Why Nakumatt struggles as Capital Shoppers and others thrive

While browsing the Twittersphere, I came across a thread in which the issue of Nakumatt Supermarket’s limping performance in Uganda was being discussed viz a viz local Ugandan Supermarkets.

Ms. Nancy Kacungira loudly wondered what the likes of Capital Shoppers are doing right to stay in business to which the renowned economic affairs analyst Dr. Ramathan Ggoobi duly responded by stating, “Alot. Location, good supply chain management (high fill rate), and damn, I’ll say it …. loyal ‘sectarian’ clientele.”gobbi_tweet

The last part of his submission is what I didn’t find worthwhile. So, as a supplier of supermarkets, I went ahead to respond as follows, “They pay us well and promptly. Including Quality (Supermarket). I find the assertion of “sectarian clientele” as lame reasoning by @rggoobi.”wire_response

Its eight years since I started supplying supermarkets with products and this has given me some time to appreciate the business. A supermarket is no different from a warehouse where suppliers bring their products for onward sale to customers. The only difference is that Supermarkets have to invest in a few things that make the shopping experience of a customer conducive. Their key issues of concern are usually branding, location, management systems, market identification and interior décor.

The success of a supermarket is hinged on three core factors as indicated in the illustration below.Supermarket_Success

When Uchumi joined the Ugandan supermarket space over ten years ago, they heralded a new era that saw them take supermarket branding to a new level all together. The supermarket enjoyed market leadership overnight, largely a result of the corporate buzz created whenever anything new is launched as well as the significant presence of Kenyan professionals in Kampala. Nakumatt followed suit years later and it too caught the attention of the Ugandan market by launching 24 hour shopping services. Within a short while, it had grown and surpassed Uchumi as well as other leading local supermarkets like Quality and Capital Shoppers.

During all this time, the local supermarkets must have been learning serious lessons from these foreign entrants. Nakumatt, Uchumi and Tuskys, all Kenyan supermarkets by origin had the money, systems, branding and rode on the wave of a significant presence of Kenyans in Uganda to kickstart their business. They also won over many Ugandan shoppers and a simple way to tell that is by studying various suppliers’ delivery schedules that largely rotated around these supermarkets.

So, the factors Dr. Ramathan Ggoobi attributed the success of Capital Shoppers to like Location were definitely considered by the likes of Nakumatt. Take a look at Nakumatt’s branches at Oasis Mall, Bukoto, Entebbe, Mbarara, Bugolobi (although they goofed up by placing another branch at Village Mall in the same vicinity). Consider Uchumi’s branches that existed at Garden City, Nateete, Freedom City, Kabalagala and Gulu. They were well thought out and always outcompeted neighbouring supermarkets. But somehow, they went bust. Uchumi is now spoken of in the past tense having fled with Billions of Shillings owed to local suppliers. Nakumatt is in intensive care unit, trying so hard to stay alive and relevant. How did they get to this?

I will rule out the economy because the same economy is where you find other thriving supermarkets like Capital Shoppers, Quality Supermarket, Mega Standard, Ssombe Supermarket, City Shoppers Supermarket, Senana, Cynibell among others. The customers are still existent considering that they are the very ones patronising the currently well performing supermarkets.

In my view and as a supplier, the one aspect of the business that these supermarkets did ignore and are now paying heavily for is the Supply Side (read as Stock in the diagram shared earlier). This is in tandem with Dr. Ggoobi’s point on good supply chain management.

A supermarket’s shelves are what they are because of the goods that suppliers diligently avail for sale. Without these goods being supplied, they remain empty and useless to any consumer. Most supermarket suppliers never get credit from their raw material suppliers prior to producing products for the supermarket. However, when it comes to supplying the supermarket, they are required to do so on credit. The credit terms range from a few weeks to two months. Consider that often times, the supermarket pushes the supplier to offer significant discounts which are hardly passed on to consumers. In essence, the supermarket receives an interest free loan since after sale, they can still re-use the supplier’s money on other activities of their choice.

Suppliers are usually resilient and able to patiently wait until the due dates promised for payment. Sometimes, the due date is not honored by some supermarkets and suppliers have to make multiple attempts and trips to get paid. This is where the likes of Uchumi, Nakumatt and Tuskys went wrong. They knew that being “large” and “credible” players in the market, the suppliers were at their mercy. Wrong!!! This perception might have been true for a while but as word spread through the networks of suppliers about their financial dishonesty, one by one, we begun pulling out of making supplies. Eventually, the shelves begun starving of our products and customers started noticing. This proved one thing, suppliers are as important as the consumers.

