9 October 2017

Kenya: Internal Weaknesses, Debts Expose Nakumatt's Underbelly

Photo: Daily Nation
Nakumatt Junction on Ngong Road in Nairobi.

In 2013, Nakumatt Holdings launched its in-store packaged goods under the Blue Label. Its management believed this was a milestone in its efforts to dominate the retail sector in the region.

Managing director Atul Shah was categorical that customers would no longer be held to ransom by suppliers, as its products were much cheaper, drawing in lower-income customers, who would previously shun the supermarket.

The move was not entirely new, considering that some retailers were already repackaging some goods, albeit in small quantities, targeting the low-income earners.

Nakumatt, which targets the middle class, was keen on bringing a majority of goods under its Blue Label.

This did not go down well with its suppliers. The launch of cheaper Blue Label sugar, wheat and maize flour and detergents, meant that goods from other suppliers would have no space on the shelves.

When they did, they did not move as fast, thanks to the promotion of the Blue Label. Then the retailer increased the credit period to 120 days because of the slow-moving goods.

Decision-making position

Victor Omondi, an analyst at Viffa Consulting, said the treatment of the suppliers to a large extent exposed the Nakumatt management, a close-knit family business under the leadership of Atul and his sons Akoor and Neel, which had little room for outsiders in key decision-making positions.

Thiagarajan Ramamurthy, the regional strategy and operations director, was the only known top manager outside the Shah family. He later joined Bidco.

Now reeling under a $285 million debt and with vacant shelves, analysts say that Nakumatt's situation could get worse, particularly with landlords in its key hypermarkets looking to bring in its rivals as anchor tenants.

It is battling legal suits with some of its top suppliers who want it declared insolvent. The chain owes 20 leading suppliers some $20.5 million.

In Kenya, the retailer owes 41 per cent of the $620 million retail industry debt, according to the Ministry of Trade while in Uganda, it is under pressure from suppliers, landlords and the Uganda Revenue Authority, which has resorted to auctioning its goods to recover over $71,000 in tax dues.

The recent move by Knight Frank Kenya, the property manager of the Junction Mall in Nairobi, to evict it from the premises on a day that French chain Carrefour announced it was opening its third hypermarket in Thika Road Mall (TRM) exposed the vicious battle Nakumatt is going through. Its tenancy was restored by the courts and the case is ongoing.

Until last month, Nakumatt was the anchor tenant at TRM, where it owes $485,853 in rent.

The EastAfrican has learnt that the retailer is struggling to keep the premises hosting Nakumatt Mega, Hall Park Mall, Galleria Mall and Prestige Mall all in Nairobi and Nakumatt Nyali in Mombasa.


After opening its third store, Carrefour, which in Kenya is owned by franchise holder Majid Al Futtaim of United Arab Emirates, has made it clear of its intentions for further expansion and is keenly following developments of Nakumatt's struggles with its landlords.

"Majid Al Futtaim is committed to open more Carrefour stores in Kenya, as well as the rest of the East and Southern Africa," Franck Moreau, Majid Al Futtaim Kenya country Manager, told The EastAfrican.

He added that Carrefour will continue seeking growth opportunities owing to the fact that the formal retail sector is expanding in line with the growing population as well as the middle-income demographic.

The problems facing Nakumatt run deep and are coming when the configuration of the retail sector does not favour it, and the economy is on a downturn.

"Internal challenges, competition and an economy that is doing badly have all conspired to expose erstwhile well guided operations at Nakumatt," said Ken Gichinga, chief economist at Mentoria Consulting.

Among the veils that have been lifted about Nakumatt is the fact that the retailer is largely unattractive to investors. While its books remain closely guarded, analysts believe their state may have undermined Nakumatt's attempts to bring on board a strategic investor to inject some $75 million.

The Shahs may not be willing to list although experts say listing would have been perfect in raising private capital, improving on governance and streamlining operations.


The chain recently announced it was in talks with Tuskys, a rival retailer, for a possible merger but a key Tuskys shareholder has opposed such a deal.

Nakumatt has also been grappling with reputational issues arising from court cases with revenue bodies over tax. Internal weaknesses, poor strategic decisions and pilferage have also undermined its operations.

"Nakumatt has always had a weak governance structure that gave room to its problems," observed Mr Gichinga.

Among the strategic decisions that have been blamed for its problems is the rapid expansion that saw the retailer increase the number of its outlets in Kenya and venture into other East African countries.

And as employees in collusion with suppliers weakened stock controls, natural calamities like terrorism and unfriendly government policies compounded the woes of the retailer.

For instance, the terrorist attack at the Westgate Mall, the fire tragedy at the Downtown outlet and demolition of Thika Road branch to pave the way for road construction, all caused Nakumatt significant losses.

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