Monthly Archives: October 2015

Five Reasons why Supermarkets fail in Uganda

The craze in the Ugandan Retail Sector now is Supermarkets. Duukas are being converted into mini-supermarkets while any fairly large space with shelves is being regarded as a Supermarket. However, the rate at which they open up is similar to the rate at which they close.

Why is a Supermarket business attractive? Simply because it is the easiest business venture to setup. You don’t need to spend much money purchasing stock since most suppliers are likely to offer you their products on credit. Your initial investment is likely to focus on rent, fittings (like shelves), a till, basic branding and workers. Once you have these in place, you could very easily hold stock worth Hundreds of Millions without paying for it upfront as well as enjoy the added advantage of returning damaged or expired goods.

Why then do they fail?

Supermarket failure in Uganda stems from a multiplicity of factors. Some of those that I have observed over the last ten years are;

  • Shrinkage: In Supermarket terms, this is the loss of products between the point of purchase from a supplier to the point of sale. In otherwords, a Supermarket will receive say 500 bars of soap but end up selling 485 bars with the 15 bars remaining unaccounted for and yet having to pay the supplier for them. Globally, the allowance for shrinkage averages 3% of the inventory and this is usually reflected in the pricing. However, once this is exceeded, then the bleeding begins and further price increases to protect the supermarket could lead to uncompetitiveness. Most Ugandan supermarkets don’t even know about this shrinkage due to the poor systems in place that can’t allow them track operations in detail.

  • Suppliers: These are very integral towards the survival of a supermarket. The quality of products they avail, their longevity (expiry period), timely delivery among others all combine to give the consumer a great experience at your supermarket. There is a need to monitor these suppliers very well as well as have quality control mechanisms in place. Capital Shoppers Ntinda had a rough time when a customer bought expired margarine and her complaint was handled poorly. Failure in monitoring suppliers could lead to a steady migration of customers to rival supermarkets that guarantee quality product availability.

  • Systems: Any business needs to have systems in place in order to run. Whether they are formally set up or not, systems do exist. Within a Supermarket, you need to have systems that will manage supplier orders, receiving of goods, Inventory Handling, Stores, Product Display, Expiry, Point of Sale, Suppliers’ Payment/Reconciliation among others. These systems determine the level of exposure to shrinkage and pilferage. They are potentially subject to abuse by the staff and hence need to be monitored closely. I have found small but well organised supermarkets operating much better than their larger counterparts including registering higher profit margins.

  • Staffing: This happens to be one of the most crucial aspects. It could prove to be a lethal injection or a recipe for success. Supermarket staff tend to determine how suppliers and customers view the supermarket. I’ll divide this into Lower level and Management Staff.

    • Lower Level Staff: Some supermarkets have very rude staff who tend to underlook suppliers giving the impression that they are doing them a favour to sell their products. They’ll waste time in chit chat preferring to gossip about the Premiership matches or political events taking place oblivious of the supplier’s need for attention. The language they use to address suppliers sometimes can be derogatory. The other scenario is one of collusion where staff form an internal thieving network that starts with the way orders are made. One of the international Supermarkets suffered this kind of fraud when those ordering for products connived with the Stores and Receiving agents. They would initiate an order say of 30 cartons for Supplier X. Supplier X arrives with the cargo and is told to offload 15 cartons only, after which they proceed to approve receipt of all 30. The remaining 15 cartons are then redirected to a shop they were colluding with. End result? Supermarket pays for more products than it actually sold.

    • Managerial Staff: These usually determine the culture of the workplace. It is their tempo that dictates how the lower level staff operate. Passive managers who have a laissez faire approach give room for sharp lower level staff to defraud the business. In some cases, the managers collude with the lower level staff to defraud the employer. This is one of the reasons that led to the closure of one of the big supermarkets in Uganda. Managers used to collude with till operators to defraud the business while others would collude with the receiving staff. This naturally led to less revenue generation and also opened floodgates for other lower level workers to steal as much as they wanted.

  • Customer Care: Most supermarkets tend not to have clearly established customer care skills among their staff. They simply recruit any idle young man or woman for as long as they can speak, read and write. This is a no-winner. While the kind of jobs most of the attendants are likely to undertake do not require advanced studies, it is crucial that they be trained on how to interface with customers. This is what happened with Capital Shoppers Ntinda when a situation that could have been resolved amicably turned into a battle of egos.

