How Nakumatt found itself in a perfect storm

Wednesday August 02 2017

Andrew Dixon, Nakumatt’s chief marketing officer. PHOTO | AFP


The butchery 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 best-known 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.

READ: Nakumatt bets on ex-Tesco executive ahead of stake sale plan

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.

READ: Nakumatt Uganda landlord, suppliers go to court seeking over $0.5m

ALSO READ: New policy to ensure suppliers get paid dues within 45 days

Nakumatt: Empty shelves, unhappy suppliers

It wasn’t always like this.

Fairy-tale saga

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 the bankruptcy of another business, started a mattress store with his two sons in Nakuru town.

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 mid-1980s 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 $620 million, according to Dixon.

Why Nakumatt struggles

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 per cent 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.

READ: Malls in cut-throat competition for local and international brands

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 per cent to six per cent.

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 Kenya 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.

Time running out

The time for Nakumatt to sort out its affairs is running out.

READ: State rejection sets Nakumatt on a lonely slide to uncertain end

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 $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.

READ: Uchumi, Nakumatt review regional expansion strategy

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.”