Retails plan big-budget expansions

BY LYDIAH WERE

In a society where size is the traditional measure of success, big becomes obviously beautiful. And so is the trend in the highly competitive retail business, which has witnessed huge growth in the last few years. 

Uchumi Supermarket is the latest to launch an ambitious expansion strategy, which will see it open 13 more branches across the region this year. Managing Director Jonathan Ciano, the man who lifted the retail chain from the death bed after it suddenly shut its doors in 2006 over cash-flow constraints, says he is optimistic economic growth prospects will spur consumer spending.

Among frontier market countries, economic growth is expected to increase in Kenya, boosted by higher public investment and the recovery of tourism. Latest projections point to an economic growth rate of 5-6 per cent. Mr Ciano says Uchumi currently has 37 outlets and plans to up the figure to 50 spread out across East Africa. “We expect to continue with the growth of the business as the new outlets mature,” Mr Ciano says. “We have adopted a cautious strategic growth approach in the Eastern African region.”

Its bigger rival Nakumatt, which is the market leader, will maintain its ongoing branch expansion pace with plans to open 14 more in the next two years.  

“We are looking ahead for wholesome growth and we will not be deterred by new entrants into the local market as we are firmly focused on revolutionising customer experience and growing our network,” says Nakumatt Holdings Regional Strategy and Operations Director Thiagarajan Ramamurthy. “Within this project, the pilot refurbishment works at Nakumatt Village Hypermarket are nearing completion and we shall be rolling out similar store upgrade works at all other branches progressively from next year.”

According to Mr Ramamurthy the retail giant, with 54 stores, has embarked on a programme to grow its gross revenues to more than $1 billion (Sh85 billion) in the medium-term with an eye on listing  on the regional stock exchanges in the next two years. Uchumi cross-listed on the Uganda and Rwanda securities exchanges in 2013 and on the Dar es Salaam security exchange in 2014. 

Uchumi’s rights issue raised Sh896 to boost Sh1 billion secured through asset finance to finance the retail chain’s seven-year growth and expansion programme. Dr Ciano said the funds will enable the company to grow its branch network in Kenya, Tanzania, Uganda and Rwanda and refurbish existing outlets.

 

He said the expansion will be powered by the proceeds of the rights issue and the positive effect of cross-listing in the East African Community countries. Uchumi’s shares are now trading in Kenya, Rwanda, Uganda and Tanzania, “making us a truly Eastern African company.”

Dr Ciano said the decline in the cost of living expected from the reduction in the price of fuel and electricity is likely to increase consumer spending. “We should see a growth in the size of the shopping basket as households get more disposable income with the ease in the cost of living,” said Mr Jonathan Ciano, chief executive Uchumi Supermarkets.

The cost of fuel has fallen dramatically since December, trickling below the Sh100 mark per litre for the first time in three years. This is expected to reduce inflationary pressure on essential commodities and services. With the government tapping more power from cheaper geothermal sources, there is hope for lower electricity bills. This is expected to cut the cost of production and in turn the price of goods and services.

It is this relief that retailers like Uchumi are banking on to provide extra cash for households to spend on consumption. Tuskys, which targets budget shoppers unlike its two rivals that go after the high-end shoppers, is also vying for the regional pie. It has just over 50 branches and acquired two stores in Uganda to anchor its regional expansion.

Mr Ciano said shoppers and investors have confidence in the supermarket. He cites the oversubscription of the rights issue by 84 per cent, attracting Sh1.64 billion, as an indication of investors’ faith in the oldest retail chain in the country. The new shares started trading on the Nairobi Securities Exchange on January 8.

He added that the money will also help Uchumi have more working capital for its operations. Most of these branches will be located in highly lucrative areas, he said.  “Over the last financial year, the chain opened eight new branches bringing its total branch network to 37 spread out in Kenya (27), Tanzania (four) and Uganda (six). There are plans to open three new branches in Rwanda in the course of this year.

 

With the battle at home leveling off, Kenyan supermarkets had taken the war to foreign territory. But it appears like the county government has created new markets that have sent them scampering back for more. For Uchumi, though, having a firm footing in both local and foreign markets will be some form of consolation for investors who have stuck with it even in the worst of times. 

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