Uchumi suspends Rwanda entry amid financial troubles

One of Kenya’s largest Supermarket chain, Uchumi, will not be opening shop in Rwanda for at least another year as the troubled regional retailer struggles to restore its financial health, The New Times has learned.
Uchumi supermarket  is supposed to have opened two stores within Rwanda in the last two months. (Net)
Uchumi supermarket is supposed to have opened two stores within Rwanda in the last two months. (Net)

One of Kenya’s largest Supermarket chain, Uchumi, will not be opening shop in Rwanda for at least another year as the troubled regional retailer struggles to restore its financial health, The New Times has learned.

According to its earlier expansionary plans, Uchumi is supposed to have opened two stores in the last two months with its main branch at Chic Complex, located at former ETO Muhima, in Kigali.

Another store was to be opened in Musanze, the de-facto capital city of Rwanda’s Northern Province while one more scheduled for opening early next year, was to be located in Remera, Kigali suburb.

“They have informed us that those plans have now been put on hold, for at least another year,” said real estate guru Charles Haba who was acting as Uchumi’s booking agent in Kigali.

In the real scheme of things, ‘at least a year’ could mean anywhere in 2017 although some market observers think this may take longer given the depth of Uchumi’s current financial crisis.

Can Rwanda save Uchumi?

It’s a tricky question to answer at a time Uchumi is taking the bold but painful decision to close its stores and exit relatively larger markets in Tanzania and Uganda, a presence that had helped the retailer become a major household name in the region.

Uchumi’s media dubbed ‘abrupt closure’ in Uganda recently, was not that abrupt, it was bound to happen but nonetheless,  left behind a messy situation of protests by hundreds of workers who are now out of job, and unpaid suppliers. Both parties are now up in arms against the in-flight retailer.

In a letter last week, Uganda’s Ministry of gender, labour and social development summoned Uchumi managers in the country to respond to an official complaint from the supermarket workers over its closure without fore warning or notification to their [workers’] union.

Uchumi also closed its stores in Tanzania leaving similar consequences as those left in Uganda. But the retailer is also staring at a barrage of lawsuits likely to come from both disgruntled workers who feel they were wrongfully dismissed as well as from unpaid suppliers.

Two weeks ago, court bailiffs, acting on behalf of Ugachick, a chicken supplier, stormed the mall over arrears of sh185m, about Rwf40million.

With its Ugandan and Tanzanian operations closed, it’s not likely that launching new operations in Rwanda would have saved Uchumi.

However, actors in Rwanda’s retail industry suggest that whenever Uchumi’s finances stabilise, the country presents huge growth potential to accommodate both existing players and new entrants.

“This market has been growing and still is growing so I definitely see space for them because Rwandan consumers are beginning to embrace the supermarket culture,” said Justine Ngarambe, the Managing Director of Simba Supermarket.

Ngarambe has watched the Rwanda market evolve over the years during which her own burgeoning chain of Simba coffee shops and supermarkets have grown into a household name operating in a mainly two-horse race with Nakumatt, another Kenyan retailer.

Had Uchumi not cancelled its Rwanda entry, their Musanze store would have been the first to be established far away from Kigali city, by a major shopping mall.

But when it finally comes to Rwanda, earliest 2017, Simba is also likely to have actualised its expansionary plans currently in the works, to spread operations outside Kigali.

“We are looking at a year or so after opening our centre at Kigali heights, to take our operations beyond Kigali, starting, potentially with Musanze and Gisenyi towns,” revealed Ngarambe, yesterday.

Uchumi’s current troubles

The suspension of plans to open stores in Rwanda and the closure of operations in both Tanzania and Uganda were explained in a press interview by Uchumi’s recently appointed chief executive, Dr. Julius Kipng’etich.

“Our outlets in Uganda and Tanzania make up only 4.75 per cent of our operations yet they account for over 25 per cent of our operating costs.

 The two subsidiaries have not made any profits over the last five years, which means they have been draining the parent operations,” Kipng’etich was quoted as saying, by Kenyan press.

But Kipng’etich, who was head-hunted from Equity Bank, was acting on a problem that had been known to Uchumi top management that he replaced.

In September 2014, Jonathan Ciano, the immediate former Uchumi chief executive officer reportedly told shareholders in Kenya’s only listed retailer, that  it was no longer tenable to keep operating branches in Uganda as they had ‘failed to perform to expectation.’

But in June this year, Ciano was controversially shown the exit along with Uchumi’s then chief finance officer, on accusations of “gross misconduct and negligence.”

Their sacking followed an audit that reportedly revealed suppliers had ‘stopped delivering goods to the retail chain’s stores because Uchumi owed them more than US$10.3 million.’

Ciano, who denied allegations cited for his dismissal, is ironically, also praised by some as the man who saved Uchumi from falling under after its 2006 bankruptcy scare.

Uchumi had been placed into receivership in June 2006 after chocking on debts worth billions of Kenyan shillings and Ciano was the man who was appointed, then, to manage the retailer during its life threatening situation.

The receivership ended on March 4, 2010, with most of the company’s obligations settled while other creditors accepted to become shareholders; the company then resumed trading on the Nairobi Stock Exchange on May 31, 2011.

Cutting costs

Uchumi’s current financial troubles seem to suggest that the retailer is relapsing into fiscal abyss but market analysts say the decision to cut operational costs and restructuring management, is the right one.

“They’re throwing away extra-baggage to avoid sinking, by restructuring management and closing non-performing subsidiaries in Uganda and Tanzania to strengthen and stabilise the parent company in Kenya,” said Celestin Rwabukumba, chief executive officer, Rwanda Stock Exchange.

Uchumi which is currently celebrating 40 years since its establishment in 1975 is also listed on the RSE but as a Kenyan firm.

“The restructuring and cost cutting decisions being taken right now are for the benefit of the company and its shareholders because it’s better to have trim but profitable operations instead of a lot of branches that are loss making,” added Rwabukumba.

Uchumi is also reportedly selling off some of its prime properties including land located in Nairobi to raise money to settle its obligations to especially suppliers. The closed stores will also be liquidated to raise more cash.

The Kenyan press quoted Uchumi’s former boss as saying; “…When you realise that you are not getting the support you need and you want to save the brand that is what happens.”

But his successor, Dr. Kipng’etich who is Equity Bank’s former chief operating officer, will need all the support he can get from his new employers if he’s to save the regional retailer from sinking in its 40-year-old history.

If he pulls it off and revives the supermarket’s expansionary plans in the region, then the over 150 jobs prospect to be created by its stores in Rwanda will be alive again; for job seekers.

 

Have Your SayLeave a comment