HOW TO – Start a Supermarket

A Supermarket is a large self-service shop selling foods and household goods, according to the English Oxford Living Dictionary. In Uganda, you might want to avoid sticking to that definition by erasing the term large.

We have supermarkets that cover over 5000 Sq. Metres while those in most residential neighborhoods are as small as 20 Sq. Metres. It’s important that we have a similar appreciation of what a supermarket means in the Ugandan context before going ahead with this article.

One of the businesses Ugandans have given attention in the last ten years is the Supermarket business. As a supplier of products to supermarkets, I have an eye for locating the new ones considering that the wider I cast my net, the more sales I make.

A typical neighborhood supermarket in Kampala, Uganda

From my observation, this is one of the easiest businesses to set up and yet potentially challenging to run. You could choose to directly manage its operations or hire a team to do so. The former option is likely to reduce on the operational headaches by far.

What do you have to consider when setting one up?

1. Location: The biggest success factor for this business is location. Where you put your supermarket will clearly determine not only the category of clients you attract but also their numbers and frequency of shopping. A supermarket located by the roadside with little or no parking slots for cars had better be near a busy public transport stage. You could also locate it in an affluent suburb or on the road leading to such a suburb from a busy work area of the town. However, in this case, having good parking is a big advantage considering the likely transport mode for most of the middle class families. One of the best locations also is residential areas. Setting up one within an estate or its environs offers a much bigger market guarantee especially if the estate is big in size.

2. Ground Floor: Wherever the location you settle for, always insist on having the supermarket on the ground floor. Anything short of that will lead you to failure right from the word go. Most Ugandans are not into the habit of climbing stairs just to get stuff done. It is the reason you find most of the storeyed buildings in the city having tenants occupying only the first three floors with the rest being empty. Suppliers also have an easy time when delivering products since having to lift them to higher levels might involve much more labour and time.

3. Parking: Availability of parking for cars is crucial if you want to reach out to an affluent or mixed client base. Depending on your location, you might want to insist on having parking space near or at the front of the supermarket.

4. Branding: This can be a complex matter but in the most basic way, simply ensure that you come up with an appealing name and graphics for the business. This process needs to put into consideration your likely target customers and long term plan for the business.

5. Fittings: Get your internal fittings right. The shelves, cold storage facilities, tables, security among others. The extent of these fittings is determined by the spread of services and products you intend to provide. A basic no frills supermarket intent on merely retailing basic household goods would focus on shelves, a cashier’s table and one or two fridges.

6. Supply Chain: Supermarkets need suppliers in order to serve their customers. Supplier X brings her baked Cakes, the supermarket displays them on the shelves and customers buy. After sale, the supermarket notifies the supplier to restock as well as receive payment for the previous consignment. The beauty with this is that as you set up the supermarket, suppliers start flocking the venue asking to be registered. So, it is among the easiest to handle.

7. Human Resource: You need people to run the supermarket. Even when you choose to manage it directly, depending on your scale of operation, there is always that need for a few extra hands to help in:

• Attending to customers

• Receiving products from suppliers

• Security

• Cleaning the supermarket

• Managing books of accounts, e.t.c.

8. License: Get a trading license from the local authorities. This trading license is paid for annually and has to be factored in as one of the recurrent costs.

9. Business Registration: With things getting tighter in Uganda today, you can hardly open up such a business without having some form of registration. Identify whether you want to register a Private Limited Company, Sole Proprietorship, Partnership or any other mode. This is a pre-requisite in order to get a Tax Identification Number from the Uganda Revenue Authority.

10. Business Plan: Try to have some form of written business plan. I know, when I talk about this, you’re probably imagining a one hundred page document filled with all sorts of academic brouhaha!!! No. A business plan can be as simple as a three page document listing the key issues and how you plan to deal with or achieve them. In the case of a supermarket, one of the issues you need to address is the products and their pricing.

• What mark-up do you place on your products and how does the eventual price affect the ability of your target market to purchase?

• What type of products do you stock? You have no need stocking electronics like Televisions in a supermarket located in a housing estate. That shelf space is better used stocking washing detergents.

• What product sizes or packaging do you opt for? Detergents like Ariel or Omo are on high demand and purchased by most households. However, the purchase quantities vary from one market segment to another. The affluent moneyed class prefers to buy the One Kilogram or even Five Kilogram packs while the low income households prefer to buy the smaller 100 gram packs. Study your market and stock the right product sizes.

11. Return Policy: Set a clear policy on product returns. Often times supplied products get expired, damaged or might be defective right from the factory. As a supermarket, you do not have to bear that as a loss, it should be clear to the suppliers that they replace any products that cannot be sold to customers for one reason or another.

12. Supplier Payments: Most suppliers offer credit to supermarkets save for a very few like Milk and bread suppliers who tend to collect their money upon delivery. However, for those that extend credit, it’s crucial that you have a very organised system of managing them. Some supermarkets settle outstanding invoices every two weeks, thirty days or even forty five days. Others clear each pending invoice upon product depletion on the shelf. Setting up a predictable payment system for the suppliers not only endears you to them but also ensures that you manage your cashflow better. This particular point is the reason Uchumi Supermarket closed operations in Uganda and Nakumatt Supermarket too is currently struggling to remain in business.

13. Point of Sale System: This is an electronic system used to record transactions at the point of payment in a shop or supermarket. It could be crucial or not depending on your scale of operation. If it’s a small Mom & Pop neighbourhood supermarket that you directly manage, you may start without it. However, for a business you aren’t actively managing, this system will help you so much as it allows you to make daily audits of sales by recording all transactions.

14. Theft: For as long as you get into this business, expect this to be a sticking issue. Globally, supermarkets put a 3% mark-up on their product pricing to cater for just this. While you can employ technology and other means to reduce its prevalence, theft will always occur. How does it happen?

• Walk-in customers. There is always an army of people who have made it their livelihood to steal products from supermarket shelves and find their way out without paying. This is one of the reasons you need an extra hand to run the supermarket. They can keep watch over such activities. However, what happens if they collude?

• Crooked Suppliers. There are cases of suppliers who deliver less than what has been indicated on the invoice. It implies that you pay them for goods that were never supplied in the first case. Matters are made worse when they collude with your staff to make these false declarations.

• Staff. Internal supermarket staff could also be a source of illicit product loss. They tend to take advantage of the trust bestowed upon them to engage in theft. In bigger supermarkets, they are known to form networks that ensure the untraceability of their illegal activities. The closed Uchumi Supermarket was a glaring example that suffered from internal staff theft.

15. Money: Finally, have money. While I cannot give you financial estimates, by perusing through the list of issues presented so far, you can get a good idea of what to prioritise and hence determine how much you need to set up the business. The best thing about it all is the fact that product stocking which tends to cost a lot is largely on credit hence reducing the overall initial financial burden.

I hope you are now ready to start that supermarket business. Do not waste any more time. Get at it right away.

James Wire is a Small Business and Technology Consultant based in Kampala, Uganda

Follow @wirejames on Twitter

Other Articles of Interest:

• You want to start a business? Just do it!!!

• HOW TO – Start a Home Business

• How much do I need to start a business?

• Bird Flu – A lesson for Income Diversity

• Starting a business isn’t only about money

• I’ve quit my job. What next?