The ailing Retail Sector in Kenya: Which Way for Supermarkets as Giants continue to fall?

Kenya’s retail sector seems to be ailing. The once vibrant players in the sector are falling out of business one by one.

According to the Vision, 2030 medium-term plan 2013 – 2017, the retail sector is among the six priority sectors projected to make up the largest part of Kenya’s Gross Domestic Product (GDP) and to create approximately 50 percent of total formal employment.

In 2016, the retail sector expanded by 13 percent hitting the all-time high in terms of spending by 1.8 trillion shillings according to a survey conducted by Proctor and Gamble.

A closer look at the recent trends characterizing Kenya’s retail sector reveals mixed fortunes – whereas the sector has reported growth there are some unfortunate events which signal that the sector is not mature yet.

There has been a tremendous improvement in the supporting infrastructure which includes but is not limited to the recent rise in the popularity and penetration of shopping malls with supermarkets being the anchor tenants in virtually all the malls.

The Kenyan retail industry is made up of a number of supermarket chains that serve the population of their different needs. Some of these supermarkets are big with a number of branches while others are small with a specific niche in the market.

If the sector seems to be doing fine, why are the giants falling?

Nakumatt Supermarkets

Nakumatt supermarket chain started off as a small retail outlet in Nakuru town, with its iconic logo being an elephant clutching a shopping bag in its trunk, which symbolized its stability and reliability.

The retailer expanded gradually up to 66 branches across Kenya, Uganda, and Rwanda. Every big mall in Kenya ran to Nakumatt begging them to be their anchor tenant and this showed how they had an impact in boosting businesses whenever they were. They indeed were a big deal.

Nakumatt had over the years grown into Kenya’s most successful indigenous chain of supermarkets with a regional presence. At its peak, the retailer was estimated to be worth between 50 billion shillings and 60 billion shillings.

When compared with its rivals, Nakumatt had the best customer service in place and its employees were extremely courteous and always ready to assist. Unfortunately, it, later on, came to be revealed that beneath that face of a company doing very well, there was so much wrong going on in there. It is puzzling how the management concealed billions of debt which ended up weighing down the retail chain pushing to its death.

Sources familiar with Nakumatt operations disclosed that even though the giant chain blamed others for its woes, the situation was largely compounded by a weak management structure that exposed it to unnecessary losses. They particularly pointed out poor corporate governance as one of the issues that have affected operations just as it has been evident in other local retailers which are also family owned.

The company had also in the past been forced to deny allegations of money laundering and tax evasion with some claims contained in entries in WikiLeaks, a whistle-blowing website, linking it to the collapsed Charterhouse Bank.

A combination of factors including gross mismanagement, poor strategic decisions, tax issues and massive internal losses perpetrated by some wayward employees and suppliers are the main reasons behind the slow death of giant supermarket chain Nakumatt

The company had accrued massive debts with trade creditors including the suppliers of tradable goods on credit holding the biggest claim against the retailer.

The debt that stood at almost 19 billion saw the company close shops all across the country with most of the subsidiaries being kicked out for failure to settle debts.

Currently, the retailer has embarked on a business recovery programme with a focus on seven key branches – Nakumatt Mega, Prestige, Ukay, Lavington, Embakasi, Mega City (Kisumu) and Nakumatt Nakuru

The recovery programme dubbed Nakumatt BounceBack is supported by scores of local and international suppliers keen on seeing the firm back on track. As part of the recovery strategy, the firm announced the optimum restocking of seven key branches in Nairobi, Nakuru, and Kisumu, which will act as its growth foundation.

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Uchumi Supermarkets

The company was founded in 1975, as a public limited liability company, by three Kenyan parastatal companies: Industrial and Commercial Development Corporation, Kenya Wine Agencies Limited (KWAL), and Kenya National Trading Corporation.

The company that broke the surface as a powerful chain of hypermarkets in the 90s was crafted to offer local suppliers access to the market playing patron to some of the businesses that became successful and earning the patriot’s badge.

With a ring of nostalgia, Uchumi which opened branches in Kisumu, Nakuru, Kisii and Mombasa, the retailer’s brand carried with it the loyalty of Kenyans.

With part State ownership, it carried less risk exposure to regulators who have treated it with kid’s gloves.

