kenyaUchumi Supermarket

Company Profile and History

Uchumi is a public limited company incorporated in 1975 under the Companies Act (Cap 486 of the Laws of Kenya). On 17th December 1976, Uchumi shareholders - Industrial Commercial & Development Corporation (ICDC), Kenya Wine Agencies Limited (KWAL) and Kenya National Trading Corporation (KNTC) - all Government owned parastatals, entered into a management contract with Standa SPA of Italy. Standa, a leading supermarket group with a presence in Europe and vast retail experience was given the task to manage and train Kenyan personnel who would eventually take over the running of the organization. The first three branches were opened in 1976. Uchumi became a trendsetter in low pricing to the advantage of all consumers, while at the same time maintaining high standards in quality of goods and services.

In the 1990's Uchumi spearheaded the hypermarket concept in Kenya. The introduction of the hypermarket concept and specialty shops has been a runaway success. It was credited for having revolutionized the retail food sector by giving customers a variety of products to choose from and introducing the concept of self-service. It has also been a major outlet for local manufacturers and suppliers of fresh produce (over 2500 suppliers with an 85 to 15 ratio in favour of local suppliers vis-à-vis imports).

In early 2000s Uchumi started to experience financial and operational difficulties occasioned by a sub-optimal expansion strategy coupled with weak internal control systems. This resulted in a marked diminution of the company’s resources, which culminated in its inability to meet its obligations on an ongoing basis. Initial restructuring of Uchumi did not forestall the deteriorating performance of the company. As a result, on 31st May 2006, the Board of Directors resolved that the company ceases operations and on 2nd June 2006, the Debenture Holders placed the company under receivership. Simultaneously, the Capital Markets Authority (CMA) suspended the company’s listing on the Nairobi Stock Exchange (NSE).

Following a framework agreement between the Government of Kenya, suppliers and debenture holders, the company was revived and commenced operations from 15th July, 2006 under Specialized Receiver Manager (SRM) and interim management.

In 2008 the company returned a profit of Kshs 106 million against a loss of Kshs 257 million the previous year marking a turnaround of Kshs. 356 million.

Today, Uchumi is one of the largest commercial retailing companies in the country, operating 15 branches - 11 in Nairobi, three up country (Karatina, Meru and Eldoret) and one in Kampala, Uganda.

In Country Location

Yarrow Rd, Off Nanyuki Rd (Industrial Area), Nairobi; Fax (020) 554768, 553501; Landline (HeadOffice) 020-650707, 550368, 651194

Services and Products

It offers amongst others the following in its stores: bakery; wines; meat; fish; kitchen appliances; furniture; decorations; vegetables; clothes; toys; audio visual equipment and fruits.

Number of Employees

1,000 employees

Financial Information

The supermarket posted a pre-tax profit of Sh169.9 million for 12 months ending June 30, 2008, up from Sh106 million recorded in the corresponding period in the previous financial year. Sales revenue and gross profits grew by 21% (or Kshs 1,441 million) and 13% (or Kshs 200 million) respectively compared to 2007/8. The growth compared to 2006/7 was 83% (or Kshs 3,730 million) and 82% (or Kshs 786 million) for sales and gross profits respectively. Customer numbers recorded in the year increased by 33% to 16 million compared to the 2007/8 levels of 12 million, the highest customers per square foot per annum recorded in the recent past.

Market Share

Kenya’s retail food sector has in the recent past been dominated by two major supermarket chains namely, Uchumi Ltd. and Nakumatt supermarket. Both chains have a combined market share of 70 percent.

Business Objective

Its main objective is to have an enterprise for equitable distribution of essential commodities, affordable prices whilst creating an outlet for the local manufacturers

Business Model

The rescue of Uchumi Supermarkets was commenced under the Specialized Receiver Manager (SRM) and interim management plan in 2006. The transformation of the chain stores, under the Uchumi Rescue Plan (URP) which emphasised “reinvented Uchumi for turnaround.” Business performance has continued to improve in the third year running with the on-going implementation of the URP during 2008/9, in spite of the challenging environment.

The positive growth results are attributed to focus and redefined business objectives together with operational efficiency, and the re-launched Uchumi brand in line with the URP. The management has continued to remain focused on operating costs with the ratio to net revenue improving in successive years at 23.7%, 18.8% and 17.2% for 2006/7, 2007/8 and 2008/9 respectively. As a result of prudent cost management, profit after tax increased from operating loss of Shs.257 million in 2006/7 to a profit of Shs.95 million in 2007/8 and now at Kshs 421 million in 2008/9.

The business has continued to substantially meet its responsibilities in corporate obligations to the pre-receivership creditors, current suppliers and the secured debenture holders. Current assets grew from Shs.764 million in 2006/7 to Shs.900 million in 2007/8 and Kshs 1,062 million in 2008/9. Cash and cash equivalents increased by Shs.40 million to Shs.116 million in 2007/8 and to Kshs 128 million in 2008/9. These were complemented by prudent management of inventory which decreased by 3% in 2008/9 despite the 21% growth in business compared to 2007/8. Total current liabilities after reclassification from term loans of Shs.567 million stands at Shs.1, 800 million.

The part implementation of the URP to date has resulted in marked gains in customer and products strategic adjacencies. While the upswing in business performance continues to be realized, the SRM in consultation with the Advisory Committee, the secured creditors and shareholders in the briefing meeting held on 28 July 2009 recognized that Uchumi will technically require to restructure the balance sheet through increased equity to correct the previously eroded shareholders’ funds and simultaneously align the company’s competitive positioning through growth strategic adjacencies and lower debt carrying capacities. The process of raising additional equity through a 10% convertible shareholders’ debenture is on-going and expected to be concluded by 15th November 2009. The success of this exercise will lead to lifting of receivership and a subsequent re-listing of the company’s shares in the Nairobi Stock Exchange, thereby crystallizing the ultimate objective of Uchumi Rescue Plan.

Ownership of Business

The Government of Kenya (GOK) is a minor shareholder (9.5 per cent), others being, Kenya Wine Agencies Ltd. (KWAL) and Industrial and Commercial Development Corporation (ICDC).

Benefits Offered and Relations with Government

President Mwai Kibaki is a silent Director with substantive shareholding.

After 45 days of closure, the government injected Kshs 675 million (US $9.4million), as part of cash required to kick start Uchumi’s business operations.

Key Uchumi creditors, Preferential Trade Area (PTA) Bank and Kenya Commercial Bank (KCB) have formally agreed to a 12-month moratorium on the company’s principal loans.

Product Development

In 2009 Uchumi Supermarkets came up with what is being viewed as a first in a fiercely competitive market. The chain entered into a partnership with service firm, Shoppers Direct to offer a home and office delivery service dubbed Okoa Masaa (literally meaning save time), targeting busy executives, professionals and other people who are too constrained for time to shop. Operating on a Hub and Spoke model, selected Uchumi stores will act as the hubs for customers within a defined zone. With competitor Nakumatt having introduced and popularised the 24-hour shopping concept, the onus has been on Uchumi and other players to introduce innovative strategies to not only retain their clientele but also grow their market share.

In the Uchumi delivery service model, shoppers can either call or e-mail in their shopping order list to a call centre situated in the supermarket.