Tag Archives: uchumi

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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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.

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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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!!!