Shoprite and Choppies retailers are set to exit the Kenyan market, citing unprofitability. The move will leave France’s Carrefour as the only foreign-owned large scale retailer in Kenya.
South Africa’s Shoprite and Botswana’s Choppies, however, are staring at legal battles that could further dent their loss-making outfits as the taxman and one of their landlords are demanding millions of shillings before any exit can be approved.
Shoprite’s three-month termination of a lease with Karen Waterfront expires on Wednesday.
The retailer is fighting a Sh520 million claim from its Karen landlord. In April, Shoprite revealed that it was reviewing its unprofitable operations such as East Africa with the view of cutting its losses through an exit.
The retailer’s branches at Thika Road’s Garden City, Westgate Mall in Westlands and City Mall in Nyali are still operational.
Shoprite claims that Karen Waterfront tricked it into believing that other tenants at the mall would be banks, telcos, clothing stores and ATMs.
It signed a 10-year lease in November but just six months later, it wrote to Karen Waterfront’s owners claiming that it did not see any chances of business improving hence wanted to leave.
Crossroads Limited and Karen Waterfront Phase Two Limited, the mall’s owners, have now sued Shoprite, demanding that the retailer be compelled to pay Sh520 million, an equivalent of 10 years’ rent. The mall’s owners also want the amount to attract interest, and be paid before Shoprite is allowed to leave.
Crossroads Limited and Karen Waterfront are owned by the family of the late billionaire poultry farmer Nelson Muguku.
The Muguku family business had Shoprite as its anchor tenant at Karen Waterfront, and has now faulted the retailer for jumping ship and rendering employees redundant.
Last week, High Court judge Justice David Majanja dismissed Karen Waterfront’s request to have Shoprite deposit the disputed Sh520 million in court pending the case’s outcome.
The judge argued that no evidence has been shown to prove that Shoprite is offloading its other assets in Kenya, which in this case is the three branches left operational.
The retail chain insists that the lease agreement was between Karen Waterfront and Shoprite Checkers Kenya Limited, a local firm, and that there was no need to enjoin foreign directors who do not own shares. Justice Majanja agreed and has now struck the directors off the list of defendants.
The Muguku family had enjoined Shoprite’s directors – Andrew Mweemba, Kruger Morkel Danie, Anton Andrew Wagenaar, Anton De Bruyne, Izan Joham Steyn and Gerhard Fritz – in the suit.
Karen Waterfront’s owners wanted the Shoprite directors held personally liable in the event that their case succeeds but the retailer exits before paying up. The application also sought to freeze Shoprite’s two bank accounts at Stanbic Bank, and to have the directors barred from leaving Kenya until the suit is determined.
The Muguku companies complained that the lease agreement did not have a termination clause since it was the common intention of the parties that it would only lapse after the expiration of 10 years — September 30, 2029.
In an affidavit of Daniel Muthanji Muguku, a director, the plaintiffs pleaded that as a result of a constructive trust, they had legitimate expectation of receiving rent for the period of 10 years. They indicated that as an anchor tenant, Shoprite’s conduct had caused panic among other tenants who were apprehensive that they would also suffer loss and damage.
But Shoprite denied being the anchor tenant. It insists that fellow South African retailer Game is the anchor tenant.
At the same time, Choppies has made Sh384 million from the sale of its branches as it leaves the Kenyan market. Fast rising Quickmart has acquired one of Choppies branches, leaving only two of the Botswana retailer’s outlets unsold.
The retail chain entered Kenya through the purchase of Ukwala Supermarkets in 2016 for an estimated Sh1 billion. Ironically, Choppies acquisition of Ukwala attracted trouble from the taxman as the latter had unpaid levies. Now Choppies’ offloading of the branches it acquired has also caught the taxman’s gaze as KRA claims Sh125 million.
KRA says Choppies has not disclosed crucial details of the branch sales, and has issued agency notices to the retail chain’s bankers and Quickmart.
Court documents, however, reveal that Choppies has Sh36 million in the Standard Chartered account that the KRA has attached, while the cost of the branch sold to Quickmart remains a secret only known by the two retailers in the sale transaction.
Justice Majanja has dismissed an application by Choppies to suspend the agency notices, arguing that such a move may leave the taxman at risk of recovering his dues once the retailer is done winding up its Kenyan operations.