Supermarket chain Nakumatt is embarking on an ambitious Ksh1.4 billion ($16.47 million) expansion this year that will see the launch of five new shops in the region, as it eyes a 15 per cent growth in revenue.

Nakumatt is set to open four new outlets in Kampala, bringing its total in that country to eight. The total spend also includes a unit that is under construction in Nairobi’s populous Eastlands district.

The Ugandan expansion includes three supermarkets in Kampala and one in Entebbe.

“We plan to open four more branches in Uganda at Katwe, Kisementi (Acacia Mall) Entebbe (Victoria Mall) and Bugolobi (Village Mall) this financial year,” said Nakumatt Holdings’ regional director for strategy and operations, Thiagararajan Ramamurthy.

“We are already fitting out the proposed Nakumatt Katwe branch, which we hope to open by early June. Construction work at the Village Mall is also in high gear. Both the Kisementi and Entebbe branches at Acacia and Victoria Malls, respectively, will be ready for opening by the fourth quarter of this year.”

Market penetration

The new branches will deepen Nakumatt’s market penetration in Uganda, where it already has four shops – at Oasis Mall, Bukoto, and Mbarara in the west of the country. Tanzania and South Sudan are also in the retail chain’s sights.

“Projects in various stages of planning and development include Dar es Salaam and Arusha. Burundi is also on the drawing board, as is South Sudan, which is at the locations assessment stage,” said Mr Ramamurthy.

So what informs Nakumatt’s faith in regional expansion, which has been the defining feature of its strategy in the past five years, since the first branch outside its native Kenya, was opened in Kigali, Rwanda, in 2008?

In Nakumatt’s estimation, the regional retail pie carries a value of $6 billion, while market penetration is at a low 14-18 per cent.

“The two key elements informing our choice of business strategy and model are the vast market potential and the prevailing conducive business environment. We have a vast market to serve... formal retailers have space to expand and informal retailers have space to grow and convert their operations to formal status,” Mr Ramamurthy said.

Alongside this market potential, he added, is the growing demand for world-class retail services. “Across the region, growing exposure to global standards fuelled by lifestyle changes and aspirations means that the demand for our services is growing,” he said.

Nakumatt is in an apparent race to open branches in the region with its main competitor in Kenya, the Nairobi Securities Exchange-listed Uchumi Supermarkets, which also has branches in Uganda (Kampala and Gulu) and Tanzania and is set to launch in Kigali, Rwanda. A much-celebrated turnaround has revived the fortunes of the once financially scarred Uchumi, resulting in its re-listing on the NSE.

Another trend in Kenya is the emergence of an aggressive second tier of smaller chains that are threatening the traditional dominance of Nakumatt and Uchumi, especially in small towns and city suburbs. These include Tuskys, Ukwala, Eastmatt, Naivas and Chandarana.

According to the Kenya Economic Survey 2012, the country’s retail and wholesale sector has recorded a growth rate of 19 per cent in the last five years to become the second fastest mover of the economy, after transport and communications.

This sustained growth has not escaped the attention of international retailers. Massmart, the South African branch of US retailer Walmart; Jet, Game and Edgars are among the chains reported to be eyeing a piece of the market, with launches expected next year.

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Considering that supermarkets account for just 30 per cent of retail spending, the potential exists.

According to Sammy Muvelah, an analyst at Zimele Asset Management, changing lifestyles in the region are a major motivator for Nakumatt’s bullish strategy.

“The region is urbanising at a very fast rate, and shopping malls are becoming a key feature of the East African urban space. Therefore, retail business of the kind Nakumatt is engaged in, will continue to expand,” he said.

Going by the designs of its upcoming outlets, Nakumatt is sticking to its strategy of making its retail proposition a part of an existing mall development.

Nakumatt is relying on internal sources to finance its latest expansion. It is also leasing.

“Our expansion strategy is simple. Long-term lease of space, medium-term lease of equipment and procurement on short term. We do not put in money on brick and mortar,” Mr Ramamurthy said, adding that Nakumatt was looking for a financial, not a strategic partner.