Tur­moil en­gulfs su­per­mar­ket suc­cess Naku­matt in Kenya

Kuwait Times - - BUSINESS -

The butcher 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 best­known 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 of the bank­ruptcy of another busi­ness, started a mat­tress store with his two sons in the Rift Val­ley town of Nakuru. 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 mid1980s 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 $600 mil­lion (511 mil­lion eu­ros), ac­cord­ing to Dixon.

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 per­cent 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 per­cent to 6 per­cent. 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.

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.

The gi­ants in wait­ing

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 51 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.” — AFP

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