How 6 Giant Supermarkets in Kenya Painfully Died

How 6 Giant Supermarkets in Kenya Painfully Died

By Anderson Njue | January 4th, 2021 at 7:00 PM

Is Kenya quickly becoming a retail deathbed? Yes.

Six iconic giant supermarkets in Kenya have collapsed in the last six years. This seems to be a curse that befalls any supermarket that tries to win the retail market space. This is a sad reality. Isn’t it? Yes.

The fallen retail giants include Uchumi, Nakummat, Ebrahim’s, Ukwala, Choppies, and Tuskys Supermarkets. The six retail stores were dominant market leaders but they are now dead, buried, and forgotten. Worse still, we have a few others that are struggling to stay afloat. Yes, they’re on the brink of collapse.

The retail and wholesale sectors are the 5th greatest contributor to Kenya’s GDP. The sectors are the 3rd largest employer in Kenya. The death of giant retail outlets rendered many people jobless hence compounding Kenya’s unemployment problem.

Mismanagement, POOR EXPANSION STRATEGIES/BLIND EXPANSION, management disputes, poor financial decisions, liquidity issues, poor corporate structures, huge losses, tax compliance issues, poor customer target, and theft of products and cash by owners, employees, suppliers, and the management are some reasons for the collapse of Kenya’s retail giants.

Retail business is competitive, ruthless, and unforgiving when blunders are made.

So how did each of the six supermarkets die?

Let’s find out.

1. Uchumi Supermarket

Uchumi started operations in 1975 and is one of Kenya’s oldest retail outlets. The supermarket was notorious for delayed salary payments, rental arrears, and stock-outs. The firm quit Tanzania and Uganda markets in 2015 after makings losses for several years.

As the debt mounted and the branch network shrank, the CEO was busy looking for a strategic partner who would help in clearing the debts and returning the company to profitability. By 2019, the State-owned Supermarket chain was hanging by a thread. The Troubled retailer was staring at imminent death.

The supermarket pleaded to have its debt amounting to billions of shillings forgiven so that it could survive. The retailer owed lenders about Sh3 billion and suppliers Sh3.6 billion. The dying giant filed a creditors payment plan in march 2019 in the High Court.

Uchumi was Kenya’s retail giant and nobody imagined it will one day be history. Unbelievably, the retailer started melting away. Within no time, we started witnessing empty shelves which was a confirmation that it was dying.

Overambitious rapid expansion is one of the major problems that led to the collapse of retail chain stores. The blind expansion led to serious cash-flow problems hence the subsequent fall. This is according to a government task force mandated to find out what led to the collapse of the Uchumi supermarket chain.

The taskforce also indicated that the retailer was also bedeviled by costly lease termination and unsuitable merchandising policy challenges. The task force recommended that the government should inject Sh975 million into the retail chain stores to meet its working capital requirements.

Twelve people were charged for attempting to defraud the Uchumi supermarket chain by selling a parcel of land for Sh147 million along Aga Khan Walk. Among those charged were businessman Chris Kirubi.

Dishonest suppliers colluded with Uchumi staff to fleece the supermarket chain through false claims that led to its collapse. An audit carried out by financial consulting company KPMG unearthed the widespread fraud propagated by the Uchumi’s employees, suppliers, and distributors. The audit revealed that a huge quantity of goods from several suppliers were neither ordered nor delivered at Uchumi stores.

Several suppliers were beneficiaries of the book-cooking scheme where Uchumi employees recorded the supply of products that did not reach the retailer’s warehouses.

As we speak now, Uchumi just like Nakumatt is dead, buried, and forgotten. The supermarket died multiple deaths. You can see that Just like the other dead giants, Uchumi collapsed because of poor expansion strategies, mismanagement, and theft of both cash and stock by employees, owners, and suppliers.

2. Nakumatt Supermarket

Nakumatt had about 60 branches across the region with annual revenues of about $700 million. The retailer’s management indicated that the supermarket was facing cash flow problems in 2016.

