Uchumi Supermarkets has announced plans to set up shops in slums in a major shift in strategy revealed by new Chief Executive Julius Kipng’etich. The new shops would be open before Christmas, he said, and will stock small products informally referred to as the 'Kadogo economy'.
“I will have several new shops by end of year in the informal settlements,” Mr Kipng’etich said yesterday, revealing his turnaround plan for the first time since arriving at the firm on September 1. He was recruited last month from Equity Bank to help in reviving the struggling retail chain whose operations have been depressed by mismanagement.
The move is certain to unsettle the tiny retailers who operate kiosks in the informal settlements, who have their markets shrink over time as bigger retail chains stock everything from beef to vegetables. In the new strategy, Uchumi would operate the new shops on trucks, making them mobile. Kipng’etich said: “We only need to hire a few trucks for the job, so the exposure to risk here is almost zero.”
Such a model has been embraced in informal settlements in South Africa, Kipng’etich said, and had proved successful. Several slum upgrading projects including high mast lighting and paving of roads in Kibera for instance, have opened up the slums to the outside world.
Among the reasons that informed the entry to the bottom end of the market was that products for the kadogo economy had significantly bigger profit margins, besides moving much faster.
Cost implications
A big population of low-income earners in the slums provide an attractive customer base that have largely been avoided by mainstream retailers. Their unpredictable incomes often mean that they are only able to budget for a single day, buying the most basic of commodities in the smallest of quantities that could fit within their wages.
Typical day wages for manual labour in Nairobi are anywhere below Sh400, while most of it is spent on food, according to the statistics bureau. Uchumi would only pay suppliers for the products once they had been sold, indicating that the planned expansion would have minimal cost implications for the company that is struggling with cash flow issues.
Several of the existing ‘bleeding’ stores are lined up for closure while others will be relocated to more prime locations. Already, Uchumi’s branch in Syokimau has been shut down owing to poor sales. The choice of the location was inferior and far from the prospective customers, according to the new executive.
Poor selection of locations had cost the firm heavily through rent and under-utilised workforce. Mr Kipng’etich revealed of impending changes that would ‘avoid fixed costs like the plague’ in a wider plans of containing expenses to hopefully shore up profitability. The firm is undergoing a major restructuring after nearly sinking under huge debts and dipping sales, which saw the former boss Jonathan Ciano fired in June, alongside other senior managers.
Findings of a forensic audit on the mismanagement problems that have plagued the retailer are expected within two weeks. Kipng'etich was speaking after signing a memorandum of understanding that would reinstate a cash collections partnership it had with Kenya Power. Until June, Uchumi was receiving power bill payments on behalf of the utility firm for a commission of Sh17.50 per transaction.
Kenya Power Managing Director, Ben Chumo said the partnership had been reinstated because the retailer’s prospects were looking up. Uchumi had owed Kenya Power over Sh100 million it had collected but not remitted prior to the termination of the partnership.