Twitter: @wirejames

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Doing Business with Supermarkets in Uganda

Following my expose of Uchumi’s rundown business operations, I was awed by the inquiries that flooded my inbox regarding doing business with Supermarkets. The Baganda say, “Omulya Mamba ab’omu n’avumaganya ekyika” meaning “One bad Apple spoils a bunch

The neanderthal business management approach exhibited by Uchumi Supermarket in East Africa doesn’t necessarily mean that all Supermarkets are evil. It simply serves as a guide on how NOT to run a supermarket business. If what I wrote appalled you, then I wonder how you would react had I revealed the murkier dirt of how managers and low level employees connive(d) to defraud their employer, suppliers and customers.

Are Supermarkets a necessary partner for small business owners? Yes, depending on what you supply, how and the market you want to reach out to.

If you;

  • Have a product that targets individual consumers like processed and unprocessed food, clothing, stationery, hygiene products, cosmetics among others.

  • Have a product that targets the mass market.

  • Want to reach out to the elite market.

  • Want to have a higher inventory turnover with less overheads i.e. you don’t need to have your own employees selling your products all over the place since with a supermarket, their shelves, branding and attendants do that work for you.

  • Have the ability to produce for a market wider than you can directly supply.

  • Have the ambition to grow your brand and achieve greater visibility.

  • Want to rate your performance against the competition.

  • Can afford to offer credit sales.

Then, the Supermarket distribution channel is ideal for you.

Supermarkets have the ability to amplify your market reach beyond your current product marketing resource capacity. All this by merely placing your products on their shelves and ensuring you register presence in their various branches.

Most Supermarkets tend to locate their stores in easy to access locations especially targeting residential suburbs. This is a good omen for anyone targeting the mass market. We have been able to sell our products in towns like Gulu and Mbarara without setting physical foot there.

Supermarkets have the ability to drive up your sales if your products gain customer appeal. In our business we experience a 30% year on year annual growth in sales with one of the leading supermarket chains.

So, here are some of the yardsticks you can use to determine which supermarket to deal with?

  • Ease of Access: Entry requirements into supermarkets varies. For some it’s as simple as appearing with a product and they avail you shelf space while for others, one has to follow an application process. The small, suburb neighbourhood supermarket tends to easily take in products usually on trial basis and once they are found to appeal to customers, larger orders are made. Big Supermarkets (usually chains) have a more complex application procedure that involves a time consuming process of submitting product samples for review after which a decision is made on your application.

  • Payment Terms: Supermarkets have different approaches towards payment.

    • Consignment Basis i.e. Make a supply and once it’s sold out, you are paid.

    • Cash on Delivery i.e. Upon delivery of the product, you sign for your payment.

    • Credit Sales (For lack of a better term). In this case, you supply the supermarket with products and invoices are cleared at specified intervals e.g. every 14/30/45 or 60 days.

  • Market Segment: Different supermarkets have different target markets. The kind of shoppers you will find in Kawempe and Bwaise for example are likely to have different consumption characteristics from those in Naalya and Namugongo. These consumption characteristics affect aspects like package weight (do they prefer to buy smaller or bigger weights?), package quality (are they willing to pay extra for well packaged products or are they content with just the basics?), purchase volumes among others. If you have a good understanding of your products, then it becomes a lot easier to know which Supermarkets to target. Ariel Washing Powder is a good example where the much smaller 45grams packaging is strictly sold in relatively low income neighborhoods as opposed to the larger 500g and 1000g packaging that is prevalent in the upscale supermarkets.

  • Credibility: Many Supermarkets suffer a credibility problem. This is a problem that affects both small and big players alike. Payless Supermarket and Super Supermarket that had over two branches in upscale Kampala suburbs closed without a trace leaving many suppliers in tears. I have seen many small (usually Asian owned) supermarkets change ownership overnight and on pursuing one’s arrears, you’re told that the previous supermarket is no more. This is the modern day thuggery that is being perpetrated by some of these ‘investors’ and small businesses desperate for exposure and market are the biggest victims. I however have found a good number of locally owned suburb based supermarkets to be very credible especially when run by the actual owner.

  • Business Culture: While there do exist guidelines on how businesses are supposed to be professionally run, many entities take on a business culture that rubs off the principles and values of their proprietors. There are supermarkets you will find with very good and efficient systems in place to manage suppliers and customers (they usually aren’t necessarily the big supermarkets). Others have a laissez faire approach towards suppliers mainly with a tendency to treat them as beggars or street urchins whom they are helping to access the market. This latter category tends to present lots of problems when it comes to paying for products supplied.

