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Nakumatt Holdings last week announced it had finalised plans to take over two Shoprite stores in Uganda. The takeover will effectively mean that the South African retail chain will exit the East African market after quitting in Tanzania last year. Didas Kisembo & Mark Keith Muhumuza drew back to the events leading to the announcement, analysing why the supermarket, which has been in Uganda for about 15 years, had to leave the market.
In September 2008, South African retail giant, Shoprite Holdings, was named by a Planet Retail report as the leading supermarket chain in Africa.
The retail chain had beaten more than 30 continental grocery stores to the position, among which are multinational supermarkets, explaining its giant leap into much of the continent at the start of the millennium.
In 2000, Shoprite launched in Uganda, establishing a high-end store in downtown Kampala on Ben Kiwanuka Street, before opening two others in Lugogo and Naalya.
The retail chain, in its 15 years has walked a high line amid growing competition and underperformance, some of the factors, which at the close of May, forced through a decision to close one of its largest but drifting Naaly outlets.
The closure, as it seems, must have forced a review of the retail chain’s operations in Uganda as the market was persistently fed on speculation the South African – based supermarket was searching for buyers for its Ugandan franchise after quitting Tanzania.
Indeed at the close of last week, retail giant - Nakumatt Holdings, confirmed the speculation, telling Kenyan-based Business Daily, a sister publication of Daily Monitor, that it would in about two weeks sign a Memorandum of Understanding to buy Shoprite out of Uganda.
“Nakumatt will be signing a Memorandum of Understanding with Shoprite to acquire their outlets in Uganda,” Thiagarajan Ramamurthy, the Nakumatt Holdings head of strategy and operations said in reference to the two outlets on Ben Kiwanuka Street and Lugogo, Kampala.
Nakumatt is a Kenyan-based retail giant with more than 53 stores spread in Kenya, Tanzania, Rwanda and Uganda.
Denials amid speculation
At the start of June in an email Shoprite appeared cagey on its operation in Uganda, stressing it would not quit the country given persistent speculation that the retail chain could no longer hold amid growing competition.
“Shoprite owns two large malls (Lugogo and Clock Tower Centre) in Uganda and there is no plan to exit. Shoprite are continuously investing in new opportunities to expand its business,” Jennifer Van Der Westhuizen, the Shoprite Holdings communications manager wrote in an email in June after the retail chain closed its Naalya outlet.
However, Westhuizen’s denial of the underlying facts about the retail chain’s operations in Uganda could have been overrun by events given that Shoprite will soon cede its last foothold in East Africa to Nakumatt Holdings after selling its franchise in Tanzania to the same retail chain last year.
Kenyan – based retail analyst Moses Waiyaki believes the decision to quit was only but delayed “considering that the Uganda franchise would not operate as a loner after closing in Tanzania”.
“They must have reviewed the East African market and made an informed decision. Perhaps they were still searching for the best bet,” Waiyaki told this newspaper via email when asked to opine on the expected Shoprite exit.
The East African market, according to Waiyaki has become too competitive with fast-paced and ambitious expansions of regional retail giant mostly especially Nakumatt.
This newspaper could not get a comment from Shoprite Holdings as emails sent to different officials at the South African based headquarters went unanswered.
However, Shoprite’s exit could have been informed by the organic growth of Kenyan – based regional giants including Nakamatt, Uchumi and Tuskys among others.
The growth, notwithstanding that some, such as Uchumi have problems at home (Kenya), has been massive, overtaking Shoprite which had been in the country for about 15 years now.
The spread, according to a June Alliance Africa – Kenya report mainly targets acquisitions and establishing new stores in locations that had previously not been well served.
However, the report notes: “This has been a risky gamble with some outlets working out and others providing no option but to close off.”
Indeed this fate must have befallen Shoprite as the ‘gamble’ to open an outlet in Naalya pushed its operations on the edge, which in a June interview, according to Jayte Slabbert, the Shoprite Uganda country manager, informed their decision to close off the outlet due to underperformance and bad location.
Other supermarkets, including Uchumi and Tuskys have closed outlets that contrary to expectation had been performing below par.
Last year, Nakumatt bought Shoprite out of Tanzania taking over its three outlets at more than Shs140b ($45.5m).
