Shoprite exits Tanzania, in talks to sell out in Kampala too

Saturday June 14 2014

By ISAAC KHISA The EastAfrican

The sale of Shoprite’s assets in Tanzania to regional retailer Nakumatt points to the likely exit of the South African retail giant from East Africa.

While Shoprite was cagey when asked about its impending exit from Uganda, the retailer is alleged to be involved in ongoing talks with Nakumatt about a takeover of its three outlets in Kampala.

This would see an end of its 15 years in operations in Uganda, during which time the firm set up three of five planned outlets in Kampala.

Last month, Shoprite completed the sale of two of its outlets in Dar es Salaam and one in Arusha to Nakumatt at an estimated cost of $45 million, following approval from Tanzania’s market regulator.

Shoprite’s manager for Uganda, Warren Trokis, denied reports that the firm was in talks with Nakumatt again, this time for the acquisition of the Uganda outlets. But Nakumatt Holdings managing director Atul Shah said information on the deal would be made public if and when an agreeable position was reached.

“At this point, we are not in a position to disclose specific details on the Shoprite expression of interest. We shall, however, provide such information in due course once we reach a suitable agreement,” said Mr Shah.

Analysts are divided over the reasons for Shoprite’s sudden haste to leave East Africa. While some blame the retailer’s business model, which largely positioned it as a vendor for South African manufactures, others point to the aggressive emergence of homegrown competition.

Despite coming earlier, Shoprite was slow to expand to major residential areas, confining its presence to the commercial districts of the city.

Over the past decade, new players from Uganda and East Africa have entered the sector, riding on consumer attachment to local and regional brands.

“Shoprite did not make fast expansions. In addition, consumers have a strong attachment to their local and regional supermarkets,” said Arthur Nsiko, a research analyst with brokerage firm African Alliance Uganda.

This, Mr Nsiko said, has been exploited by local and regional retail chains like Capital Shoppers, Quality, Nakumatt, Tuskys and Uchumi.

If the deal is closed, Nakumatt will widen its footprint in East Africa bringing its total number of outlets to 51, with plans to establish more operations in Burundi and South Sudan within the next three years.

Beginnings

Uchumi opened its first store in Kampala in 2007, followed by Nakumatt and Tuskys in 2009 and 2010 respectively. Tuskys Supermarket currently has 52 outlets in Kenya and Uganda.

While Uchumi boasts of 33 outlets across the region, its growth has been hampered by low capital investment and a negative image following its closure in 2006.

However, it is reportedly planning to open 13 new stores across the region this year as it prepares for a cash call and a cross listing of its shares.

The retail chain plans to use the $23 million rights issue slated for September to pay for the expansion and open its first stores in Rwanda and South Sudan as well as refurbish some of its existing ones.

A report by African Alliance released this year says “The upper middle class consumer is more likely to do their monthly shopping at a Nakumatt branch due to a wider variety of goods and top up at Uchumi (assuming it is closer than a Nakumatt).”

The report adds that middle to lower income earners perceive stores such as Tuskys to be cheaper and are more likely to frequent these stores.

Trade specialists claim a Shoprite exit could pave the way for Nakumatt’s steady dominance of the region’s retail market over the medium term due to its ambitious expansion in strategic locations regardless of high rental costs.

Shoprite’s exit from East Africa would see it join other South African firms that have exited the Uganda market in the past decade. Fast food giant Nandos, retail chain Metro Cash & Carry and household goods outlet Supreme Furniture are the other companies that closed shop.