  • Consult: If you are serious about making this move, talk to people who are already supplying Supermarkets with products. They will freely give you a rundown of which ones are good or not. The information gained is likely to save you from an early business demise.

On the whole, I can confirm that if you are the type with a day time job but trying to make ends meet by selling some products here and there, then using the Supermarkets as an outlet channel is likely to be the most convenient for you.

Silver Fish Powder being packed ready for Supermarket supply.

Silver Fish Powder being packed ready for Supermarket supply.

Small businesses that want to concentrate on production as opposed to sales and distribution can also take advantage of the supermarket networks already in place. This augurs well for specialisation that brings with it certain benefits.

Love them, hate them, but Supermarkets are here with us due to their key advantage over the local duuka (shop) of being a centralised shopping centre for the increasingly time constrained working class urban dweller. You had better consider this sales channel.

Twitter: @wirejames

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ATM Fraud hits Ugandan Banks – Customer Beware

Shamira (Name not real) received the long awaited call confirming her proggie with some friends that evening. Excitedly, she jumped into her Vitz and raced off to the nearest ATM for some money. On arrival, she inserts her card in the ATM, executes her transaction and leaves smiling, looking forward to a fun filled evening.

A few metres from the ATM, a silver Subaru Forester with tinted windows is parked by the roadside and seated inside is a one Kasoma (Name not real). With a laptop and WiFi connection, he’s monitoring the card Skimmer he had just inserted in the ATM machine’s card entry slot. As Shamira inserts her card, the skimmer is able to extract relevant card data which he gets in real time. Then aided by a micro camera mounted inside the ATM closet, he’s able to see the pin code Shamira types to access her money. That’s all he needed.

Kasoma proceeds to make a duplicate card which he feeds with data from Shamira’s Card. He then uses the duplicate card to withdraw money from Shamira’s account and upon her next visit, she gets welcomed by the famous message, “Unable to proceed with transaction due to insufficient funds on your account.”

For as low as US$ 200 you can buy an ATM skimmer on the internet and using a regular WiFi enabled laptop, all you need is identify ATMs that aren’t tightly monitored and you’re good to go.

This is the reality the banking customer is faced with today. A group of Bulgarians was convicted in 2012 after orchestrating this scam in Kampala thereby defrauding many ATM users.

The recent fiasco with Centenary Bank that led to the nullification of all ATM card PINs  followed by the Bank CEO’s statement aimed at calming down the general public as well as silencing the speculation that arose shouldn’t be taken lightly.

In a well calculated and crafted video message, the CEO attributed the bank’s extreme action to a software update process that is ongoing. However, as someone who has dealt with Software and Hardware systems for many years, I am more than convinced that the bank is not being generous with the information it avails the public.

It is a fact that numerous banks are falling victim to electronic crime in Uganda and while some cases have been reported, most are dealt with under the hood for fear of alarming the public as well as diminishing their already strong brands based on trust. The situation is further complicated by the high level of insider dealing.

What is ATM Card Skimming? The copying of encoded information from the magnetic stripe of a legitimate card, making use of a card reader for fraudulent purposes.

Card skimming seems to be the most wide spread form of ATM fraud going on but there are others like;

  • The Card Trapping devices; Where a thin ribbon of Xray tape is inserted into the card slot. The loop it has traps your card and makes it appear like the bank has repossessed it. A ‘Good Samaritan’ then offers to help you and advises you to type in your PIN Code in order to have the ATM card returned. When it fails, you walk away believing that your card has been captured. He then proceeds to remove your card and withdraw your money using the pin he saw you punch in.

  • The Exit Shutter Manipulation Fraud; In this one, you insert an ATM card and punch in the pin in order to get money, select the amount you need and as the dispensation of the funds begins, you place your hand on the money exit shutter for a few seconds triggering the message that there is a fault with the shutter. This then causes the machine to reverse the transaction at the ATM switch by the amount requested thereby crediting your account once again. However, on release of the exit shutter after a few seconds, the ATM dispenses the amount previously requested since it was manually halted during the dispensation process.

  • The Matchstick hack: By inserting a matchstick in one of the keys on the ATM keypad like the Asterix (*), Clear or even Enter keys, a customer will come, insert their card, punch the PIN but fail to transact successfully since the keypad is kind of disabled. Meanwhile the criminal is nearby observing your PIN. Upon failing, the customer withdraws their card and moves on giving the criminal a chance to go to the ATM, remove the matchstick and punch in the customer’s PIN. He then transacts on the ATM account even with the card withdrawn since the machine retains the card’s details for some time.

