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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