Naivas in Sh470m national expansion spree

Naivas Supermarkets is investing about Sh470 million to expand its branch network across the country as competition in the formal retail sector intensifies.

The company recently acquired Nakuru-based Rihab Supermarket for an estimated Sh70 million and is set to spend the remaining Sh400 million to open new stores in Thika, Kericho and Nairobi’s Utawala, Kiambu Road, Kawangware and Moutain View by February next year.

Naivas is the latest to announce fresh expansion plans after Botswana retailer Choppies said it is investing Sh754.7 million in Ukwala Supermarkets in which it acquired a 75 per cent stake earlier this year.

The multinational says in its latest trading update that its local subsidiary will invest the cash to open 12 more stores over three years.

Naivas says the takeover of Rihab Supermarket gives it a presence in Nakuru’s central business district and raises the number of its branches to 39.

“The Nakuru market has been growing consistently over time and there has been overwhelming demand to have presence in the town centre,” Naivas chief commercial officer Willy Kimani said in a statement.

“We believe that the store will be a great success and eventually at maturity contribute three per cent of total revenue.”

SECTOR IN DISTRESS

Naivas has an existing store on Nakuru’s Nairobi Road, just outside the town centre, with the acquisition of Rihab giving it a strategic presence in the town centre on Oginga Odinga Street.

Naivas’ expansion comes at a time when several other supermarkets are reporting losses and mounting debt distress, signalling turbulence in the formal retail sector.

READ: Supermarkets in turmoil as heavy debt load weighs

Retailers have come under pressure from high operating costs, mounting supplier dues, and margin pressures that have pushed two firms to the red.

“The retail market has seen great challenges more so within the last two years but all is being done to ensure consistency and that expansion is well within limit not to strain operating capital,” Mr Kimani said.

Troubled Uchumi had to battle a winding up suit earlier this year, triggered by mounting supplier dues amounting to Sh3.6 billion.

The Nairobi proselytised retailer reported an after­tax loss of Sh3.4 billion in the year to June 2015 following a decline in revenue coupled with impairments for “cooked books.”

Choppies­owned Ukwala Supermarkets has also reported a net loss of Sh270.1 million in the year to June, the first time investors are getting a peek into the tier two retailer’s financials.

“Our operations in (Kenya) will remain loss making in full year 2017 as we continue to build our store base and invest in operational infrastructures,” the multinational said in a trading update.

PRESSURE FROM SUPPLIERS

Choppies last year acquired a 75 per cent stake in family-owned Ukwala for Sh1 billion.

READ: Bostwana's Choppies to inject Sh755m into loss-making Ukwala

Nakumatt, Kenya’s largest retailer, has also admitted challenges settling supplier dues. Suppliers reckon that the credit period at Nakumatt is now between 180 and 270 days, up from the average 90 days.

The retailer says it will sell a 25 per cent stake to an investor to raise funds to stabilise its operations, including retiring part of its Sh15 billion debt.

The headache of delayed payments has forced the Treasury to draft rules that would see companies that default in paying suppliers face interest on overdue amounts.

The newly enacted Public Procurement and Asset Disposal Act (2015) provides that entities that delay payments to suppliers will incur additional charges for each day past the due date.