  • By pressing a special sequence of buttons on the ATM keypad, some ATMs can be placed in the privileged ‘Operator Mode.’ While in this mode, numerous variables can be altered with the most prominent one determining the denomination of the bills loaded into the machine’s currency cartridges. Once done, one then proceeds to make the ATM withdrawal and by fooling the ATM into dispensing Ushs 50,000/= notes instead of Ushs 10,000/= notes, one is able to get more money from the ATM than their actual recorded funds transaction request.

There are many more frauds out there and as their complexity increases, so does the pressure on the financial institutions increase too. Ugandan banks need to wake up and start protecting their customers.

The largest perpetrators of these ATM scams are organised criminal gangs from Western Europe and as they find it ever harder to penetrate banking systems in Europe and America, they are going to shift their focus onto softer targets in Africa where the uptake of technology is spiralling albeit haphazardly.

How can you protect yourself from ATM fraud as a customer?

  • Familiarise yourself with the ATM machines of your bank especially the card slot entry area. This will help you notice anything that is out of the ordinary before you transact. Keenly observing the ATM machine and its surroundings should be top on your priority list before transacting.

  • As you punch in your PIN, shield your hand and the keypad with your body or the other hand to ensure that any installed cameras do not capture your PIN details. In some cases, heat sensitive thermal Cameras are used which can detect the keys you punched long after you’ve finished putting in the PIN. So, to be safe, you can go the extra mile and cover some form of tissue or cloth on your finger as you input the details.

  • Use familiar ATMs. Be careful which ATM machines you go to. In case you’re not comfortable with the area an ATM is located, then do not transact. ATMs in dimly lit areas or visited late in the night might be more susceptible to fraud.

  • When distracted during an ATM transaction, immediately cancel your transaction and collect your card before responding to anyone who has distracted you.

  • Always change the Card’s PIN from the original number given to you (this number may sometimes be part of the data on the magnetic strip and could be discovered by thieves who have stolen your card).

  • Do not accept assistance or guidance form anyone however helpful they may seem.

  • If your card is trapped or swallowed by an ATM, do no leave the ATM immediately. Call the bank or even better wait until you can see someone else successfully transact from the very ATM machine you’ve used before you can prove that it wasn’t a mere fabricated blockade.

  • Feel the Card entry slot. If you detect anything loose around it, then you have reason to suspect that a skimmer could have been inserted. Call and report your findings to the bank.

In case you’ve already fallen victim, try any of the following;

  • When you discover a card reader or card-trapping device, don’t remove it. Call the bank authorities or Police ASAP because the crooks may be watching the ATM and want to recover their equipment.

  • In case of a lost card, immediately notify your bank and terminate any further transactions on your account.

  • When approached by someone suspicious at the ATM, calmly observe them and keep track of whatever possible detail you can come up with then proceed to submit a report to the bank or the Police.

As for the banks, there is a need to;

  • Setup a Joint ATM Security Team: ATM fraud can’t be addressed in isolation. Ugandan banks need to appreciate this and swallow humble pie. The more they work together to confront this challenge the higher the chances of registering success. Such an effort needs to be complemented by other agencies like the Police CyberCrime unit, the National IT Authority among others.

  • Train ATM Fraud Experts: From basic card skimming to malware use, ATM hacking is scaling greater heights by the day. The banks need to avail specialised training to some of their staff to tackle ATM fraud.

  • Install Machine Alarms. These help alert when the ATM shell is tampered with.

  • Upgrade Cards. From the simple magnetic ATM cards, banks need to make upgrades to the Chip and PIN technology since currently most fraudsters can only compromise the magnetic stripe on the card and not the chip.

  • Raise Customer and Staff awareness of ATM Fraud. This can be done through posters, screen messages and inserts in mailings to customers. Just like openness worked a great deal in combating the HIV/Aids scourge in Uganda, the same could apply to the ATM fraud challenge which is likely to grow in leaps.

Shamira and You can help avert the looming ATM hacking crisis but above all, we need the banks to cooperate and be more open about this problem.

Twitter: @wirejames

The Uchumi Supermarket Ponzi Scheme killing Small Businesses

The year was 2002, Uchumi Supermarket opened it’s first retail store outside the Kenyan borders in Kampala, Uganda amidst a lot of fanfare and pomp. The branding alone was enough to attract the trigger happy Kampala elite whose love and admiration for anything new lasts as long as it takes a matchstick to burn. I was among those sucked into the craze of shopping there and indeed the service levels were quite impressive. Little did I know that it was a matter of time before I became a supplier of this very supermarket chain.

