When Nakumatt was evicted from three malls considered to be the affluent areas for the middle-class and foreigners, it was partly because the retailer was no longer considered to be offering the required services as per the tenancy agreement. Acacia Mall, Bugolobi Village Mall and Victoria Mall in Entebbe are the three malls where Nakumatt was evicted a week ago. In evicting Nakumatt, the real estate management company, Knight Frank noted that the retailer was no longer providing the experiential feel for customers in the shopping mall.
“Nakumatt has had some performance issues and we felt that they were not adding much value to the three shopping malls. We shall redevelop the spaces over the next five months to add value to our shoppers,” Mr Marc du Toit, said when they announced the closure of the three outlets.
The working assumption of a shopping mall is that people will find everything under one roof. For instance, a family will visit the shopping and they will go to the food court to eat, then they will visit the kid’s play area, go to the salon or even the gym. On their way out, then they pass by the supermarket and make some shopping. That is the experiential treatment that is set about in a shopping. Nakumatt, according to du Toit, was no longer offering this. In fact, when customers would walk in to buy products, they would find stock-outs. Once brands like Unilever, Coca-Cola, Jesa, and Splash among others, started missing from the shelves, customers also started shunning the supermarket.
Considering their expertise in mall management, eviction was the only option. Tenancy agreements are locked in with several terms and conditions, which it is believed were triggered once the stock-outs happened. These three malls are considered to be visited by some spenders in the economy. When the numbers decline, it affects the rest of the businesses in the malls. Once Nakumatt started experiencing stock-outs, the shoppers now had other options in the vicinity. For instance, once the stock-outs happened in Acacia Mall, people moved to Millennium and Checkers supermarkets just across the road.
Now, the management is being forced to consider bringing new players into the malls, but for now, they have to incur some losses. The landlords, Pine Investments (owned by several Ugandans including Mr Charlie Lubega and Mr William Byaruhanga) for the Village Mall in Bugolobi, Megha Industries (run by Dr Shiraz Meghani) for Victoria Mall, Entebbe and the Mukwano Group for the Acacia Mall now have to get an entirely new tenant to occupy the anchor tenant gap left by Nakumatt.
In 2014, when Uchumi at Garden City Mall started experiencing stock-outs, the landlord, Golf Course Holdings, allowed another supermarket to set up. Capital Shoppers opened its doors and slowly Uchumi was forced out. The landlord now also has Mega Standard operating in the same building, which is rather unusual to have two supermarkets in the same building.
Daily Monitor understands that in order to free up some cash for the retailer, Nakumatt management has allowed for some outlets to be closed. Several other buildings are also on the verge of losing Nakumatt outlets. The Metroplex Mall, Naalya is one of them. When Daily Monitor visited the Nakumatt outlet, several employees had already been sent home, whereas those there were resigned to their fate. The plan is for Nakumatt to save at least Shs50b annually by closing some outlets.
“It is only a matter of time and we’ll also be out here,” an employee at Nakumatt Metroplex Mall explains.
The only optimism inside Nakumatt at Metroplex Mall is the music that plays in the background. Even some of the employees have already been sent home, with only a handful remaining. It had about 40 staff, however, less than half of that is still working at the Metroplex Mall branch.
“Some of the colleagues were told to go on leave because the business has not been doing well. We are now also waiting to leave as our benefits are being calculated,” he explains.
Nakumatt is the largest supermarket in East Africa with 68 outlets (before some closures).
In Uganda, it was also the largest with nine outlets. So far, four have been closed. Its operation was already employing in excess of 500 people. All these jobs are now at stake. Already, close to 200 people have been sent packing. This also forms part of the restructuring process that is seeing Nakumatt retreat to perhaps serve only the Kenyan market as it recovers from the dire financial distress it is facing.
With suppliers shying away from the retailer, maintaining a branch – costs could run – leads to losses because utility bills accumulate yet there is no revenue being generated.
Already, salaries have been delaying, leaving several employees to default on their own expenses.
In October 2016, when Nakumatt admitted its financial troubles, they revealed that there would be some form of restructuring. In Kenya, they employ about 5,700 workers and already some of them have been sent on compulsory leave.
The retailer also hired Mr Andrew Dixon, as marketing director from one of the UK Tesco, the ninth largest retailer in the world. In the last few months, Nakumatt founder and chairman, Mr Atul Shah has taken more a backbencher’s role as the retailer is restructured. Additionally, KPMG was also hired to advise on where to cut costs and turnaround the business. That means markets and outlets that are underperforming will be shut down, leaving thousands unemployed both in Kenya and Uganda.
