Five years ago, it was thought that foreign players would displace local supermarkets in a fight for Uganda's small middle-class clientele. That narrative has, however, been turned on its head, writes Ali Twaha.
The top Kenyan supermarket chains –Uchumi, Nakumatt, and Tuskys - did not just walk into Uganda’s market a few years ago; they bounced in with a spring in their step, steamrolling over some local players.
As a statement of intent, Nakumatt snapped up Payless supermarket and introduced 24-hour shopping at one of its units, while Tuskys swallowed Good/Half price supermarket. Uchumi did not buy any supermarket when it entered Uganda, although its strategy was to cut its prices so hard and crowd out local players from the market.
Matters were not made any easier with the likes of South African retail chain Shoprite also making headlines.
Who the next victim among the local supermarkets would be became a point of public discussion as the heavyweight Kenyan supermarket speed train embarked on a sweep that would crash any business that tried to derail it from its track.
The Kenyan supermarkets pegged their hopes on a simple business model: they would exploit regional synergies they enjoyed as other Kenyan businesses spread through the region; import into Uganda more of their goods that they produced at lower costs back home; and take advantage of their brand identity that many related with.
Five years down the road, it has been a bumpy ride for the Kenyan supermarkets. Uchumi has since closed shop and left Uganda, Nakumatt is scrapping through and lives to die another day, while Tuskys continues to jump hoops that sparked the fall of its Kenyan counterparts, but only barely.
A cocktail of financial problems brought about by low business sales and a crowded and shallow financial sector in Uganda has not favoured Kenyan businesses, while a weak shilling has made Kenyan imports more expensive.
Smelling blood, Ugandan supermarkets have moved in for the kill. Capital Shoppers opened a branch right under the belly of Uchumi supermarket at Garden City; the likes of Senana have opened another supermarket branch on main street while dominating the downtown streets; Quality supermarket in Namugongo recently opened a kids’ play centre that charges the most expensive prices around town; while Mega Standard supermarket is going to take up the space that Uchumi occupied at Garden City.
The swagger that Kenyan supermarkets came with has now been reduced to a painful limp, their legs cut off from the knees by their Ugandan competitors.
SURVIVAL of THE FITTEST
How exactly have the local supermarkets survived?
An investigation by The Observer has established that some local supermarkets have been able to cut down on major operational expenses in order to remain competitive.
For instance, many local supermarkets own their premises, and, therefore, avoid the high rent fees that the likes of Shoprite and Nakumatt incurred. Court documents show that at the time of its closure, Uchumi was paying Shs 22m per month in rent for its Gulu branch alone.
According to Everest Kayondo, the chairperson of Kampala City Traders Association (KACITA), local supermarkets are now a business within another.
Sources familiar with operations at Quality, Mega Standard supermarket and Capital Shoppers told The Observer that the supermarkets have segmented locations that are categorized as prime locations and are available to premium distributors for rent.
These sources, who declined to be named because they are not allowed to speak to the press, said some manufacturers pay premium rent to have their products displayed exclusively.
“Thus what you see as a supermarket is actually a set of stalls that someone has rented … thus the owner is not only making money on the products sold on the shelves but also collects rent there,” a source said.
The rent agreements with distributors usually see the supermarkets availed with free labour, only called merchandisers. These are the people one finds standing by the stalls, arranging products, restocking or marketing the goods to customers.
“[For instance], those you see with branded T-shirts are called merchandisers. They are responsible for ensuring the goods are well-arranged on the shelves and always stocked. They come here every day,” said a source at Mega Standard supermarket.
Asked whether the merchandisers are facilitated by the supermarket, the source said: “They are paid by the factories that send them here. The supermarket does not facilitate them in any way.”
Michael Kyaligonza is one such merchandiser for Pepsi products. We found him at Quality supermarket in Namugongo. He confirmed that the companies pay to have their products stocked at the prime position within the supermarket.
“Yes it happens because a supermarket cannot give you such a big space for free. My job, however, is to come here and monitor expiry dates on our products and to ensure that the goods are well displayed to catch the eyes of customers.”
URA SUSPICIOUS TOO
Kayondo says business players believe the local supermarkets have survived by maintaining a sparse workforce that is also poorly-paid.
Others believe it is easier for the local supermarkets to dodge paying taxes, an unfair advantage over their more-compliant foreign competitors. This business model has authorities at the Uganda Revenue Authority (URA) thinking hard already.
“It is hard to tell what a supermarket receipt means in taxes due. In our pilot, we want to begin with people who are involved in general trade: supermarkets and retailers,” Henry Saka, the commissioner domestic taxes at URA, said recently.
The move, according to Saka, will help them determine the actual profits made by some of the supermarkets.
URA has been studying the problem for some time and plans to install machines in the supermarkets to make it harder to make sales without proper receipting of sales made.
The electronic fiscal devices will provide more insight into what the supermarket is actually selling. With the system in place, the taxman will no longer have to do auditing because information regarding sales will be redirected in real time to their servers.