In 2009, I was able to get one of my company’s products onto their shelves and honestly, it was such a big break for the business. What begun as a symbiotic affair where we supplied and were paid (albeit after a 45 – 60 day period), eventually became parasitic. The supermarket from as far back as 2010 begun falling back on its payment promises and one had to occasionally ‘go native’ in order to be considered for payment. Eventually we stopped supplying them and as a result accumulated unpaid invoices over two years old.

How did Uchumi respond to our plight as unpaid suppliers? The company simply took on new suppliers who had no idea how much of a bad business partner they were getting in bed with. These new suppliers would also supply for about a year then cease upon realising that they are offering interest and security free loans to Uchumi. The cycle continued to the extent that in one interaction with their Finance Manager a one Richard, I did warn him of the imminent collapse of the Ponzi Scheme they were engaging in. I proposed to him that a meeting between Uchumi Management and Suppliers would help generate ideas on how the situation could be turned around. Unfortunately, some of these powder milk stuffed corporate expatriates for lack of a better term have no clue about what it takes to maintain a business ecosystem and only focus on ensuring that their salaries hit the bank account as well as massaging the egos of their god fathers.

At this point I chose to sit on the sidelines and watch the gradual collapse of a giant. In a matter of just one year, the Uchumi Ponzi Scheme has fallen apart in Uganda. However, what do we learn from all this?

Small Businesses that form the bulk of suppliers to the supermarkets are the biggest victims of such corporate financed misadventures. Businesses that have outstanding payments with Uchumi of between US$ 500 and US$ 5000 are not less than 600. This translates to a supplier debt of at least US$ 1.5 Million. Now these are the businesses that you and me set up with plans of growing into something bigger tomorrow. To be made a fool of by such a major retailer that continued to carry out promotions even when they were at bleeding point is the biggest insult I have ever witnessed. I am only glad that our products are selling in most of the major retail outlets and the loss of Uchumi can’t drive us out of business but what happens to that Mama Mboga (Poor little lady who packs ground nuts and sim sim snacks to supply in order to fend for her fatherless children)? Family incomes are shattered, this has a rebounding effect on individuals’ lives but for the corporate smugglers in form of Managers and owners at Uchumi, it’s business as usual.

Look at this interesting trend, in 2002 when Uchumi came to Uganda, they were already facing teething problems in Kenya that led to the company being put under receivership in 2006 and eventually being delisted from the stock exchange. Uganda gave them a lifeline as it was a cash cow till the same internal thieving and stock control problems that caused the Kenyan collapse caught up with them. Now that Uchumi Uganda is on it’s knees (as expected anyway), they are rapidly opening up branches in Rwanda. One only wonders for how long they will profitably operate in that market before the same cancer that plagues the Kenyan and Ugandan operations permeates there. As of writing this, Uchumi has closed their Freedom City, Garden city, Nateete, Kabalagala and Gulu branches in Uganda. They are neck deep in lawsuits and it looks like this time round, the Kenyan Government just might not bail them out like it did in a politically brokered deal when the Kenyan operations had hit rock bottom.

The scene of this has been in the Supermarket space but similar cannibalistic attributes are being witnessed in different industry sectors. A friend that runs a small business that offers services to Advertising Companies keeps lamenting about the delayed payments that take at least six months to come through.

Why then should the Small Business owners always be blamed for the horrendous statistics quoted that “90% of Ugandan businesses never live to reach 5 years?” The major cause is clear and it is a cash flow problem usually induced by supposedly professionally run big businesses. The Uchumi Ponzi Scheme is a case in point.

Without appearing to be a prophet of doom, if Uchumi doesn’t clean up house right from the top (A fish starts rotting from the head – Acholi Saying) the Rwanda operations will bite the dust within two years from now leaving many small business owners destitute. Word coming in indicates that Uchumi Tanzania is likely to close shop soon too with suppliers and workers are already protesting.

Like the Telexfree fraud, Uchumi Supermarket is taking Suppliers on a wild goose chase.

Someone stop Uchumi’s Ponzi Scheme. NOW!!!

Are you a Cyber Criminal or Victim?

The internet has stamped it’s authority on our lives lately to the extent that many of us cant imagine a day without going online. However, it’s increased influence in our lives has brought benefit to both well  and ill intentioned users. You might have been led to believe that you have never been a victim or perpetrator of Cyber Crime but that impression is likely to change after reading this article.