Nakumatt’s woes is Shoprite’s gain

Expanding its reach and strengthening its position outside South Africa where consumer confidence has been weak because of sluggish economic growth, leading African retailer, Shoprite Holdings Ltd., moves towards penetrating the Kenyan market by filling retail space left empty by the struggling Nakumatt Holdings Ltd. chain.

Kenya’s largest supermarket chain, Nakumatt has been battling with suppliers and landlords who have been demanding the liquidation of assets to recover their monies or rent arrears.

Nakumatt has closed more than a dozen branches in Kenya, Uganda and Tanzania as the East African retailer struggles to pay suppliers and owes more than 30 billion Kenyan shillings ($289 million) to creditors.

The retailer had earlier applied to the high court for administration under insolvency laws, in a bid to fight liquidation efforts and shield itself from creditors. However, the effort did nothing to save the situation, as it later faced a severe cash flow problem after suppliers cut them off, leaving Nakumatt store shelves empty.

Failing to sell to a foreign fund a 25% stake for $75 million in January to settle its mounting debts, Nakumatt announced in September a merger with its rival Tuskys as a move to savage its falling business.

Nakumatt’s bankruptcy move seems to have created an opportunity for Africa’s biggest retailer, Shoprite to take a turn at the table, as this is a sudden change of fortune for Nakumatt, which previously took over Shoprite stores in Uganda as part of its expansion plan.

Shoprite’s first store in Uganda was opened in 2000 at Ben Kiwanuka Street. It opened a second store at Lugogo Mall in 2004, and a third in Nalya at Metroplex Shopping Mall in 2011. Only two of those stores are still operating after the Nalya store closed in 2015. However, according to its annual report, Shoprite had 2,689 stores in 15 countries across the continent at the end of its last fiscal year.

Then in 2015, Nakumatt on an expansion drive, opened its ninth Ugandan store in the shopping space Shoprite had vacated. Its head of strategy and operations then noted that it was looking at increasing its branch network in East Africa to 60 by the end of that year from 55.

After flying too close to the sun for two years, Nakumatt is being forced to retreat as the deliberate Shoprite mops up in the precious real estate it leaves behind after the Uganda Revenue Authority closed its last three stores in the country over unpaid taxes.

Awaiting the outcome of merger talks between Nakumatt and local rival Tusker Mattresses before deciding whether to proceed, “taking over vacated outlets would be the preferred way for the South Africa-based company to enter East Africa’s largest economy as the retail market in Kenya is “too well established” to build new stores” Shoprite director Gerhard Fritz said.

He added that Shoprite is already a registered company in Kenya, where it periodically buys from local manufacturers to export to its other stores on the continent.

Expansion into the country may also be aided by Steinhoff Africa Retail Ltd., which took a controlling stake in Shoprite in September.