Uchumi Supermarkets will open 13 new branches in Kenya, Uganda, Tanzania and Rwanda, after successfully raising $10 million in fresh capital from its shareholders.

The firm has also adopted a new business model that will see Kenya’s oldest retail store lease premises and equipment in a bid to reduce capital expenditure.

Uchumi hopes the new strategy will yield enough revenue to stay afloat and keep competitors at bay.

With its shares cross-listed on the Kenyan, Rwandan, Ugandan and Tanzanian markets, the firm, which survived receivership in 2010, will use regional visibility to remain relevant in the competitive retail sector.

The new outlets are set to be ready by December, and will bring the total number of Uchumi’s branches in East Africa to 50.

By the close of the financial year 2013/14, Uchumi had 37 stores — 27 in Kenya, four in Tanzania and six in Uganda.

Chief executive officer Jonathan Ciano said Kenya will get five new branches, Tanzania four, Rwanda three and Uganda will get one. The branches in Rwanda are already operational, and are awaiting commissioning.

“We are already in Rwanda. We have already booked the space,” Mr Ciano told The EastAfrican.

Some analysts say Uchumi faces an uphill task in restoring investor confidence following an ambitious expansion strategy that went bust and plunged the retail store into financial distress.

“Uchumi has to convince people that the expansion strategy they are pursuing will translate into an increase in the firm’s bottomline. They should also explain why they are holding onto land that they are not utilising,” said Amish Gupta, director in-charge of investment banking at Standard Investment Bank.

Uchumi stock at the Nairobi Securities Exchange was last week trading at around Ksh12 ($0.13).

Last November, the company offered an additional 99,534,980 shares to existing shareholders, raising Ksh1.6 billion ($18 million) against a target of Ksh895,814,820 ($10 million) on the basis of three new ordinary shares for every eight shares held.

The issue was oversubscribed by 83 per cent. Uchumi’s stock had been on a downward trend from Ksh13.05 ($0.14) in June 2014, to Ksh8.20 ($0.09) in November 2014, falling below the discounted rights issue price of Ksh9 ($0.1) per share.

READ: Uchumi rights issue is overshot by 83 per cent

“We believe the share price movement was  greatly affected by the delay in the rights issue, loss of competitive advantage and market  share, as well the company’s strategy on expansion, profitability and risk, which has not been  properly communicated to the market.

“The supermarket has not been able to keep up with modern sophisticated consumer trends compared with its competitors, thus losing its competitive edge. Weeding out inefficiencies in the company, refurbishment and/or complete overhaul of some of the old branches as well as shaping its expansion strategy will bring Uchumi back on track given its strong brand name and the industry growth prospects,” said analysts at AIB Capital.

The group’s profits before tax declined 6.8 per cent to $5 million (Ksh453 million) in 2013/14, from $5.34 million (Ksh486 million) in 2012/13, as a result of losses in the Uganda subsidiary and the effect of investments in new branches in Kenya and Tanzania, which are yet to mature.

“In the past financial year (2013/2014) Uchumi made losses. The profit reported was only as a result of the valuation of property whose fair value increased during the period. However, it looks like there will be a turnaround, and that is what has been driving the shares,” said Johnson Nderi, the manager in charge of corporate finance and advisory at ABC Capital.

The Kenyan market is controlled by the big four retail stores — Nakumatt, Tuskys, Naivas and Uchumi.

They all have somewhat different markets, but supply similar goods and services in almost identical fashion.

Apart from Uchumi, the other three retail store chains are family businesses.

Uchumi needs to understand the changing preferences, values and concerns of consumers.

“They still have quite a bit of headroom, especially in urban areas where there is a lot of development going on. The retail space has not been exhausted.

“The struggle by competitors for a bigger slice of the market will have an impact on profit margins,” said Teddy Pole, an Investment analyst at AIB Capital Ltd.
Supermarkets have been trying to acquire strategic locations to boost their businesses.

“With only two branches in the Central Business District, Uchumi has not been fighting to acquire these locations, especially in shopping malls where customers have been looking for one-stop shops,” said Mr Pole.

“This reduces its visibility, revenue generation capacity, and eventually market share.”