Bad decisions to blame for Uchumi’s slide into the doldrums

Monday October 9 2017

Uchumi Supermarket employees protest delays in

Uchumi Supermarket employees protest delays in payment of their salaries. PHOTO FILE | NMG 

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On Nairobi’s Aga Khan Walk stands Uchumi Supermarkets’ 41-year-old branch, one of the first to be opened in the city. Many city residents have fond memories of this branch, when Uchumi was a retail powerhouse.

Today, while the pavement outside buzzes with activity — with the hawkers spreading their merchandise to the entrance — inside the supermarket, cashiers sit idle, staring at empty shelves.

This is the scenario in virtually all Uchumi branches, and analysts say it is all doom and gloom if the retailer does not get bailed out.

A cocktail of factors have pushed the supermarket into a financial crisis, which has seen its share price on the Nairobi Securities Exchange plunge from Ksh19.15 ($0.19)  in February 2013 to as low as Ksh3.15 ($0.03) per share currently.

Dominic Ruriga, a research analyst at AIB Capital, blames bad governance for the turn of events at Uchumi.

“Poor governance gave birth to poor strategy and misrepresentation of financial statements,” he said. He added that the retailer’s expansion plan in East Africa was not well thought out.

Amish Gupta, chief executive of AG Capital concurs, saying some of the firm’s capital is unnecessarily tied up in fixed assets.

“This firm must be privatised to allow the board to operate independently,” said Mr Gupta.

As it battles its huge debts, Uchumi has put up its land in Kasarani, Nairobi, for sale, seeking to raise $18 million.

A former director on the board, who requested anonymity, said Uchumi’s expansion was not backed by feasibility studies of the new markets. The source added that the government’s shareholding in the firm has also been an impediment, as the board does not have a free hand to chart a growth plan.

“Expansion in itself is not bad, but it must be backed by a market study to understand the new environment you are going to operate in. Uchumi’s cashflow issues going back all the way to 2004 are largely due to governance issues. I value governance more than capital injection,” the source said.

Uchumi was listed on the NSE in 1992, issuing 60 million shares to the public, and in 1997, the firm started its local and regional expansion, using internally generated funds.

In 2005, the plan started tumbling, forcing the firm to shut down 10 branches that had dropped into the loss making.

Uchumi’s turnover fell to Ksh5.2 billion ($52 million) in 2005, from Ksh8 billion ($80 million) in 2004, coupled with a decline in customer numbers. Its loss after tax increased to $12 million), from $7 million.

Uchumi executed a rights issue, raising $12 million. The firm was put under receivership in June 2006 and its shares suspended from trading on the NSE.

It was lifted in 2010 after KCB, PTA Bank and the government converted their debt into equity. It was relisted on May 31, 2011.

Uchumi is now betting on the government to give it $13 million to pay its debts and on finding a strategic investor will take up a controlling stake.