Prime
Trends: How local retailers can keep up with consumers
A shopper pushes a trolley in a supermarket. PHOTO BY RAHCAEL MABALA
What you need to know:
The regional retail industry has experienced challenges leading some to fold their operations in a few areas.
Aside from the troubles that regional supermarkets find themselves in are lessons that Ugandan chains must pick on to not only stamp their authority but also run sustainable operations.
KAMPALA: Early this month, Nakumatt Holdings announced it would close some of its dismally performing branches in Uganda and Kenya to cut costs.
The retail chain, in making such a drastic measure, seeks to save about Shs52.5 billion in overhead expenses, especially at a time when numbers, in some of its largest markets, are not reading right.
Mr Atul Shah, the Nakumatt managing director, in a media briefing told journalists that they would also freeze recruitment of new staff.
“The branch culling strategy, he said “will start off with sub-optimally performing branches for whose lease contracts are due for renewal to be followed by branches in poor locations.”
In Uganda, the retailer has already closed its branch in Katwe due to accumulated rent arrears estimated at about Shs297 million.
Nakumatt operations across the region have been dogged by various rumours, such as insufficient stock of basic goods.
However, Mr Shah’s emphasis on culling out low performing branches perhaps points to direction that the supermarket chain, especially in regard to closing down its Katwe branch, will take in the next few years to save itself from heading the Uchumi way.
Uchumi, which had gone through an ambitious expansion plan since 2008, closed all its regional outlets in Uganda and Tanzania in 2015 after it found itself in a financial position, exacerbated by failure to pay suppliers, internal theft and emptying shelves.
Is the tide changing?
But beyond the troubles that regional supermarkets find themselves in are lessons that Uganda chains must pick on to not only stamp their authority but also run sustainable operations.
For instance, whereas regional supermarkets are experiencing operational problems, local ones such as Quality, Mega, Capital Shoppers, Senana Hypermarket and Kenjoy are positioning themselves to take advantage of the market that, for long, had been controlled by Kenyan retail stores.
All these, analysts argue, are experiencing a semblance of organic growth supported by a strategy of targeting the mass market unlike Kenyan supermarkets that had heavily borrowed to appeal to the middle income class shoppers.
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.
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.
Local supermarkets retort
Mr Francis Akankwasa, the general manager of Mega Standard Supermarket, which has experienced substantial growth over the last decade, admits that although the figures are not reading right. they are optimistic and hope for better times.
“We are also not fine but trying to be patient which foreign players are not,” he says, but notes that they are prioritising certain aspects such as paying suppliers and ensuring that they provide their customers with quality goods and products.
“We have avoided middlemen. We deal with suppliers directly and we make sure that local suppliers take priority over foreigners,” he says.
The current volatile economy has had massive negative effects on a number of strategic plans, which among them include expansion.
Mr Ponsiano Ngabirano, the Capital Shoppers chairman and chief executive officer, says he has put a hold on expansion plans because “the economy is not doing well characterised by high prices of products amid low purchasing power.
“We last expanded three-years ago and right now, we have no plans to expand,” he says, noting that they are currently concentrating on strategic areas of the business such as paying suppliers and paying staff costs.
Capital Shoppers operates four outlets in Nakasero, Nakawa, Garden City and Ntinda.
Managing risks and watching costs is a key aspect which according to Mr Charles Ocici, the executive director of Enterprise Uganda, must take centre stage for any retail store at a time when cash-flow is becoming a problem for many businesses.
“The biggest risk you’re likely to experience when the economy is reading right is liquidity flow. When liquidity becomes an issue, you start taking advantage of key stakeholders,” he says, highlighting the fact that some supermarkets will fail to pay suppliers for months.
Therefore, he advises that in the case of a supermarket business, suppliers must never be put in second place because “if they withdraw their supplies, it will reflect on the business resulting into falling stock and emptying shelves”.
Large supermarkets, he notes: “might resort to taking on new suppliers,” which also comes with new challenges such as falling quality and an enlarged debt in fees due to suppliers.
Large supermarkets, he says, have a series of expenses such as rent, staff salaries and fees dues to suppliers, which in the event of any form of default, there will be serious repercussions on the business.
This might have been true with Uchumi, which as it neared its last days, failed to pay suppliers, rent and finally its staff.
To keep in trade
Therefore, Ocici’s advises that local retail stores must guarantee that they provide the best services to customers and prioritise key supply channels.
“Customers know what they want and they must be provided with exactly that failure to it will also see local supermarkets fall in the same pit that foreign ones are finding themselves in,” he says.
But beyond providing goods, the factor of location and accessibility, according to Ggoobi, plays a serious role in attracting shoppers.
“Ugandans are ‘spot shoppers’ – they love to make stop-overs on their way home to buy groceries. Few would drive from their offices or homes to go shopping,” he says.
Capital Shoppers, Mega and Quality some of the successful indigenous supermarkets, offer a good case in point. Beyond that, local supermarkets must work hard on supply chain management Ggoobi says.
KEEP SUPPLIERS CLOSE
Therefore, Mr Ocici advises that in the case of a supermarket business, suppliers must never be put in second place because “If they withdraw their supplies, it will reflect on the business resulting into falling stock and emptying shelves”.
Large supermarkets, he notes: “might resort to taking on new suppliers,” which also comes with new challenges such as falling quality and an enlarged debt in fees due to suppliers.
