Tag Archives: supermarket

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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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.

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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.

  1. 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.

  2. 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.

  3. 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.

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  1. 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

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Reducing Risk when Supplying Supermarkets

The scenes of supermarket suppliers rioting in Gulu Town a while back due to the closure of Uchumi Supermarket touched many. If you are privy to information on how supermarkets work, you know that most of them never pay upfront for the products they sell on their shelves preferring to pay suppliers after the sale has been done.

In this Seeds of Gold article, I share more on how reduce the risk associated with Supermarket business.

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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Product Packaging, the Key to Agri-Business

Product Packaging, the Key to Agri-Business

Agri Business SMEs have been accused of failure to access lucrative markets as a result of poor packaging of their products. In this article, I highlight the benefits of packaging and challenges faced when trying to improve packaging in Uganda. Read on …