Uchumi Supermarkets seeks 200 franchise mini shops in recovery strategy

An Uchumi Supermarkets branch in Nairobi. PHOTO | FILE

What you need to know:

  • Shareholders were also briefed on the retailer’s plans to double its nodes of chain stores in three years, as well as consider venturing outside the country.
  • Uchumi Chief Executive Julius Kipngetich said the new expansion plan is designed to be cost-effective and capable of making returns for the shareholders.
  • The search for an investor to inject Sh5 billion, critical for Uchumi’s reform strategy, is already under way as its Ngong Hyper 2.5-acre land has been subdivided into two and earmarked for disposal.
  • Uchumi will also take advantage of the rapid smartphone penetration in Kenya to venture into online sales as well as target corporates like schools and hospitals for the bulk of its sales.

Uchumi Supermarkets will shift to a new franchise arrangement with 200 mini shops spread across the country as part of its turnaround strategy.

The retail chain, which has been undergoing financial difficulties, will use the small branded shops stocking low-volume packed items to target the micro-market as it seeks to regain its market footprints.

At its 35th Annual General Meeting (AGM) on Wednesday, shareholders were also briefed on the retailer’s plans to double its nodes of chain stores in three years, as well as consider venturing outside the country.

Uchumi Chief Executive Julius Kipngetich said the new expansion plan is designed to be cost-effective and capable of making returns for the shareholders.

“The old model of expansion was to build shops, which added to a fixed cost burden for Uchumi. The franchises we will venture into are partnerships where we will brand and supply our goods through the mini shops. It will not require any significant financial input with the consignment model where the goods belong to the supplier until [they are] sold,” Mr Kipngetich said.

SHARP CRITICISM

Plans for the retail chain to expand into Ethiopia, Congo and Nigeria a few months after pulling out of Uganda and Tanzania provoked sharp criticism from shareholders.

The investors, who left without dividends, felt the firm needed to address its local financial fitness first before venturing across the borders.

The firm, which pulled out of Uganda and Tanzania in October, citing losses in revenues, is now mulling a return in three years when it will be expected to have found its financial footing.

Uchumi Board chairman Catherine Ngahu said the firm would be cautious in choosing future expansion to avoid falling into investment pitfalls it has gone through.

“The board shall ensure that in the future, all expansion decisions shall be supported by proper investment appraisals and business cases,” Ms Ngahu said.

SH5B CAPITAL INJECTION

The search for an investor to inject Sh5 billion critical for Uchumi’s reform strategy is already under way as its Ngong Hyper 2.5-acre land has been subdivided into two and earmarked for disposal.

A similar plan awaits the Kasarani Mall. The Langata branch, which was previously put on sale, will not be disposed of as Uchumi seeks to clear its heavy debt.

The firm’s financial woes can be traced back to its three years of cooked books, weak internal controls, fraudulent procurement and mismanagement, which the new board says it will correct while punishing those responsible.

Five procurement staff have already been earmarked for redeployment. Their boss has been sent home and the firm now says all its employees will have to declare their wealth, as well as declare no conflict of interest with the business.

Uchumi carried out an independent audit after it emerged that the auditors colluded to cook books and hoodwink shareholders of the financial position.

The accounts, which have been restated, now reveal the firm is at a net loss position of Sh3.2 billion.

Uchumi will also take advantage of the rapid smartphone penetration in Kenya to venture into online sales as well as target corporates like schools and hospitals for the bulk of its sales.

“In three years’ time, we want 50 per cent of our direct sales to go to corporates and this means we will need logistic partners to help us distribute effectively. This should be the last AGM where we are talking about the bad past and going home without dividends,” Mr Kipngetich told shareholders.