Tuskys Chief Executive Officer Dan Githua, a devoted Twitter user, sometimes acts as the supermarket chain’s last line of defence online.
On the app, Githua likes to be known as “anko wa Tuskys” or the “digital retailer” and is quick to respond to critics and clarify the retailer’s position.
But for over a week now, his silence online and offline has been conspicuous with the family-owned supermarket chain trending for worrying reasons.
In April, Tuskys said it had “temporarily” closed three branches including Digo Road (Mombasa), Kitale Mega and Tom Mboya (Nairobi).
SEE ALSO: Shoprite to lay off 115 as it shuts Mombasa branch
Tuskys customers have been complaining about stock-outs while suppliers cry of delayed payments. The East African newspaper reported last week that the government has placed the retailer on its watch list for inability to meet contract obligations with suppliers.
The Competition Authority of Kenya (CAK) has also been investigating supermarket chains that have delayed supplier payments and if found guilty, face up to fines of Sh10 million.
No doubt, the global Covid-19 pandemic, on the back of an ailing economy, have rattled the retail industry to the core.
Amid dwindling footfalls by the day, worsened by restrictions on movement, profit margins have never been thinner.
Tuskys says its reeling from the impact of the Covid-19 pandemic, retail experts however say there’s more to what meets the eye with early signs of distress present.
SEE ALSO: Businesses bet on flights resumption
Sagaci Research, a provider of African market data and analysis, noted that Tuskys appeared to be in the weakest financial position of any supermarket chain in the country.
The firm, in a market report after the closure of the three stores, added that allegations of internal fraud, sibling rivalry, aggressive debt fueled by expansion and fierce competition were taking a toll on the business.
“Tuskys appears to be in the weakest financial position of any of the major supermarket chains in Kenya, and if Covid-19 were to claim a victim in chained grocery retail, it would be the most likely candidate,” said the Sagaci Research.
“Having expanded rapidly over the past five years, the suspicion is that, like Nakumatt, debt-fueled growth has left Tuskys vulnerable to external shocks.”
“Moreover, allegations of internal fraud have dogged the retailer for almost a decade, as members of its factious founding family fight for control of the business, while its market share has come under pressure, particularly in Nairobi, as rivals like Carrefour and Naivas have opened new stores. Late last year, we noted media reports that Tuskys was seeking to raise working capital, while just two months ago, Tuskys’ management was downplaying the significance of a round of redundancies at its head office,” said Sagaci.
SEE ALSO: Covid-19 patients protest hunger in Kericho
Githua did not respond to calls, text or email after an interview request by Weekend Business for this story.
Last month, reports that Tuskys was delaying and reducing payments to suppliers, banks and landlords owing to constrained cash flows began circulating.
Tuskys, that has over 60 branches across the region, attributed this to impact of the Covid-19 pandemic on business.
Mr Githua (pictured) wrote to the Chief Executive Officer Kenya Association of Manufacturers (KAM) Phyllis Wakiaga regarding the status of supplier payments and also sought to clarify on Twitter.
He apologised for restructured payments of some suppliers with respect to their trade terms which began in April as a result of Covid-19.
“However, we have continued with payments re-scheduled in April, progressively released in May and to continue in June,” said Githua.
He added that the payments had been impacted by Covid-19 that has heavily affected the footfall of the retail sector.
“Accept that the retailer is in distress. I have been wondering what went wrong whenever I walk into your stores. Major brands are no longer in shelves which are flooded by low quality products,” said one Twitter user.
Speaking to Weekend Business, Kenya Suppliers Association Chief Executive Ishmael Bett confirmed that Tuskys was facing issues.
“Tuskys has a challenge,” he said without delving into details. Kenya’s retail industry is filled with secrecy with retailers only divulging information when opening new stores or when involved in corporate social responsibility initiatives.
The past few years have not been kind to the Kenya’s retail sector, especially on home grown retailers. Nakumatt, Ukwala and Uchumi sound like a long lost era.
Backed by huge investors, international retailers have become the new power houses. Shoprite, Carrefour and Game Stores are on a roll.
Choppies has been so far one of the less successful foreign retailers. Just last week, Carrefour opened its eighth store in Kenya opposite Nyayo Stadium where Nakumat used to be.
Dubai based Majid Al Futtaim is the franchise holder of the French retailer in Kenya, which boasts of 21 shopping malls, 12 hotels and three mixed-use communities across the Middle East, Africa and Asia.
Carrefour declined our interview request on their rapid expansion. The space that was occupied by Nakumatt in Thika Road Mall was taken over by Carrefour.
In Mombasa’s City Mall, the space again occupied by Nakumatt went to South Africa’s giant retailer, Shoprite.
Game Stores, also South African, threw itself into the fray and took up space formerly occupied by Nakumatt at the Mega city Mall in Kisumu in mid 2019.
The Game had landed in Kenya in 2015 and is a subsidiary of Massmart Holdings, whose majority shareholder is American retailing giant, Walmart.
The Game has three stores: two in Nairobi and one in Kisumu. Shoprite opened their third outlet in Kenya last year.
Adenia partners, a private equity firm, through their special purpose vehicle Sokoni Retail Kenya, acquired, and merged, Quick Mart and Tumaini Self Service Ltd.
