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Tuskys now seeks Sh1b to compete in supplier payments

By Moses Michira | October 29th 2019
Tuskys along Kenyatta Avenue in Nakuru Town. [Harun Wathari, Standard]

With Sh800, a shopper at one of the foreign-owned retailers would still have some change after paying for a ten-pack tissue paper pack, a kilo of margarine and three litres of cooking oil.

A similar shopping list but with a smaller (two-litre) cooking oil jar at an indigenous supermarket will cost Sh1,007, in a survey carried out last week.

The saving is a whole Sh220 plus a litre of cooking oil – which separately retails at about Sh200.

In the prior case, the global chain store which has been in operation for just four years has consistently managed to give shoppers the “best price guarantee”.

Despite the locally-owned retailers having established long-running relationships with the suppliers including farmers, they cannot match newer entrants on pricing.

Financial Standard set out to understand the competition among retailers in a sector that is undergoing major disruptions, especially after the death of former indigenous giants Nakumatt and Uchumi.

Part of the reasons for the collapse was falling out with suppliers which led to empty shelves and disappointed shoppers who turned elsewhere.

Findings of the study, mostly based on interviews with various stakeholders, reveal a fierce pricing war that has suppliers at the heart of it – but they are not complaining.

In fact, big manufacturers such as edible oils manufacturer Bidco are happier dealing with foreign retailers despite the latter’s demands for deep discounts and promotional pricing.

An official at the giant oils manufacturer confided in Financial Standard that their selling prices are “largely dependent on how soon the payment will be received”.

Backed by deep pockets from back home, foreign retailers such as Walmart, Carrefour and Shoprite arrived in Kenya and hugely altered the supplier payment terms.

With prompt payment, the retailers are able to push for friendlier pricing while negotiating with suppliers

Tuskys, which has the biggest number of outlets, has taken note of the development and has gone out to search for additional working capital that should enable it to slash the payment period.

Confidential sources have helped join the dots on why Tuskys, broadly viewed as the local retailing success after the fallen Nakumatt, would join the Nairobi Securities Exchange incubation platform known as Ibuka.

“Tuskys is seeking to raise Sh1 billion from the market before the end of the year to boost its working capital to address the supplier payment period,” said the source.

Among the options sought is to issue a convertible bond which provides the lender with an opportunity to convert a loan to a share at a later time, subject to some conditions.

Such conditions could include the willingness of the current owners to accept opening up the shareholding to other investors.

Enquiries to the Tuskys chief executive Dan Githua for an official position on the capital-raising plans were unsuccessful as calls to his phone were not returned.

French-owned Carrefour which operates several outlets in high-end neighbourhoods confirmed to Financial Standard  the prompt payment terms for its suppliers, which could explain the deep discounts it is able to offer. “The payment terms are a business-to-business agreement that is formalised, agreed and signed by both parties…the payment term depends on the nature of the supply,” the firm said.

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