How can a retailer acquire merchandise on credit terms, sell in cash but experience cash flow problems? What is killing the supermarkets? Fraud, poor management, and theft are to blame.

By 2016, Nakumatt was not the only supermarket engulfed in financial turmoil. Other strong retailers were on the verge of collapse. With time, things got worse and the number of branches reduced from 60 in February 2017 to 6 in September 2018. Naivas Supermarket later bought the remaining branches at Ksh455.9 million.

Nakumatt was beyond salvage because it owed its creditors more than US$ 380 million at the time of closure. Poor financial decisions are one of the key problems that brought the supermarket chain to its knees. For example, Nakumatt’s directors took interest-free soft loans from the company amounting to 1billions shillings. This sent the retail outlet to its deathbed.

The soft loans scandal was unearthed by an audit of Nakumatt’s financial statements by Parker Randall Eastern Africa. It was also revealed in a court hearing that the firm’s founder was under investigation linked to a US$ 100 million stock loss. There was also a theft of stock and assets through the collusion of employees and suppliers. The theft was catalyzed by poor inventory management processes.

Health-wise, Nakumatt looked okay in 2013 but on the ground, things weren’t good. Shortly after the death of Uchumi, Nakumatt followed suit. It breathed its last in 2017. It’s a sad reality that Nakumatt is dead, buried, and forgotten.

In his admission, Kahi, the then Nakumatt administrator, points out that retail business is tough owing to low margins. The administrator further posits that the retail outlets try to expand in an attempt to do volumes.

The management of the fallen retail giant at one time boasted of more than sixty branches spread throughout the region. little did they know that they bit more than they could chew. The massive blind expansion which later turned catastrophic was funded by debts. This created more debt that couldn’t be sustained in the long run.

Nakumatt’s shutdown and its dirty operations shocked many. The retail outlet got supplies from suppliers on credit and paid for them months later. In other words, the retailer didn’t own the stock; it was on consignment.

Nakumatt owed suppliers Sh18 billion. The new law requiring retailers to pay suppliers within 90 days will help in a big way. Suppliers are the greatest losers when supermarkets go under. Financial institutions are secured hence can recover 80–90% of their dues.

The supermarket chain didn’t have any assets. Nakumatt was riding on its brand name. Close to all the assets that Nakumatt was using were leased. It was so bad that even the shelves and trolleys were leased.

When the retailer died, suppliers and creditors had no means of recovering their dues. This is because as indicated above, Nakumatt didn’t have any assets that could be sold to offset creditors’ dues.

Sounds like Nakumatt was a scam. Isn’t it. Yes. Trading on the brand was a costly mistake made by the fallen giant. If it had assets, it could have been salvaged.

It’s now evident that Nakumatt’s liquidity problems and financial meltdown can be linked to mismanagement, poor corporate governance, theft by workers and suppliers, poorly planned and executed expansion, debt-funded acquisition spree among other reasons.

However, the supermarket’s directors opined that the cut-throat competition killed the giant. The retailer’s management troubles came in when its operations in Kenya were at the peak.

Another problem bedeviling Kenyan supermarkets is that some family retail businesses have minimal external oversight. External oversight would have stopped the free interest loans scandal in Nakumatt. We also had cases of business money being transferred into personal accounts of Tuskys’ directors.

What happened to Nakumatt is a pointer that other supermarkets should focus on sound corporate management and inventory management.

3. Ebrahim Supermarket

Ebrahim Supermarket closed its last outlet in Nairobi in 2019 after being in operation for 75 years. The theft championed by suppliers and Ebrahim’s employees was the main reason why the retailer collapsed. Workers and suppliers milked it dry.

The corruption that plagues Kenya has not spared supermarkets. The corruption is deeply looted at all levels. Retailers must come up with measures to stop their workers from stealing from them. For you to successfully run a retail enterprise in Kenya, you should establish a good control system.

4. Ukwala Supermarket

Ukwala was founded in 1995. Mr. Rohit Shah and Dodhia who were Ukwala’s directors wrote to court seeking closure. The two argued that the company was insolvent. By the time the retail outlet applied for liquidation, it owed suppliers about $10-million.

