The deal, which was completed last year, partially squeezed Deacons out of the lucrative Woolworths franchise which is now housed under Woolworth’s Kenya Proprietary Limited.
Mr Price, another franchise owner, is planning a similar joint venture deal with Deacons.
Woolworths deal helped Deacons return to profitability in the year ended December, partly cushioning it from the heavy hit that it took from disruptions and loss of the lucrative Westgate Shopping Mall branch.
Clothing and household goods retailer Deacons has reported Sh405.8 million earnings from the sale of a 51 per cent stake in its regional Woolworths franchise to the brand owners, Woolworths Holdings of South Africa.
Deacons disclosed the gain in its financial results for the year ending December.
The sale of stake means Deacons will only have a 49 per cent share of profit from the regional franchise.
The deal, which was completed last year, partially squeezed Deacons out of the lucrative Woolworths franchise which is now housed under Woolworth’s Kenya Proprietary Limited.
“The (Sh405.8 million) gain is from the sale of our majority equity in the franchise to Woolworths,” Joseph Sitati, the chief financial officer of Deacons said in an interview.
Mr Price, another franchise owner, is planning a similar joint venture deal with Deacons, a move that could significantly impact on the annual revenue that the retailer used to earn from the two franchises.
The Woolworths deal helped Deacons return to profitability in the year ended December, partly cushioning it from the heavy hit that it took from disruptions and loss of the lucrative Westgate Shopping Mall branch.
Deacons reported a net profit of Sh178.5 million in the year, reversing the 2012 net loss of Sh38 million. The retail chain’s sales increased 11.1 per cent to Sh1.7 billion, trailing a 32.3 per cent jump in expenses to Sh1 billion.
Deacons lost more than Sh100 million due to the closure of three stores at Nairobi’s Westgate mall following a terrorist attack on the property in September.
“The Westgate terror attack led to the loss of three key stores and the overall ramifications of this incident on all shopping trends continues to negatively impact on consumer behaviour to-date,” said Woolworths.
The retail chain closed three stores in Kampala, terming the move as a strategic review of retail location in the Ugandan capital. The firm also shut down its Mr Price Home store in Rwanda, citing unsatisfactory sales.
Deacons also terminated its clothing brand Identity which it said was performing poorly.
The retailer replaced Identity with the Bossini brand and opened three new stores at the Thika Road Mall as part of its expansion plans in the home furniture and fashion business.
The company said consumer spending in the review period was also depressed due to electioneering period in the first four months of last year.
Woolworths has been launching direct operations in African countries giving it strategic control and a claim on the profits.
Prefer local expertise
Deacons has continued to manage the venture despite its minority stake, indicating that their business partners prefer local expertise in the running of the company.
Woolworths has historically preferred trading under the franchise model where it would sell products to partner firms with limited involvement in the businesses.
In September 2010, the firm stopped using this model, arguing that it needed to acquire more control that would enable it standardise marketing and in-store experiences in the multiple markets it operates in.
It remains to be seen how Deacons would counter the potential dilution in its Mr Price business which accounts for about half of the retailer’s sales —excluding Woolworth’s proceeds.
