Kenya’s retail sector is becoming a fertile ground for private equity (PE) firms if the recent appetite for the takeover of family-owned supermarket chains is anything to go by.
This follows the exit of major international brands such as Shoprite, Choppies and Massmart and the collapse of giant regional retailers Nakumatt, Tuskys and Uchumi, largely due to failed expansion plans and bad corporate governance.
The latest takeover transaction involved the acquisition of the Nakuru-based family-owned Gilani’s Supermarket by PE firm Oak Habour Holdings Ltd, which received approval from the Competition Authority of Kenya in November.
Oak Habour Holdings will now acquire certain businesses and assets of Gilani’s Supermarket, which deals in wholesale and retail of fast-moving consumer goods.
It is a trend that showed that Kenya’s retail sector is going through a significant transformation as local operators team up with PE firms to strengthen their capital positions. This could also help strengthen their managerial expertise to ensure the growth of the business while allowing the foreign firms a grip on the local market.
It comes as local retailers struggle to break even, giving fertile ground for foreign investors and particularly PE funds to scramble for the country’s retail sector. They are largely attracted by the country’s positive demographics, dynamic digital technology and mobile money ecosystem and thriving middle- class.
A pan-African retail sector report titled The Future of Traditional Retail in Africa says PE funds are playing an important role in backing local modern chains, such as Naivas and Quickmart, that target middle-income areas in major cities and towns. According to the report, Kenya has several well-established hypermarkets and supermarket chains but the sector growth has been sluggish.
“Investment funds can find opportunities to provide capital and management expertise that will enable local modern retail chains to scale up in new cities,” says a report dated June 30, 2022.
“Several players have exited or gone bankrupt through a combination of poor management, overly rapid expansion and inappropriate formats.”
Emerging supermarkets such as Naivas and Quickmart, which have risen to fill up the space left by the fallen giants are banking on PE firms to provide fresh capital for expansion and offer managerial expertise to sustain operations.
In June, the consortium (IFC, Amethis, MCB Equity Fund and DEG) reached an agreement to sell their 31.5 per cent stake in Naivas International (Mauritius) to a Mauritian conglomerate IBL Group comprising French development finance institution Proparco and DEG, a subsidiary of German KfW Group). The consortium bought the 31.5 percent stake in Naivas at a price of Ksh6 billion ($) in 2020.
Naivas International owns 100 per cent of the shares of the Kenyan-based Naivas Ltd. The family of Peter Mukuha Kago — the founders of supermarket chain Naivas — also sold an 8.5 per cent s of its shareholding in Naivas, reducing its investment in the firm to 60 percent
In 2019, Adenia Partners, a PE firm investing in Sub-Saharan Africa, and headquartered in Mauritius completed a majority investment in Quickmart Ltd. The transaction paved the way for the merger of Quick Mart with Tumaini Self Service Ltd, another supermarket retailer in Kenya that Adenia acquired in December 2018.
International retail brands such as Choppies Enterprises Ltd and Shoprite have also found the going tough not only in Kenya but in the entire East African region and opted to exit the scene.
Choppies is in fact fighting technical insolvency after incurring $125 million loss on the closure of its loss-making operations in Kenya, Tanzania, South Africa and Mozambique two years ago.
The retailer which is listed on the Botswana Stock Exchange and cross-listed on the Johannesburg Stock Exchange revealed through its latest integrated annual report (2022) that it is facing a negative equity position after its liabilities grew faster than the assets.
Choppies is the largest retailer in southern Africa outside of South Africa, with 161 stores across Botswana (92), Zimbabwe (32), Zambia (28) and Namibia (9). During the 2019/2020 financial year, the firm’s Board decided to discontinue or dispose of its loss-making subsidiaries. As a result, Choppies closed its operations in Mozambique in September 2019 followed by the closure of Kenyan and Tanzanian operations in March 2020.
The South African business was sold off at a loss of $8.2 million in April 2020
Kenya, Mozambique and Tanzanian operations yielded a combined impairment loss of BWP 225.4 million ($16.62 million).
Last year (2021) South Africa’s Shoprite Holdings Limited (Shoprite) also completed its exit from Kenya
Shoprite also exited Tanzania, Uganda, Mauritius, Madagascar and Nigeria due to poor performance in those markets.
In October 2022 South African retailer Massmart which operates the Game Stores said it had started talks with staff on the planned closure of its three stores in Kenya after efforts to sell the business failed.
The Johannesburg Stock Exchange (JSE)-a listed retailer said that it did not find domestic buyers for its 14 Game stores in Kenya, Uganda, Tanzania, Ghana and Nigeria after putting them up in the market in the year 2021.
In Kenya, the Majid Al Futtaim-backed Carrefour has become a major international brand in the Kenya retail market after the exit of Shoprite, Choppies and Massmart and the collapse of local brands—Uchumi, Tuskys and Nakumatt.