RetailAnalysis
06 April 2017
Uchumi focusing on a four-point strategy

After a difficult three years Uchumi has set out a new strategy to turn around the company’s fortunes. This centres on improving its funding, through a government bailout and investment from a new partner, and expanding through a low cost, franchise model.

Slow performance

Uchumi has experienced slow performance over the last few years and due to cash flow difficulties has not always been able to pay suppliers. This has led to challenges with suppliers, which have ultimately led to out of stocks. The issue of out of stocks has led to reduced footfall and slower sales growth.

These difficulties have resulted in the government offering a capital injection of KES500m (US$4.8m) in January. Meanwhile, Uchumi also launched a two-and-a-half-year turnaround plan to improve the business.

The measures that were put in place have so far successfully reduced company losses by nearly half in the last six months.

New strategy aimed at stabilising performance

Uchumi’s strategy can be broken down into four key areas;

1. Selling assets

Through detailed fiscal management Uchumi closed loss making stores in Uganda, Tanzania and Kenya. Going forwards it will be focusing upon more strategic expansion in better locations.

2. Finding an investor

Uchumi is looking for a new partner who can invest KES5bn (US$47.6bn) into the business. So far, it has narrowed down the list of investors to three, from 39. It has said it expects to make a final decision by June.

The investment will be used to support previous changes and enable it to capitalise on future ones. A large part of the future strategy will be built on franchising. Uchumi plans to collaborate with third party outlets and established small scale shops and have them rebrand as Uchumi Express and Uchumi Mini. This will mean that the risks will be transferred to the management of new outlets, while Uchumi will gain royalties from their sales.

3. Building supplier confidence

Uchumi plans to invest in its stock strategy and supplier support to lessen the problem of stock outs. It will do this by ensuring that all suppliers are treated fairly and allow them to convert their outstanding debt into equity. There are also plans to improve ICT, which will drive more efficiency in the supply chain.

4. Improving the shopping experience

Having suffered with a high turnover of staff, Uchumi is focusing on retaining key team members. It aims to have store teams that are friendly and can help customers. It is also focused upon acting responsibly by supporting local organisations that customers care about. Uchumi has committed to ensuring basic household products like milk and flour remain affordable for customers, despite macroeconomic challenges.

Government funding

In January, the government offered a capital injection of KES500m (US$4.8m) into Uchumi. Other payments are scheduled and the total funding will amount to KES1.8 bn (US$17.2m) by May. The initial funding of Sh500 million will be used to re-stock stores. The further funding of KES700m (US$6.7m) will support local operations and Sh600 will be used to offset debts. This will bring the company back to a place of profitability.

The future

Uchumi has mixed predictions for the future. It believes the country’s current favourable interest rates and relatively stable economy should positively affect performance. However, with the current drought basic foods prices may rise and therefore reduce spending power. It also may lead to inflation and supply shortages. The upcoming elections in August may also have a negative effect on the economy.

The business however remains positive it will overcome these challenges. Infrastructure is improving with better accessibility, which eases supply chain difficulties. There has also been a property boom allowing retailers to purchase space close to residential areas. Adding to this there has been an increased investment from international brands, improving the overall environment that Uchumi is in.

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