The Tanzania exit, Waiyaki says, must have been the last departure signal from East Africa for the retail and food giant, which operates more than 526 stores in 16 countries across Africa.
Shoprite Holdings has more than 95,000 employees, of which approximately 11,000 are outside South Africa.
The group retails under five brands including Shoprite supermarkets, Checkers supermarkets, Usave stores, MediRite Pharmacy, House & Home and the OK franchise.
For the 12 months to June 2015 the Group increased total turnover by 11.2 per cent to more than $8.99b (R113.7b), compared to the same period in 2014.
The South African supermarket division, the largest in the Group, according to the report grew sales by 10.5 per cent, up from 8.7 defying a tough economic environment across the continent.
Outside South Africa the group increased sales by 13.5 per cent but was negatively affected by the sale of the Tanzanian business as well as the temporary closure of one of its outlets in Angola .
Shoprite Holdings also operates a furniture division, which grew its turnover by 13.0 per cent despite the highly competitive market conditions. Other segments, according to the report, posted a satisfactorily growth of 13.6 per cent.
The above financial information had by press time not been reviewed or reported on by Shoprite Holdings’ auditors.
Tough year at home (South Africa)
In February, Business Day newspaper in South Africa, reported that Shoprite Holdings would be opening 101 new stores – double the initial target – in South Africa before June as part of an aggressive expansion plan to gain market share.
But the expansion did not lift the stock exchange performance as Shoprite shares fell as much as 3.7 per cent to Shs36,168, the biggest intraday decline, according to Bloomberg, a news agency.
“It’s been a tough year, the rise in fuel and electricity costs is not helping…and GDP (gross domestic product) projections don’t show a good picture for South Africa,” Whitey Basson, the Shoprite Holdings Group chief executive officer said in an interview with Business Day newspaper.
Shoprite began its first-paced expansion in 1995, spreading into 16 African countries by at least 2004.
Early this year Basson had announced the group would open 44 additional supermarkets in the rest of Africa by June 2015, in countries such Nigeria, Zambia and Angola but as it seems no additional store will be opening in Uganda.
In Uganda, just like in Tanzania the group could have found it difficult to compete with the informal market as Basson was recently quoted saying: “We just couldn’t compete with the informal trade. It’s just a waste of time for us to expand in a market where we can’t get the optimum size for having enough stores to make a meaningful contribution to us. The west coast is so much more profitable to us.”
Troubles with KCCA
Apart from tough competition, the retail chain has also been affected by closure of some of its sections due to failing to meet operation standards.
Just this month, Kampala Capital City Authority public health enforcement department closed off the Shoprite food section at Lugogo citing failure by the supermarket to adhere to required health standards.
“The butchery section has not been well partitioned, it is a mix up of beef and all the other sorts of meat,” Mr Peter Kauju, the KCCA spokesperson said after the closure.
Last year, the Shoprite outlet in Naalya and Tusky’s in Bwaise were among the 15 shopping outlets that KCCA closed over failure to observe minimum health and safety standards.
Uganda’s retail sector is fast-changing driven by Kenyan supermarket chains, specifically Nakumatt. Latest shopping malls such as Acacia Mall, Victoria Mall and Village Mall in Entebbe all have an anchor tenant, Nakumatt.
An anchor tenant, according to Knight Frank is one who takes on the largest space of the mall with the hope of attracting traffic. Shoprite is an anchor tenants at its outlets in Lugogo and on Entebbe Road.
Shoprite’s exit comes at a time the retail segment is expanding tapping into Uganda’s “middle class” and expatriate community and “...this is directly attributed to the changing shopping patterns of local consumer and the high demand for future space being shown by Southern African, Middle Eastern and Northern Hemisphere retailers,” according to the Knight Frank Uganda Q3 and Q4 report.
The report further points out that the outlook for growth is being driven by the “ever expanding middle class and the relatively unstructured retail environment, offering and space.”
With the expansion, Shoprite has been taking a slower approach allowing chains such as Quality Supermarket, Tuskys, Capital Shoppers, Nakumatt and Uchumi eat into its market and competition is likely to continue as “The future bodes well for the consumer as more retail outlets, means more competition and better price points for consumers and obviously better choice,” the report reads.
Shoprite’s model has been to lease land, build and then operate. The approach for Metroplex Mall was different for the chain since it was forking out nearly Shs200m a month on rent.