The brand name after the merger would be Quick Mart. And very fast, QuickMart have spread their tentacles in the market and are now among the frontrunners in the industry.
Infighting between managers of some of the local retailing powerhouses has also contributed to downfalls.
Management wrangles between family members, especially siblings, has been responsible for intense court battles that have rocked the businesses.
Some of them have been accused of defrauding the very businesses they lead in a bid to enrich themselves.
Tuskys Supermarket, founded by Joram Kamau, had been embroiled in a bitter sibling rivalry that even saw the ouster of Githua at some point.
The revered local retailer also announced that it would be laying off staff by March 19 in what it termed as a business move aimed at restoring the company’s financial viability.
However, Wambui Mbarire, the CEO of the Retail Association of Kenya, says that retrenchment is normal business practice.
“People are hired and fired. Positions are rendered redundant, positions are merged for greater efficiency. You could decide that you need only five people to manage a line which used to be managed by ten people,” Ms Mbarire said.
“Laying off people does not amount to business closure. Those are things that happen in the normal operations of any business.”
She insists that people get laid off even as others get hired. Endless court cases have faced Nakumatt CEO Atul Shah, with money that was owed to suppliers, creditors and landlords blowing over the debris that was Nakumatt.
Nakumatt collapsed with a Sh38 billion debt. Botswana’s Choppies came to Kenya and acquired Ukwala supermarkets.
But after about three years of wading into the troubled waters that are Kenya’s business space, Choppies made a hasty exit.
Now, most of the retail market is left to foreign firms. But Mbarire says that with the country boasting over 300 supermarkets, the collapse of a few should not be misconstrued to mean that the local retail sector is limping.
“The local retail sector continues to stand out in spite of the challenges that seem to be plaguing it. There is continued growth and the fact that foreigners are coming into the sector shows the opportunities for continuous growth are very high,” she said.
“In our formal retail sector, we are only second to South Africa. That shows how advanced we are in comparison to other countries. This remains the most attractive market in terms of retail for the foreigners interested in coming into Africa.”
Peter Kahi, a partner at PKF Kenya, says that the business model that the Kenyan retailers subscribe to is probably the main reason most of them exit markets even when it seems they are in an upward trajectory.
“Most of the retailers are anchor tenants in the biggest malls in the city. But the gross profit margins they accrue are very small to cover their cost of operations,” Mr Kahi says.
“Due to this, they have to do volumes. They go opening branches all over the country in a bid to recoup the costs. By doing this, they borrow heavily or end up using suppliers’ money to fund the expansion. As such, they end up owing a lot of money to lenders and suppliers.”
He observes that the new market entrants, the foreign retailers, study their markets well before throwing their hats into the ring.
And one of the things they are careful not to do is open a lot of branches. They have settled for a few outlets in Nairobi’s prime malls, taking up spaces that were left by fallen regional icons, mostly Nakumatt.
David Mukuha, the Managing Director of Naivas Supermarkets, feels that most local retailers learn on the job. Before they can steady the ship, the wave of competition torpedoes their ship.
Mismanagement, a rife ill in most businesses, is also one of the reasons behemoths are collapsing. But Mukuha is upbeat Naivas will survive the scourge of competition from the foreign giants who have landed and are taking the markets by the scruff of its neck.
“We have a good management system at Naivas. In spite of what is happening in the market, we are expanding. We have 61 branches countrywide, and we are opening two more from next week,” he says.
The managing director of a brand that has withstood tough times says incorporation of people well versed with retail business has helped them thrive.
They are well aware of what they need to do to remain competitive. Mukuha stresses that he understands the markets way better than any foreign retailer probably would.
He further notes that Naivas completed a partnership deal that saw the retailer sell 30 per cent of its stake to Amethis Finance, a Paris-based private equity fund.
But some of these local retailers fail because of unethical practices among employees. Kahi avers that pilferage costs a lot of retailers between five and 10 per cent of their sales.
“Records for procured goods, which have been paid for, exist. But against them, there are no goods to be shown. This frauds eats into the benefits of the firm,” he notes.
Kenyan retailers have also succumbed to cannibalisation, a self-inflicted disease. Most of them open branches within short distances of each other, some even as near as 100 metres apart.
“In such a case, you are serving the same customers,” he says of such firms. “You are not expanding your market.” That practice is akin to dumping of resources where there is already enough; where they are not even mildly required.
Most of the retailers also do not own the assets that they use in their businesses. They only use the brand to make their sales and profits, and the leased assets incur even more costs.
“Most trolleys you push in supermarkets are actually leased by the retailer. It is not the retailers’ assets,” he says.
The jury is still out on the new market entrants as their survival is hinged on many factors. Some, which may look like massive empires, may struggle to survive the market.
Some have failed in other countries and are trying a hand in a market that has been turbulent for many local giants. However, according to Kahi, the different models used by the incoming retailers might give them a lifeline. Their measured expansion saves them expenses that may ruin their balance sheets.
With many smaller supermarkets budding, the potential for local retailers to hold their own in the market cannot be ignored. For now, the face of retail in Kenya looks disturbingly foreign.