Kenya’s oldest retailer considers several financing options to keep operations afloat

Uchumi Supermarkets Plc., Kenya’s oldest retailer, is looking to obtain a potential capital injection from a private-equity fund and other investors, in a bid to stay alive. It is currently facing a cash crisis and it does not have enough money to keep up its operations in the East African country.

Acting Chief Executive Mohamed Mohamed, in an interview in Nairobi, told Bloomberg that the retailer is considering several channels of financing. Mohamed also added that “where Uchumi is right now, it needs some cash almost immediately. We are looking for a financial investor.” However, the chief executive officer declined naming the potential suitors.

Uchumi has struggled since it emerged from bankruptcy in 2010. Bloomberg reported that it had gone into receivership five years earlier with debts of 2.2 billion shillings that were either cleared or converted into shares.

Over the past few years, the company has been plagued with an unending barrage of crises. 2015 was a significant year for the store chain when it had managerial challenges that led to the dismissal of its then chief executive officer and chief financial officer for misconduct and gross negligence. In the same year, the Nakumatt rival had hired a Nairobi-based consulting firm to probe employee theft at the retail chain. The 42-year-old grocer later had to close down all its stores in Uganda and Tanzania, citing unprofitability. In the process, 900 former employees were laid off in both counties, making Kenya the only where it operates.

These incidences threw the retailer’s recovery plans into limbo and compromised its efforts at attracting new funding to pay its outstanding debts and restock its outlets.

The Kenya government, as at December 2017, said it had released Ksh700 million ($7 million) to the company for restocking so that it can take advantage of the booming business expected in the end of year festive season. This intervention hasn’t done much for Uchumi, which has branches located in most parts of Kenya: Nairobi, Eldoret, Meru, Embu, Kericho, Nakuru and Karatina.

Efforts to reduce cost are being deployed by the company as it has sold assets and shut a 49,200 square-foot space in Nairobi. It recently exited two stores that accounted for 42 percent of rental expenses of 55 million shillings. Mohamed revealed that the company is currently re-negotiating leases, reducing floor space, or subletting to specialty stores.

“We are looking at other loss-making areas and getting rid of them to stop the bleeding,” Mohamed said. “Looking at our financial situation, it would be prudent to re-look at where we want to play, which line of business we want to pursue. E-commerce is an important aspect of where we want to play.”

With the invasion of international retailers including Carrefour SA of France, Shoprite Holdings Ltd. of South Africa and Botswana-based Choppies Enterprises Ltd. into the East African country’s markets in recent years, Uchumi now has more to worry about including its survival amidst the now competitive market.

According to Mohamed, Uchumi would need nothing less than 7 billion shillings ($69.3 million) this year to hold off the competition and survive its harsh reality. It, however, needs at least 4 billion shillings as soon as possible. He added that there are plans to also use some of the cash to roll out e-commerce, franchises and convenience stores, instead of banking on hypermarkets.