But the retailer abused this consideration, delaying results at the expense of the Capital Markets Authority for the past two years.

Uchumi, Kenya’s only listed retailer, was thrown into turmoil in June 2015 when it sacked its chief executive for alleged gross misconduct and an audit uncovered the loss of funds raised through a rights issue.

A subsequent exodus of suppliers, unhappy over unpaid bills, left empty shelves in the chain’s stores, as losses mounted.

A subsequent attempt to turn the supermarket around then stalled, and in late 2018, the CEO hired to revive the chain resigned.

With no stock, fewer branches, high costs, and debts that are due, the retailer’s own auditors signed off its debt questioning whether the company could continue operations while being insolvent.

Uchumi owes creditors billions of shillings in debts. Most of the creditors have moved to court seeking the auctioning off the remaining assets to recover their cash.

Uchumi owes Chandaria Industries 69 million shillings followed by Equatorial Nut Processors Ltd which is owed 21 million shillings. Githunguri Dairy, Interconsumer Products Ltd and Professional Marketing Services Ltd are owed 45, 38 and 4 million shillings respectively.

In 2018, KPMG disclosed that the Group and company’s liabilities had exceeded their assets by 4.768 billion shillings and 4.635 billion shillings (2015 – 3.403 billion shillings and 2.601 billion shillings) respectively adding that the Group and company’s total liabilities exceeded their total assets by 2,097 billion shillings and 4.248 billion shillings (2015- Net assets 739 million shillings and net liability 648 million shillings).

Uchumi supermarket has been unable to pay any of the debts to the creditors with most of the investors calling for its winding up, assets sold so that creditors can be paid.

The retailer had kicked off an exercise to restock some of the stores but it seems it is such in a bad shape to take off.

To save itself, the retailer decided to strip its remaining assets and sell off its prime land at Thika road’s Kasarani Mall.

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Ukwala Supermarkets

Ukwala supermarket chain, a once vibrant retailer in Kenya was registered in April 1995.

Ukwala Supermarket in November 2018 filed for liquidation, informing the court that it had found it impossible to remain afloat after disclosing that it was unable to service its creditors. Total creditor claims against Ukwala amount to 930 million shillings, yet the firm’s assets are valued at a worthless 19.3 million shillings.

The supermarket owes over 300 creditors and the Kenya Revenue Authority (KRA) over 1 billion shillings. The taxman is owed over 840 million shillings in tax arrears by the supermarket, making it the biggest loser in case of liquidation.

In April 2018, KRA froze Ukwala Supermarket accounts at Diamond Trust Bank, claiming over 280 million shillings Pay As You Earn (PAYE) and VAT arrears from the company.

The company which started in 1995 has been unable to turn tables from loss-making, attributing it to hard economic times and unfair competition from other players.

After the closure of the accounts, the directors of the retail company said that there were no meaningful operations that could take place, hence sought liquidation.

So far, Ukwala has closed down eight of its branches to Botswana retailer, Choppie which spent 1 billion shillings to purchase a 75 percent stake in the then-struggling retailer business in the form of 10 of its 14 stores.

Ukwala has only one remaining operational branch in Eldoret.

Ebrahim Supermarket

Ebrahim was established in 1944 as a supermarket with electronics and computer distribution unit next to Sarova Stanley Hotel on Kenyatta Avenue.

The owner also established an outlet on Kimathi Street that sells electronics. The supermarket has in the past closed other outlets in Kisumu, Nakuru, and Mombasa leaving only the stores in Nairobi.

The retailer, located along Moi Avenue, sold all of its stock on discounted prices throughout last week in a massive clear-out that ended on Saturday 2^nd January 2019, marking its last day of operations for a business that has been in operation for more than 75 years

The closure comes days after the retailer offloaded all of its stock at throwaway prices in a flash clearance sale that closed on Saturday.

Ebrahim’s closure will see more than 30 people employed directly lose their jobs.

The building that housed the retailer on Moi Avenue will now be converted into stalls and shops with the owner seeking businesses to buy space through posters.

Which way?

The truth is, Kenya’s retail sector is ailing. If nothing won’t be done to save our own local brands, jobs will continue being lost and the economy will surely fee the heat. Other foreign supermarkets have started coming into the country but is there a way we can save the existing ones from collapsing?