It was a case of grandiose. Shoprite Naalya, the icon of Naalya is no more. After more than 15 years of operating in Uganda, the company is quitting. This is another South African originating supermarket to close shop. The first was Metro Cash and Carry, which was allocated in the prime building next to UMA show grounds. In October 2008, this magazine carried out a detailed analysis of the reasons for the closure. Top on the list was a poor business model whereby the supermarket required membership to access the services. Walk- ins were not welcome! In this country without data protection laws, that was a hard shell.
Even when they lifted the membership requirement, it was too late thanks to Kenyan supermarkets notably Uchumi which had descended on the Kampala market by storm. The coming of Shoprite made matters worse for Metro. The last nail was by Capital Shoppers that had a local touch. It now appears that Shoprite cannot handle the fire. The supermarket business is going to Kenya.
Media reports indicate that Shoprite has been in talks with Nakumatt Holdings, a Kenyan supermarket chain for takeover. ‘’ we will be signing the memorandum of understanding with Shoprite to acquire outlets in Uganda’’ Mr. Thiagarajan Ramamurtly, the Nakumatt head of Strategy and Operations, was quoted as saying. The takeover follows declining sales and profit and increased competition from new entrants Capital Shoppers, Quality Supermarket, Tusky’s and host of medium supermarkets.
There is also an increase in shopping malls which offer competition to the big retail outlets. In the suburbs, local entrepreneurs are investing in ‘’mini’’ supermarkets which are also proving a challenge to the big brothers. In Kiwatule, just before Naalya, Sinabel mini supermarket has effectively filled the gap left by the sudden closure of Shoprite Naalya. The supermarket has had bumper harvest since early this year. Many prime villages are registering an increase in ‘’big shops’’ or mini supermarkets.
The takeover, analysts believe is more than competition than rivals. If it were so, Nakumatt wouldn’t be making inroads. So what exactly is behind the exit by Shoprite in this growing market?
Poor Business Mode.
To survive in this market, you need a clear strategy that can be sustainable. All foreign businesses that have survived in Uganda understand and adapt to trends of Ugandan market.
Like Metro Cash and Carry, Shoprite thought South African business models would work in Uganda. Shoprite management and or business advisors considered the large Naalya Housing estate they thought such population would support a supermarket. Without more insights, they booked the largest space at the mall as an anchor client.
The decision was bad. The Naalya Housing settlement is largely composed of young corporates who in banks, NGO’s, insurance companies. These are heavily indebted - servicing several loans including car loans, house loans and mortgages loans for home items, name it. Nearly everything they own is in negative.
Shoprite learnt late that the shopping power of these good Ugandans was low and could not support the planned investment. This place is also exposed to high competition on all sides- from Ntinda, Bweyogerere and Namugongo. Several people also work in the central business district where there are several supermarkets with royalty programs. Turskys in Ntinda, Capital shoppers Nakawa and Ntinda, Quality supermarket in Namugongo, are all competing for few customers who would otherwise have shopped at Naalya. The competitors located themselves in places leading to high end village suburbs Kyanmbogo, Najeera, Banda, Naalya. You have people who now had to visit Shoprite after watching a movie or from the bar, after they have already bought the things they need and been at home only to return for evening leisure. Even when they pass by the supermarket, they are just doing window shopping.
Dukas! The Hidden Competitor.
Research shows most Ugandans generally do their shopping at small family shops known as Duka’s – these are located near their homes and are visited almost daily partly because shoppers want to touch base with residents, as well as get credit terms. The supermarkets and groceries are popular amongst trendy aspirants and progressive affluent who make only 17% of the population. These buy only high end products like energy drinks and deodorants. The majority of folks who frequent supermarkets buy foodstuffs like bread and meat.
The report identified seven segments in Uganda. 41% of Ugandans including evolving Juniors, Wannabe Bachelors and struggling traditionals who survive at subsistence level. Across all consumer segments, affordability and recommendation are vital determinants of purchase. As the report notes, companies that work with these realities at the back of their mind realize Uganda’s hidden potential. The supermarkets in Uganda are energy suckers. Because of competition from farmers interested in having their products on their shelves, supermarkets do not pay up- front for the food stuffs on display. Instead, they require suppliers to supply on credit or until they sell. That means, if their products do not move, they take it and the resultant loss is met by the supplier. That is a good model.
But what about your small farmer who supplies onions? In the normal course of things, the supermarket gets stock free of charge and sells at a profit only then to pay the supplier. That is like using free money from the bank! However, the model is different for small shops and traders in the traditional market like Nakawa. Vendors must make down payment to get stock, yet some of their clients take items on credit.
Bureaucracy –everything was run from South Africa.
Suppliers of Shoprite tell what they went through hell to get their payments. At one point the suppliers had to submit their invoices online, equally they would get their payments online. The payments would be generated in South Africa. This scared away some Ugandans who later bad mouthed the company. The bureaucracy was also exhibited recently when a local newspaper thought a comment over possible takeover by Nakumatt from Shoprite Uganda country manager, Jayte Slabbert. The paper was referred to company’s headquarters in South Africa. Such bureaucracy could not work in Uganda where local or regional players have powers to decide on key issues.
Time of Opening and Closing
Who buys from supermarket? Ugandan men and recently women, for various reasons ranging from fear of traffic jam to late business meetings, health tips to meeting ‘side-dishes,’ among others. Ugandan men (majority buyers in supermarkets) tend to get home past 8:00pm.
Unfortunately, at this time, Shoprite Naalya would be closed. Their average close time was 7:00pm. Meanwhile, rivals like Tuskys Ntinda closes way past mid night. A visit to Capital shoppers between 8 and 10:00pm revealed busy time parking lot is full with many customers are shopping.
For the Naalya branch, the opening and closing time for the supermarket was critical in their success. Most of their customers have full time day jobs in the city. They leave home at worst by 8:30am. They return later between 6:30 to 10pm. Unfortunately, by 10:00pm, time Shoprite would be closed. Even when they tried to change the time, it was too late as potential customers had changed their program to buy whatever they need along the way. It would have done justice to them by opening at 12:00pm and closing at 1am. Otherwise, the Supermarket continued to open at 9:00am daily, without any customer. It was not by surprise that they made losses in their kitchen especially with their perishables.
We all like free things. While rivals including small players like Kenjoy introduced loyalty cards, Shoprite never thought this was key factor. Loyalty cards create an impression of discount, never mind some goods are priced higher compared to those without loyalty cards.
‘’I shop at Capital Shoppers Ntinda, with my loyalty card. I earn points worth 100,000 in one month which I can use to shop for ‘free’. This incentive is hard to ignore. One time someone had no money in their pocket, but at the till, they just gave the teller to deduct from the loyalty points. Psychologically, one feels great savings for having the points.
We are now waiting for Nakumatt which is likely to open an outlet in Naalya. Do they have what it takes to make it? Time will tell.
SOURCE: SUMMIT BUSINESS MAGAZINE.NET/ VOL. 08 ISSUE 05 August 2015.