Uchumi collapse looms

Uchumi Supermarket could be on the verge of a painful death just months after Nakumatt exited the market.

The troubled retailer has asked the Ministry of Trade to intervene or risk having the home-grown brand go under.

The retailer now wants the government to support a plan dubbed the Company Voluntary Arrangement (CVA) because the other alternative will be liquidation, which it argues will be of no benefit to the unsecured creditors.

It is also staring at the loss of the Lang’ata Hyper through a forced sale by UBA Bank.

“Only the secured creditors will benefit. GoK (Government of Kenya) is also at risk of having its secured amount reduced in the event that UBA proceeds to sell Lang’ata Hyper at Force Sales Value,” a letter by the retailer to Trade Principal Secretary Chris Kiptoo reads in part.

“This will happen if the CVA application is not successful,” Uchumi Chief Executive Mohamed Mohamed adds.

It also wants the Trade ministry to engage the Attorney General’s office to help it resolve the ownership dispute surrounding a land in Kasarani land which is also claimed by the Kenya Defence Forces (KDF).

It is also struggling to pay taxes, which has put it at war with the Kenya Revenue Authority (KRA).

“Please note as follows: Uchumi Supermarket requests GoK to…assist in further engaging KRA to take into consideration our proposed payment plan for the tax arrears,” the letter says.

The retailer also wants the ministry to support a government entity initiative to purchase the daily consumables at its outlets, especially the one on Aga Khan walk.
If these initiatives come a cropper, and they look set to fail, then the retail chain will lose its last line of survival.

“Further to the above, please take note that in the unfortunate event where Uchumi Supermarket PLC faces closure, then we risk losing ownership of the land through the High Court,” says Mohamed. The matter is at the High Court where Sidhi Investments is suing Uchumi for performance.

CLEARANCE SALE

Prior negotiations with the principal of Sidhi Investments had reached an out-of-court settlement of Sh841 million. The retailer had appealed the matter but it was dismissed with costs.

The collapse of two of what were once the biggest supermarkets in the country is set to benefit foreign retailers.

This comes after efforts to resuscitate Nakumatt supermarkets, which was once Kenya’s biggest retail chain, have failed.

The Sunday Nation has learnt that the chain has now sold what was left of the six branches to rival Naivas Supermarket in a deal that will see the Nakumatt brand completely disappear by the end of the year.

After it went into the financial intensive care unit, the retail chain shut down dozens of its stores to keep afloat. It was left open six to keep its dreams alive. These were Nakumatt Mega – which was the most profitable branch for years – Nakumatt Prestige, Lavington, Kisumu, Embakasi and Nakuru.

The retailer is currently running a clearance sale. Most of its prime spots have been taken up by Carrefour. Some are being taken up by Naivas and Tuskys.

The six branches were expected to help it as it went back to the drawing board, pick up its pieces and bounce back having learnt from mistakes.

But it now appears this dream too did not work.

“They have simply made a strategic exit, with Naivas picking the branches at a consideration. A bank has also put up its Mombasa road head office for sale. Basically, it is a done deal…sad reality,” a source familiar with the operations of the retailer said.

Difficult holiday

Atul Shah, the main face of the family-owned business established in 1987, was counting on the six outlets to bring back the company he grew from scratch into an East African giant before he saw it stumble and start crumbling piece by piece.

Besides the staff, its suppliers and creditors will be the worst hit by the turn of events. Those who gave it Sh6 billion in unsecured financing will have a difficult holiday season given that they may never get back their money.

At its peak, Nakumatt employed about 6,500 staff and paid billions of shillings in taxes. It had 62 branches across the region with 45 in Kenya, nine in Uganda, five in Tanzania and three in Rwanda. Its revenue grew from Sh40 billion in 2013 to a peak of Sh52.2 billion in 2017, before its financial problems became public.

Due to a host of reasons, the company started experiencing serious cash-flow difficulties in 2016 and it was just a matter of time before it was unable to meet its financial obligations to landlords, suppliers, and the employees. After that, it was just downhill for the Shahs.

Sales dropped by 66 per cent the following year to Sh14.8 billion as a result of branch closures and reduced sales in all outlets due to reduced stock. Its most recent audit put its fixed assets at Sh4.9 billion and net working assets at Sh4.2 billion.

By the time it went into administration, it owed Sh40 billion and if all its assets were to be sold to repay its debt, it would have sunk with more than Sh30 billion. That is why it pushed for the appointment of an administrator to help it sail back to the shore and hopefully start repaying its debts.

To keep hope alive, the retailer tried out a pilot project in four outlets where the landlords had given an assurance to the company that they would not shut it out.
Tuskys helped it restock at these outlets.

“According to the company, it made profits in each of the four outlets where the pilot project was conducted. The company had, reportedly, paid for all the supplies that had been provided to it during the said pilot project,” court papers say.

This was the argument that won it the application to have Peter Kahi appointed as an administrator.

In the light of the “success story” of the pilot project, the company expressed the view that if its branches were kept open for trading for three months, it would be able to start paying off the arrears, while sustaining repayment of current debts.

But this experiment too has now failed and nothing can save it. It is almost officially the end of the road for the giant.