Andrew Dixon, Nakumatt’s chief marketing officer. PHOTO | AFP
Summary
- The dizzying fall of East Africa’s largest retailer has been blamed on a combination of bad management, misguided expansion plans and increased competition.
- Many industry insiders say the damage wrought on the company is so severe that it may not survive.
- The chain’s position today is indeed a tenuous one: Nakumatt has become so bad at paying its bills that some suppliers demand to be paid upfront or refuse to deliver.
The butchery is closed, metres of
shelves are empty save for a single brand of shampoo and, worst of all,
the toilet paper is out-of-stock.
Once a Kenyan
success story, homegrown Nakumatt supermarkets are grappling with
product shortages so severe even the country’s best-known cartoonist has
taken notice, lampooning the company’s slogan in a recent drawing as,
“You need it, we don’t have it”.
The dizzying fall of
East Africa’s largest retailer has been blamed on a combination of bad
management, misguided expansion plans and increased competition, and
many industry insiders say the damage wrought on the company is so
severe that it may not survive.
“It’s what I call a
perfect storm, where a series of events have come together to create the
position that we’re in,” said Andrew Dixon, a former executive with
Britain’s Tesco supermarket recently hired to head up Nakumatt’s
marketing.
The
chain’s position today is indeed a tenuous one: Nakumatt has become so
bad at paying its bills that some suppliers demand to be paid upfront or
refuse to deliver.
The landlord of one supermarket recently raided the premises and seized merchandise in lieu of unpaid rent.
It wasn’t always like this.
Nakumatt’s
transformation from a one-store mattress retailer into a
region-spanning grocery empire is a fairy-tale saga in a country where
entrepreneurship is a cardinal virtue.
The chain’s
story starts in 1979 in Kenya’s Indian community, when a father, fresh
off the bankruptcy of another business, started a mattress store with
his two sons in Nakuru town.
The store was named
“Nakuru Mattresses,” which was later contracted to Nakumatt and what
would become one of the best known brands in East Africa.
The shop flourished and by the mid-1980s the family opened their first store in the capital Nairobi.
The current difficulties have seen two Nairobi stores and three in Uganda shuttered.
However, the business still employs 7,000 people
and has 45 stores in Kenya, eight in Uganda, three in Rwanda, five in
Tanzania and does annual sales of Sh62 billion, according to Dixon.
Three reasons
Dixon has identified three reasons for Nakumatt’s struggles.
The
first was a stroke of bad luck — the September 2013 attack by jihadists
on the Westgate mall in Nairobi that left 67 people dead and destroyed
Nakumatt’s flagship store, which Dixon said accounted for 10 per cent of
the company’s turnover.
The second is the
proliferation of malls in the capital. In its policy of expansion,
Nakumatt has had to commit to opening new markets years in advance, and
sometimes, when they finally do open, they end up not being as
successful as expected.
The final blow is Kenya’s economic growth, which, while strong, is less than Nakumatt anticipated.
“We
had originally put together a business plan which had assumed a certain
growth in the economy. That growth has now slowed,” Dixon said, adding
that the retail sector’s share of GDP has dropped from 12 per cent to
six per cent.
Sources among Nakumatt’s competitors
point to a fourth reason: the company’s acquisition at the end of 2016
of minority shareholder John Harun Mwau’s stake in the chain for a sum Kenyan media reported to be at least $30 million (about ShSh3.19 billion).
In
2011, American investigators froze Mwau’s assets in the United States
over allegations that he was involved in drug trafficking, a charge he
denies.
The businessman and politician’s scandalous reputation was seen as hampering Nakumatt’s quest to convince investors to inject $75 million into the company.
Time is running out
The time for Nakumatt to sort out its affairs is running out.
Wholesalers,
who have relied for years on Nakumatt’s business to connect them with
Kenya’s rising middle class, are losing patience.
So, too, are mall owners, who have watched the balance of unpaid rent from the stores grow by the month.
The
landlord of one shopping centre in Nairobi’s northern outskirts grew so
tired of waiting that in early July they raided the Nakumatt on their
premises, seizing trucks, televisions, trolley and refrigerators to
auction in a bid to recover Sh51 million shillings ($491,000) in unpaid
rent.
Julien Garcier, managing director of market
research company Sagaci, said Nakumatt did not only need new investors,
but fresh ideas and outside expertise.
“Yes, they have
been around for a long time, but above all, it’s a family business and
they are now facing a fairly sudden rise in competition and their lack
of know-how is making them make expensive mistakes,” Garcier said.
That
competition is not just from local brands like Tuskys, Chandarana and
Naivas, but also from France’s Carrefour and American chain WalMart,
both of which have recently emerged — albeit on a small scale — on the
scene in Kenya.
At the opening of a WalMart-owned Game
supermarket in 2015, a local television station came across Nakumatt
boss Atul Shah browsing the aisles, who made what seemed to be an
admission of weakness.
“The biggest trouble I go through is, what next?” he told the journalists. “Always, we’re looking for ideas.”
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