Understanding Uchumi troubles (Daily Monitor (Uganda))

In April, a Nakumatt customer in Nairobi, Kenya twitted a picture of a receipt claiming the imprinted price, which she had been charged was much more than the value of the goods she had been given.

The receipt, which the customer claimed had been inflated, attracted a raging debate, whose content was retweeted by more than 1,000 people within and beyond East Africa.

The debate, which had shifted from the Nakumatt receipt, became a talking point highlighting the troubled supermarket business dogged by thieving staff (who steal from shelves) to poor customer care among others.

However, unknowingly, someone at Uchumi Supermarkets could have been following as the supermarket, following the events on Twitter, discovered a network of people within who had been stealing merchandise off the supermarket shelves.

The thieving network, preliminary investigations revealed, spanned its entire chain across the region including here in Uganda.

Subsequently, in June, Jonathan Ciano, the Uchumi Group chief executive, together with Chadwick Omondi Okumu, the chief finance officer were sacked for gross misconduct and gross negligence.

Ciano was replaced by Owino Ayodo, who continues to navigate a number of remedies as he tries to lift the supermarket chain out of its current troubles.

Key among the remedies is getting back the supermarket chain to profitability by closing loopholes through which money was being lost.

Also on agenda is sorting out suppliers who have an accumulated debt of more than Shs17b.

How Owino is tackling the issues
Owino was welcomed by an unfortunate event that he recently decided to take head on.

For years staff have been stealing not only money but also goods from shelves with a recent discovery at the Moi Avenue branch culminating in the sacking of about 17 staff and more suspended.

The theft, however, sparked off a regional investigation that will span the chain’s 37 branches in Uganda, Tanzania and Kenya.

Majority of Uchumi’s branches are in Kenya, with six stores in Uganda. However, one of these in Uganda was closed last year owing to nonperformance.

The investigations, according to Owino are going on in Uganda, and are being conducted by Hipora Business Solutions East Africa, a human resources agent and a loss control management and investigations firm.

Gerald Chege, the acting Uganda general manager, declined to comment on the matter referring this reporter to David Mugo the country general manager who is reported on leave and out of the country.

Mugo had by press time not responsed to our email inquiries.
However, Owino recently told Kenya-based Business Daily, a sister publication to Daily Monitor, that the investigations would target all the chain’s outlets in the region.
Owino must also find an immediate solution to the chain’s loss making subsidiaries in Uganda and Tanzania.

According to the 2014 financials, the Uchumi Uganda unit (for three years has been posting losses) registered a pre-tax loss of shs10b, a more than 300 per cent increase from the Shs2b that the unit posted in 2012.

The loss, however, could have been worsened by the summarily closure of the retailer’s Freedom City outlet on Entebbe Road at the close of 2014

Owino must also find an immediate solution to suppliers’ debts, which could be catered for by a Shs17b overdraft, whose negotiation details show was completed in July.

Before his sacking Ciano had in an interview confirmed a difficult relationship with suppliers but had been upbeat that the Sh17b commercial loan it was seeking would relax the situation.

“A few (suppliers) had reduced supplies but with payment plans in place and promise on borrowing in the pipeline, normalisation is very close,” he said.

Expansion halt
With a number of issues yet to be sorted, the Nairobi-based retail giant recently announced it would halt its expansion plans citing inadequacy in internal funding.

The retail chain had plans to open eight branches across East Africa in a bid to competitively and strategically position its business with targeted entries into Rwanda and Burundi.

The plans would also affect its 20 acre piece of land at Kasarani, Nairobi which in July it said it would sell off to service debts. The land is valued at Sh74b.

Faulting share prices
The troubles seem to have touched more than what they ought, forcing a fall in the company’s share value at both the Nairobi Stock Exchange and the Uganda Securities Exchange.

Since the beginning of this month the Uchumi stock at NSE has fallen by more than 0.76 per cent opening at a high of shs236.3, before falling to Shs217.6 at the close of last week. Turnover has plunged to Shs62m.
At the USE the Uchumi stock closed at Shs295, registering a growth of 1.37 per cent.

However, the stock has since last month been moving southwards falling from Shs321, before settling at Shs217.6 in just a month.

The analysts’ view

Retail analyst, Mathew Kobusingye, says Uchumi’s business units in Uganda and Tanzania have failed to bring in expected revenues which is negatively impacting the chain’s finances.

“Retail business depends on the number of sales registered. And with the increasing competition from other retail giants Uchumi is likely to pay a high price,” he says.

Similarly, Martin Bakunda, a financial analyst and lecturer at Makerere University Business School believes the supermarket business might continue to face challenges given that people (in the middle class), who ideally should have been shopping in supermarkets are instead shopping from retail shops.

“The retail market dynamic is changing. Lately, a large number of middle income earners, that would ideally flock supermarkets, now prefer much cheaper shopping points,” he says.


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