Supermarkets have widely spread in Kenya. They contribute widely to the economy of Kenya. Ten years ago, three supermarkets Nakumatt, Uchumi and Tuskys were household names dominating the retail sector.
Nakumatt and Uchumi specifically were formidable that they seemed too-big-too-fail from their expansive reach and penetration in the market within East Africa, also looking at the number of people the two had on their payroll.
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In general, this sector has fragmentations and includes small independent supermarkets but also well-established brands. Names such as Naivas and Ukwala were up there at the second tier below the three dominant tour de-force.
Today, the sector’s landscape looks totally different, Nakumatt and Uchumi have been wiped out of the market, and Tuskys the remaining one among the trio is hanging by the thread.
Dark clouds linger over the survival of Tuskys, it is compounded with debts leading to main suppliers withdrawing their products, signaling a lack of confidence in the retail chain’s sustainability.
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Botswana’s Choppies required Ukwala, which has an exit from Kenya. South Africa’s Shoprite a late entrant in the local market has announced its exit after a short stint.
Supermarkets poor decisions
What exactly is happening to supermarket chains, may seem to eclipse maturity then stagnate before they completely crash.
Some have argued that these retail chains making poor strategic business decisions, they possess poor management structure. This means that the market has saturation which is making it very competitive for long-term survival.
There are those that say strong online presence where customers are finding good stores to shop has disrupted the sector. Despite e-shopping increasing, it is farfetched to argue that it is disrupting the supermarket sector. Two main issues seem to be the constant Achille’s heels for many of these retail chains.
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First, aggressive expansion to increase presence seem to have been their strategic waterloo.
Take Uchumi for example, which had established itself as an upper end supermarket targeting high income consumers then decided to expand its reach and started targeting middle and low-income consumers by opening stores located near bus stations which later were among the first to close down when its scaled down operations.
Any supermarket targeting low income earners appeares bound to fail. This is because many in this bracket are not shoppers but simply buy daily necessities in small quantities. This makes them more dependent on their neighbourhood kiosks. Whom they are able to establish a relationship and access credit purchases.
There is a research that shows low income earners source of credit is their neighborhood kiosk. Therefore any supermarket situated in small malls targeting to convince them to shop in their stores has not worked.
For Nakumatt, it went for aggressive expansion throughout the country as a strategy meant to lock out competitors, increasing presence and be the only household name, and it wasn’t long before it started struggling. After Nakumatt’s exit, Tuskys also chose to expand its operations after feeling that Nakumatt had left a void. Therefore today we are witnessing its struggle to say afloat.
The underlying problem in the strategy of aggressive expansion is that companies overstretch their financial muscle. This is when the profit margins are slim, which precipitate a financial crisis.
The second issue top retail chain struggled with is proper governance and professional management. Uchumi which was government enterprise, senior managers run down the company through incompetence just like most State-owned companies.
For example, there was blatant conflict of interest where top management were also leading suppliers to the retail chain and would pay themselves before others. There was also misrepresentation of the company’s books by massaging accounts. Uchumi’s management was giving lies about its financial position for more than three years. This is until it couldn’t hide any further.
For the case of Nakumatt and Tuskys, they chose to keep the company as tightly family-owned with little professionalism. This is through a corporate governance structure within its top management rank. This happens when its competitive market required them to run on a cost-efficient strategy because of the slim profit margins.
In short, the supermarket sector requires a company to have a solid corporate structure for professional management as well as target the high and middle income consumers for its sustainability.