Nakumatt, the elephant whose trumpet is slowly going silent

Empty shelves, a handful of shoppers and sullen-faced staff confront you as you enter any Nakumatt outlet today.

The struggling retail giant may have kept most of its branches open — including at The Junction, Nairobi, which reopened on Tuesday after a court ruled against an eviction notice issued by the landlord — but a spot check by the Nation reveals that the shops are operating way below capacity.

Starkly empty shelves mark the produce aisles. The ovens in the in-house bakeries have long gone cold and the tantalising smell of freshly baked goodies no longer follows you around, tempting you to add a loaf of bread or a packet of chocolate muffins in your shopping basket.

The wide aisles are devoid of shoppers, driven away by the constant disappointment of low stocks or altogether missing goods, which has made a mockery of the retailer’s “You need it, we’ve got it” slogan.

The employees half-heartedly man the counters. As some while away the time on their phones in the long gaps in between customers, their colleagues spread the remaining goods loosely on the shelves to give the illusion of plenty — an exercise in futility as the large gaps between the few Weetabix cartons and packets of rice cannot fool anyone anyway.

EMPTY SHELVES

“It is very disappointing to miss the stock for most foodstuffs,” Ms Bridgette Atieno, who frequents Nakumatt Mega in Kisumu, lamented. “As a loyal customer of Kenya’s leading supermarket, I hope the matter will be resolved soon.”

Customers in Meru and Eldoret, too, are feeling the pinch. Most of them left empty-handed after failing to get what they wanted to buy. At Oginga Odinga branch, Eldoret, there was not a single packet of milk or flour while sufurias and other utensils had replaced perishables on the shelves.

“I had gone to buy maize flour and some vegetables but they were not there,” said Mr Peter Murungi as he walked away from the Meru branch in disappointment. “I had to go to Maguna’s Supermarket.”

In Nakuru, the same situation obtained. The branch at Westside Mall is still operational despite some of the once-full shelves being empty with only a handful of shoppers visiting.

In Kisumu, several staff have resigned for fear of a shutdown. Though the remaining workers at the lakeside branch are tight-lipped and stoic in the face of a fast-declining employer, they, too, harbour disappointment and worry over what the future holds for them.

VICTIMISATION

“Times have been very hard ever since Nakumatt’s problems started early this year,” said an employee at a Nairobi branch whom we will call “Wafula” as he sought anonymity over fears of victimisation. “We are owed two and a half months’ salary arrears and we are finding it very difficult to survive.

“I have worked at Nakumatt for around five years in customer service and Nakumatt was the employer of choice. It paid way better than its competitors, an average of Sh50,000 a month in basic pay and overtime for the same work that other supermarkets would give Sh25,000.”

But his life has become difficult.

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“I have had to borrow from family and friends to pay rent and I am anxious that I might not be able to fund my wedding in November,” moaned Wafula. “Coming to work is no longer a joy; everyone’s morale is down and we are all just waiting for the other shoe to drop.”

It is a story often told — how a smart, plucky shopkeeper from Nakuru founded one of the largest homegrown businesses of our time.

KENYAN DREAM

Mr Mangalal Shah built the Kenyan dream — so to speak, if Kenya were a country that indiscriminately rewards effort and gives anyone who wanted it the opportunity to pull themselves up by their bootstraps. His legacy lives on in the existence of the giant conglomerate with his son Atul Shah at the helm today.

Nakumatt muscled its way into a market once dominated by the government-backed Uchumi Supermarkets and erected its imposing elephant sculpture in upmarket malls in Nairobi, strategically positioning itself as the store of choice for the aspirational Kenyan bourgeoisie.

Expansion was gradual — 11 branches in 11 years, from 1992-2003. Its hyper-market concept appealed to upmarket Kenyans and the expatriate community, which spurred the growth to 23 branches by 2009. The business created differentiation and value addition with its 24-hour branches and a loyalty programme. The ‘elephant’ was a seemingly unstoppable force.

But its success came at a cost with two incidents in the 1990s threatening its very existence.

