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Uchumi gets second expansion plan right with 24 per cent rise in profit

Uchumi Supermarket branch in Nairobi. Photo/FILE
Uchumi Supermarket branch in Nairobi. Photo/FILE 

Uchumi Supermarket’s renewed branch expansion is paying off with half-year net profits rising to Sh204 million or 24 per cent.

The profit for the period ending December 31, 2011 reflected significant improvement compared to the Sh165 million recorded over a similar period in 2010.

The listed retailer’s revenues grew to Sh7.5 billion from Sh5.85 billion, a 29 per cent increase which analysts say can be attributed to Kenya’s oldest supermarket increasing its presence locally and regionally.

Johnson Nderi, a research analyst at Suntra Investment Bank said that the retailer’s non-current assets increasing by a third is a clear pointer to branch expansion which is a strategy the firm’s management has reported will be its revenue driver.

Low stocks

Non-current assets as at December 2011 stood at Sh2.6 billion, an increase from Sh1.95 billion in 2010 representing a 33 per cent jump.

Mr Nderi said the firm is managing its stock better while still expanding which in the past has been Uchumi’s Achilles Heel.

“There’s better inventory management because they hold low stocks comparatively speaking, despite increase in capacity,” said Mr Nderi.

This comes at a time when inflation is making for a tough competitive retail environment. A double-digit growth shows that the firm’s branches are being run efficiently.

“This shows some resilience despite the biting environment,” said George Bodo, a research analyst at ApexAfrica Capital. Inflation which peaked at 19.72 per cent last November has seen the size of the average consumer shopping basket shrink and retailers are feeling the pressure on their sales. Retailers are competing on price and expanding offerings which only tightens competition in the retail industry, he added. Tuskys, Naivas and Ukwala are some of the retailers which have gone on an expansion binge.

Nakumatt retail chain, the largest in the region, has been the main competitor of Uchumi Supermarkets and it is also expanding.

“We have seen the mushrooming of retailers and they are very aggressive and expansive,” said Mr Bodo.

Mr Bodo said that in the second half, Uchumi’s expansion may hit revenues and overall profitability since it takes between one and three months before a branch breaks even.

The listed retailer has been expanding both locally and regionally with Kisumu, Ongata Rongai, Kisii, and Embakasi being the branches being opened. Regionally, it is looking at entering South Sudan.

4 branches in Uganda

It has flexed its muscles in Uganda where it has four branches and Tanzania where it opened a branch in Quality Mall, Dar-es-Salaam.

The firm did not respond to queries from the Business Daily on its future outlook as chief executive Jonathan Ciano was away. On Friday, the firm said that Mohamud Janmohamed appointed as director in April last year had resigned from the board.

“We wish to inform you that Mr Janmohamed has resigned as the director of the company,” said a statement released last Friday.

Uchumi re-listed last year after a five-year hiatus where its shares were suspended from trading at the Nairobi Securities Exchange (NSE) after it nearly collapsed.

jgachiri@ke.nationmedia.com