Why Uchumi job came at the right time for Kipng’etich

The announcement on Tuesday last week that Dr Julius Kipng’etich had agreed to exit from one of Kenya’s leading banks to head a struggling retailer surprised many.

However, those who have been keenly following his moves and ambition say his departure from Equity Bank where he was the chief operating officer position was a question of when and not if.

Afrika Investment Bank market analyst Ronald Lugalia says events at Equity in June when the bank CEO James Mwangi announced his extended stay to 2024 might have informed Dr Kipng’etich’s decision to leave.

“When James Mwangi renewed his tenure for more than ten years and you were being groomed to take his place then that tells you it is not going to happen,” Mr Lugalia says adding that Dr Kipng’etich needed Uchumi to reinvent himself.

Almost three years ago, Equity Bank made one of its biggest corporate announcements; that it had appointed Dr Kipng’etich and Samson Misheck Oduor to “help the bank in its pan-African expansion.”

GROOMED FOR BIGGER THINGS

Dr Kipng’etich was given the newly-created position of chief operating officer (COO) and was widely seen as Dr Mwangi’s successor. Many say the creation of the position of the COO was part of the bank’s plan to put in place a clear succession path.

Once he took office, there were signs that he was being groomed for bigger things. Bucking the trend where all events and public representations of the bank were exclusively handled by the CEO, he would in the initial stage of his tenure be allowed to preside over a number of crucial events that were a previously the preserve of the boss. That, however, would be short-lived, with such functions reverting to be the exclusive domain of the CEO.

Few expected that Dr Kipng’etich would keep his burning ambition for top leadership position under wraps until 2024 when Dr Mwangi would exit. So when Uchumi job came up, it was godsend for him and this largely explains why he took it with both hands.

Analysts say the fact that Dr Kipng’etich applied for the job, unlike his previous postings where he had been headhunted, speaks volumes of how much he desired to return to the helm of leadership.

Mr Eric Munyoki, a market analyst at Old Mutual says the former KWS director’s move was audacious given the long list of tough challenges Uchumi is grappling with. And if the former Kenya Wildlife Service boss, who many believe has a Midas touch, reverses the current dire straits of the supermarket chains, his stature as Mr ‘Turn-around’ will be enhanced immeasurably.

And indeed it is not beyond him to breathe life to the ailing retailer that was once a force to reckon with decades ago. His illustrious record speaks for itself. By the time he left KWS in 2012, he had radically transformed it from a corrupt entity hardly keeping pace with its onerous mandate, to one of the best-run government institutions.

In the eight years he was at the helm, the worth of KWS rose tremendously from less than Sh1 billion to a whopping Sh5 billion. He was showered with accolades for this performance, one of which was the recognition by his peers who voted him the CEO of the Year at the Company of the Year Awards.

In making the announcement, the Uchumi board said they believed they picked the best candidate to put the retailer on track. The board cited Dr Kipngetich’s vast experience in leadership and business management to show that he was equal to the gargantuan task that is bound to severely test his skills.

“Dr Kipng’etich brings to Uchumi a wealth of experience in leadership, business reorganisation, turnaround management and strategy execution which are needed to get the business back on track,” said Uchumi board chair Ms Khadija Mire.

The market seems to place its bets on him too. By close of trading on Friday, Uchumi closed the week as the top gainer. This was a sharp change in trend. The supermarket’s share price has fallen since the beginning of the year, recording a 29 per cent drop from Sh10.45 in January. Its capitalisation slid to Sh2.6 billion.

GREAT POTENTIAL

Analysts say the retail market in Kenya has a great potential and Dr Kipng’etich has chosen the ideal ground to revive his career. The Financial Times places Kenya above Nigeria as the “retail crown of the continent”. While only 5 per cent of Nigeria’s retail sector consists of formal shopping, in Kenya the proportion is 30 per cent.

Experts say for Dr Kipng’etich to pass his new test, he ought to change Uchumi business model. Its current strategy of buying and selling of merchandise is outdated and should focus on leasing space instead.

Uchumi gets most supplies on credit and only pay either after the commodities have been sold or at the expiry of a specified period. Typically, supermarkets negotiate credit terms of between 30 and 90 days. Such a business model means the capital requirement for establishing a supermarket chain is minimal but heavily reliant on the relations with suppliers.

However if the burden of managing inventory is passed to suppliers in return for prompt payments, it will be a win-win situation in ensuring shelves are not left empty while attracting and retaining reliable customers. This model would also lead to improvement in quality of products as the stores will attract top suppliers and eliminate dead inventory.

In addition, this method of operation will lead to greater efficiencies through reduced workforce. Units such as procurement will be rendered irrelevant.
Uchumi also needs to find a sustainable way of increasing its footprint. The retailer has only two branches in Nairobi’s Central Business District.

It has also not seen the wisdom of having a presence in shopping malls. Yet most of its competitors have premier branches in such malls as they seek to appeal to customers looking for a one-stop.

Uchumi also needs to refurbish or overhaul of some of it sold branches as it re-shapes its expansion strategy.

Africa Investment’s Mr Lugalia says the supermarket needs to craft a new capital strategy that will not leave it vulnerable.

As Tom Goodwin, a senior vice president of strategy and innovation at Havas Media puts it, today, Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.

Dr Kipng’etich certainly has his job cut out. Uchumi has fallen behind in the race for retail space in the country as local and international brands jostle to catch the eye of the middle class. It has been overtaken by Nakumatt, Tuskys, Naivas.

The retail market is increasingly getting fiercely competitive with the entry of global players this year. Traditionally, the Kenyan market has been under the control of the big four retail stores — Nakumatt, Tuskys, Naivas and Uchumi.