The Kenyan government has hinted at a potential bailout for Nakumatt. In Kenya, Nakumatt is a much bigger operation with about 56 outlets. The implications are vast as the Trade principal secretary in Kenya Mr Chris Kiptoo said in the Business Daily, noting that Nakumatt was too big to fail.
“The situation is not good. The government is not a Nakumatt shareholder, but my involvement is to see how we can bring all parties to reach an amicable solution,” Dr Kiptoo said.
“It would be bigger than Chase Bank and Imperial Bank combined. This is why we are working hard to ensure the retailer stays open,” he added.
Mr Shah has also, in essence, requested the government for a bailout. The interest of the government would be to pay suppliers and then convert that money into equity in the retailer. However, with Nakumatt’s assets dwindling bit by bit, the government is believed to be asking Nakumatt to reveal more about its financial statements – that in part explains the KPMG audit.
Supplier’s Shs15b dilemma
Ugandan suppliers have a checkered past with Kenyan retailers. Some of them still yet recover monies owed to them by, Uchumi, which closed shop in the Ugandan market in January 2016. The amount owed to suppliers was Shs8.8bn but it had far fewer assets to cater for this. Some suppliers to-date have never been paid.
For Nakumatt, suppliers are demanding about Shs15b from the retailer for goods supplied that were never cleared. Supermarkets operate some form of credit lines. Suppliers bring goods and after a period of about 15 to 30 days, the supermarket pays. Nakumatt had a modest turnaround period for clearing suppliers but then the days increased from 30 to 90 days and even went as far as 120 days. Nakumatt was hemorrhaging money in expenses for rent, utilities and debt servicing, that the suppliers became the victims. Some have even gone to court to recover the money owed to them by Nakumatt.
Searching for investor
Nakumatt has pegged the revival of its fortunes on a new – yet to be named – investor.
The investor was supposed to bring in $75m (Shs27b) cash for a 25 per cent to turnaround the chain whose expansion drive was driven by debt.
Mr Andrew Dixon, the Nakumatt Group marketing director,told Business Daily, a sister newspaper to Daily Monitor recently that a delay in securing an investor had placed the business under pressure and seen them unable to meet some obligations.
Survival of local chains
According to Mr Ramathan Ggoobi, an economist and lecturer at Makerere University Business School, those supermarkets that will fail to respond to societal changes are likely to land on more hard times.
“Consumers have become more price-conscious, impulse buying is waning and people have reverted to lock-ups and bargain markets (Nakasero, Owino, Bugolobi market),” he says.
Therefore, he says, any strategist would have to rethink their operations in order to take advantage of retreating shoppers amid dismal increases for groceries spend.
Trends in supermarkets
Uganda’s per capita spend on grocery, according to Business Wire, a Canadian research firm, stood at $156.3 (Shs554,642) in 2015, indicating a slight rise in over a decade since 2004.
Data from Uganda Bureau of Statistics indicate that more than seven million Ugandans spend nothing or don’t buy anything at least every single day.
Such data might be a key determinant for the trends in the supermarket business but might also suggest hard times for local chains.
Kenyan supermarket troubles
It is not yet clear what has caused Nakumatt’s meltdown but some have blamed the rapid expansion where strategic locations were never picked. The expansion drive was driven in part by credit from commercial banks but the outlets were unable to turn around the retailer. Unlike Uchumi, whose management was engaged in fraudulent activities, Nakumatt’s story is still considered to be out there. The retailer is a private company and does not disclose financial statements to the public. Tusky’s another Kenyan retailer avoided the Uganda exit by closing several branches before the situation could get worse. It is still believed to have troubles clearing suppliers on time due to cash-flow challenges.
Where is the investor?
Last year in October 2016, Nakumatt revealed that it was seeking to secure an investor for a 25 per cent stake in the retailer. The hope was to close the deal by July 2017. However, this appears to be taking longer than expected. What remains unclear is if the new investor is the one calling shots in order to shutdown loss-making outlets before cash injection is made.
Some Nakumatt Uganda supplier creditors
Britannia Allied Industries : Shs400 million
Groceries Plus : Shs279 million
Hair Care Centre : Shs100m
Charms Uganda : Shs140m
UgaChick: Shs 39 m