The retailer cited financial challenges, huge losses catalyzed by hard economic realities, and unfair competition from other supermarkets as reasons for liquidation application. Even after liquidating, the supermarket couldn’t account for the Ksh1 billion it owed Kenya Revenue Authority. Before the liquidation application, KRA had frozen Ukwala’s bank accounts hence no operations could take place.

Just like in other fallen giants, fraudulent suppliers colluded with Ukwala employees to fleece the supermarket through false claims that led to its collapse.

The retail outlet closed down and sold 10 of its stores to Choppies. The death of Ukwala and Ibrahim in 2019 indicated the stark reality of Kenya’s retail market. The two were family-owned retail outlets.

5. Choppies Supermarket

The Botswana based retailer is bedeviled by many challenges and at the brink of collapse. The supermarket is exiting the Kenyan retail space that’s not only competitive but also complex. The retailer has a tax dispute with KRA.

Shortly after acquiring a 75% stake in Ukwala, the troubled Botswana retailer cited financial constraints and applied for liquidation. This came four years after it started operations in Kenya. The supermarket’s employees went to court seeking to be paid a total of Sh25 million as redundancy dues.

6. Tuskys Supermarket

Tuskys was a vibrant and iconic retail outlet. It was the most successful family-run supermarket. Sadly, the giant is on life support and about to be buried soon. The curse is real. Isn’t it? I think so.

Before Tuskys which had about 60 outlets went to the dogs, it had gone on a spending spree. It opened new branches and started a popularity campaign to boost its newfound market dominance. This was a COSTLY mistake. The expansion strategy was not well thought.

No company can be built on debt-funded massive blind expansion. Debt-financed expansion anchored on poor expansion strategies is the major problem that has killed many supermarkets in Kenya.

Tuskys’ gradual death started with major goods missing on the shelves, shutting down of some branches, and delay in payment of rent and suppliers. All this time, the management downplayed the mess but the smoke could tell it all. All was not well.

In what appears like a pre-designed death pattern of all the fallen supermarkets, Nakumatt’s death was preceded by empty shelves, delay in payment of supplies, and recurrent expenditures. This is exactly how Uchumi, Nakumatt, Ukwala, Ebrahims, and Choppies died.

Suppliers sought government intervention to have the ailing giant compelled to pay for their supplies. Landlords are pushing the ailing giant to have their dues paid. The supermarket is in a coma but the suppliers and landlords don’t care. The retailer is in trouble.

The problems that killed Nakumatt and Uchumi are the same problems that killed Tuskys. Mismanagement is one of the problems. The blind expansion that was championed by the management was a terrible disaster.

Siblings rivalry and theft is another problem that killed the supermarket. One of the siblings is accused of stealing 1.6 billion shillings from the supermarket chain.

Tuskys management’s unstrategic decision to acquire some of the branches that were vacated by Nakumatt was another costly mistake. The retailer could have survived if the management was streamlined, a sound expansion strategy was adopted, and measures to curb the theft of goods, assets, and cash were put in place. It’s too late. The retailer is breathing it’s last.

Procurement fraud was another problem that plagued the chain stores. Just like Uchumi and Nakummatt, dishonest suppliers colluded with Tuskys staff to fleece the supermarket through false claims. A huge quantity of goods from several suppliers were neither ordered nor delivered at Tuskys stores.

Final Thoughts

The death of Kenyan giant retailers reveals hard realities. The challenges bedeviling the supermarkets can affect any enterprise hence all businesses should learn from the mistakes of the fallen giants.

Many supermarket giants have died; however existing supermarket chain stores NEVER LEARN. They don’t take time to find out why other retail outlets are dying at an alarming rate. They continue making the same mistakes that were made by the FALLEN GIANTS meaning we may witness more deaths moving forward. Mark my words, if nothing is done, this is a space to watch.

About the Author

I’m a Top-notch Freelance Article Writer and Founder of Mikakati Business Strategy Consultancy. I’m passionate about helping your businesses excel in the dynamic business environment.

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