MAD COW DISEASE

In 1996, Nakumatt, then only nine years old, came close to closing its doors forever when the government ruled that it had irregularly imported beef contaminated with mad cow disease and ordered the then-fledgling chain to close all its shops immediately.

They were shut for a week.

Two years later, Nakumatt would once again have to fight for survival when Kenya Revenue Authority came calling with an unpaid tax bill of Sh300 million. The taxman obtained a court order freezing the retailer’s bank accounts, essentially bringing operations at the store to a grinding halt.

A protracted court battle ensued with KRA revising its initial tax demand upward two-fold — to Sh671 million — while Nakumatt pleaded unfair targeting by a State agency, claiming it was interested not in collecting tax arrears but shutting down the business.

LOCKED SHOPPERS INSIDE

Then in 2009 a fire in its Downtown branch, which was strategically located in the Nairobi central business district, claimed 29 lives.

The incident shook public trust following allegations that the supermarket’s security guards had locked shoppers inside in a bid to prevent looting, occasioning more casualties. Eight years later, the investigation into the fire and an awaited settlement with victims and the landlord are yet to be concluded.

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Nakumatt would, however, surmount these challenges and rise to the top of the game. At its peak, it had 7,000 employees and a gross revenue of Sh50 billion.

Its brand equity was high, making it the first choice for shoppers, cementing its position as a modern retail brand. Annual profits averaged 3 per cent to 3.5 per cent before tax and it opened 64 branches across East Africa, where it had a presence in four countries. Its in-house brand, Nakumatt Blue Label, was thriving with customers increasingly opting for it as it was often cheaper.

Times were good. And then everything changed.

Nakumatt Managing Director Shah is famously on the record placing the blame for the retailer’s woes squarely on the government.

DISCRIMINATORY ACTIONS

In a letter to Trade Principal Secretary Chris Kiptoo in May, Mr Shah claimed that unfair and discriminatory actions by the State had cost Nakumatt more than Sh35 billion in stock, sales and business opportunities. He cited the mad cow fiasco of 1996, the tax tussle of 1998, the demolition of its Thika Road branch in 2008 to pave the way for Thika Superhighway and the destruction of the Westgate store by the military during the 2013 terrorist attack as instances where State power was used to subdue Nakumatt.

According to Mr Willy Kimani, a director at Retail Trade Association of Kenya (Retrak) and chief commercial officer at Naivas supermarkets, Nakumatt’s financial decline can be traced to the Westgate attack, which he says cost it billions of shillings — initially in stock damage and eventually loss of business as people began avoiding malls.

TERRORISM

“Nakumatt’s positioning chiefly in malls cost it because customers became paranoid about a similar attack happening in other malls; so they started shopping at stand-alone units,” Mr Kimani told the Nation. “That cost Nakumatt 10 per cent of its value, which it has since struggled to recoup.”

However, an insider privy to operations at the retailer laid the blame on an unsustainable expansion drive, lack of a management bandwidth to handle the grown-up business and an inefficient supply chain to manage margins. This, said the source, led to an accumulated debt of more than Sh25 billion. And as stocks diminish and customers stay away, so do sales drop and debts pile.

To compound Nakumatt’s problems, its landlords and rival retailers at malls where the chain is the anchor tenant have started a hue and cry over the loss of foot traffic.

REGULAR SHOPPING

Simply put, if customers cannot walk into a mall and do their regular shopping, then they would not visit the mall solely to eat at the food courts or shop at the smaller outlets.

“Since Nakumatt started losing customers, mall owners say they have lost up to 40 per cent of foot traffic, spelling dire times for other retailers in the malls,” Mr Kimani observed. “This, I believe, is one of the reasons why that The Junction Mall tried to wrestle its lease back from Nakumatt.”

However, as happened at The Junction, it is going to be very difficult to kick Nakumatt out of any of the premises it occupies because it has a binding lease that protects it from summary eviction.

Additional reporting by Magdalene Wanja, Stanley Kimuge, Victor Raballa and Isabel Githae