Another aspect is the shoppers’ psychology. The reason a good number of urban dwelling Ugandans abandoned the small shops in preference for Supermarkets was the ability to find everything they needed in one place and at a competitive price. This expectation can only be met when the supply chain is very fluid. So, by letting down their suppliers, these supermarkets once again exposed themselves and could hardly meet this expectation. End result? Customers begun gravitating towards alternative supermarkets that fulfilled this need. Take the case of a battered Uchumi, in its last days at Garden City mall, Capital Shoppers opened up a branch right below Uchumi’s premises and within no time, it was attracting a much bigger crowd. A relative of mine once intimated to me that he was fed up of going to that Uchumi branch due to the lack of a wide range of goods for sale. He felt so relieved when Capital Shoppers opened up. This too further cements the supply chain factor.

Now, back to the insinuation by Dr. Ggoobi that Capital Shoppers is thriving because of a “loyal ‘secterian’ clientele.If indeed this is worth noting as a reason, does it also imply that Nakumatt’s failures are attributed to the sudden absence or exit of a loyal sectarian (Kenyan) clientele? It is an open secret that Kenyans loved patronising Uchumi, Nakumatt and Tuskys. These very Kenyans are still around and their numbers have probably grown. Why is it that these three supermarkets have either closed or are limping in this market?

I do shop a lot at Capital Shoppers and Quality Supermarket but have not seen any sectarian tendencies in their clientele. I would be hard pressed to point out that the majority of shoppers “appear” to come from one region of the country.

Lets face it, the Kenyan supermarkets came in with a lot of SWAG and knew they would steamroll the local market in a bullish manner. While they appeared to be scoring early successes in this regard, their local counterparts used that time to re-invent themselves and learn a few things from the competition. The founders of Capital Shoppers and Quality Supermarket are very hardworking modest living Ugandans who started off in very humble ways. Their continued success even during this trying time of the economy can be largely attributed to the respect they accord their suppliers as well as being able to continuously learn and unlearn.

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

Follow @wirejames on Twitter.

Email lunghabo [at] gmail [dot] com

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5 responses to “Why Nakumatt struggles as Capital Shoppers and others thrive

  1. Indeed, ‘What is Capital Shoppers doing well?’ is the question to ask… I was a supplier for a little while and I remember for a fact that Capital Shoppers was the only one that paid us on time. In two week intervals – They always communicated when stock was running low.

    The process was clear, unlike other supermarkets that unfortunately never treated us right.

    PS: I’d love to hear your take on what Cafe Javas is doing well too

    • I agree with your take on Capital. As for Cafe Javas, I must say I dont know much about the business side of things. However on the customer side, I love their ambience, the customer service and their choice to focus on a niche market which makes them comfortable. Their location at Kamwokya that I usually go to has appropriate parking hence making it a preferred business meeting destination as well as middle aged people interested in dating.
      I have also not had any incident where their food turned out bad and in most cases, one gets what they ask for.
      Matters are made even better with the complementary services like car servicing, tyre changing, fuel provision etc that can take place as one is relaxing at Cafe Javas.

  2. This makes so much sense. Someone once told me that Supermarket Suppliers hold a lot of power and can make or break a supermarket. Initially, I thought it was as simply as the Supermarket switching to other suppliers in case one lot became ‘big headed’. But you make mention of the network of suppliers speaking to each other and eventually pulling out one by one until such a time when the only suppliers willing to work with you are suppliers who have either substandard goods or suppliers who are unreliable. So yes, you are right – suppliers are a very important part of the equation. I wonder though what explanation there is for a huge supermarket to not pay its suppliers even after two months when as a supplier I walk into the Supermarket and see that what I supplied has run out on the shelves. People are buying my product but the Supermarket is not paying me. I wonder why this happens.

    • You want to know the truth? Many of these international supermarkets usually repatriate all their income. Uchumi for example used to sign all cheques from Nairobi. Money is earned in Ug, sent to Nairobi in one big pool then the finance guy in Nai decides who and how to prioritise the release. There was a scandal of a former Uchumi CEO who was a leading supplier of Vegetables to Uchumi (insane, isn’t it?). He always ensured his company was paid in advance irrespective of supplies made. That same Uchumi left us reeling with losses here in Uganda.
      Another thing you need to know, because of the large stashes of cash these supermarkets have especially coming our of weekends, there are people who prefer to borrow from them money as opposed to going to banks. They borrow, go spend on some other business deal and return with an interest. The more these deals keep being propagated, it only takes one of them to fail in repayment an the struggle begins. Meanwhile, as they lend out that money, the idea is to delay the supplier payments as much as possible afterall they believe we are taka taka.

  3. Good views there, James. You have clearly entered into that space and are not just talking off the top of your head. The Bugolobi-Village Mall locations of Nakumatt make business sense, though, from some points of view. I would presume that the Bugolobi branch was to capture walk-ins, hence the location near the taxi stage and the limited parking slots, while the Village Mall one was for the likes of those people who travel in their own vehicles and spend money on various other things such as the additional entertainment and experiences (shopping or otherwise) that a Mall provides.

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