read: The True State of Kenya’s Economy: The Numbers

Kenya Power informed its customers that due to unavoidable circumstances, bill payment through Uchumi supermarkets had temporarily been suspended. The MD of the utility firm disclosed that the relationship with Uchumi was to the extent that the retailer had been collecting payments but not transmitting the cash, instead using it to trade, without the firm ‘s knowledge and permission.

The incident was just one of the pointers to the bigger underlying problems that Uchumi is dealing with financially. Later on, the company issued a public apology to its shareholders for delays in paying out the dividends declared in November 2014, stating that the delays were caused by challenges ranging from tight scheduling, printing to postage, of their selected service providers beyond our control.

Its shares were suspended from trading at the Nairobi Securities Exchange, and only made a comeback after more than five years in the cold. Thousands of workers lost their jobs temporarily in a window that enabled rival retail chains to close in on Uchumi and take off with big chunks of its market share. Before the fall, several top managers were arrested and charged for abuse of office, but later released for lack of evidence. The shareholders were left licking their wounds as a turnaround plan was hatched with the State pumping over Sh600 million in the revival plan. Prominent shareholders, including the Kenya Wine Agency Ltd, dumped the company’s shares, possibly a pointer to diminishing confidence in the business.


Article by Vera Shawiza.



About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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