Uchumi Supermarkets’ CEO Jonathan Ciano at a past function. The retail outlet plans to open new branches in Kenya, Tanzania and Uganda. File
What you need to know:
Uchumi’s expansion plan is set to increase its branch network across Kenya, Tanzania and Uganda to 30.
The company has already announced a shareholder cash call scheduled for later this year to finance the expansion.
Uchumi has four branches in Uganda and one in Tanzania that are yet to turn a profit.
Uchumi Supermarkets is planning to open a second branch in Dar-es-Salaam and another in Uganda, deepening the chain’s foray into neighbouring countries’ retail markets.
Uchumi’s expansion plan is set to increase its branch network across Kenya, Tanzania and Uganda to 30, five years after the firm nearly collapsed under the weight of debts owed to suppliers and financiers.
“We are in discussion with a developer (for the Dar-es-Salaam unit) and once we agree on terms we will go ahead,” chief executive Jonathan Ciano told the Business Daily in a telephone interview.
He added that the Uganda branch, expected to open doors by end of the year, would be located outside the capital, Kampala.
Two more stores in Mombasa and Kisii are to be operational in a month’s time.
Uchumi has already announced a shareholder cash call scheduled for later this year to finance the expansion.
“This is why we have the rights issue plan,” said Mr Ciano.
Shareholders approved the cash call on December 11 and created 100 million new shares targeting to raise Sh1.5 billion.
The retail sector has attracted huge investor interest based on projections of a rapidly growing middle-income urban population in East Africa Community trading bloc with 130 million people.
Tuskys, Naivas, Ukwala and Nakumatt are the big players in Kenya’s multi-billion-shilling retail industry.
The biggest, Nakumatt, opened its 39th branch on Thika Road last Friday. It has stores in Kenya, Uganda, Tanzania and Rwanda. Tuskys, the second largest, is present in Uganda while Naivas has announced plans to enter South Sudan and Ethiopia.
“Retail industry has intense competition, but with it increased opportunities regionally,” said Moses Waireri, a research analyst at Genghis Capital.
The Uchumi rights issue is the second call on shareholders since 2005 when the retailer raised Sh1.27 billion to finance what turned out to be a disastrous expansion binge that temporarily forced it to close shop in June 2006.
A successful turnaround strategy has seen Uchumi regain its listing at the Nairobi Securities Exchange.
The retailer has been growing its branch network from internally generated funds since then. Analysts said that the branch expansion is necessary to reduce overall costs.
“This expansion is necessary in order to reduce the high unit operating cost the subsidiary had when operating one store,” says a research note on the retailer by Faida Investment Bank (FIB) referring to the Dar es Salaam store.
Uchumi has four branches in Uganda and one in Tanzania that are yet to turn a profit, but the FIB analysts said that they are expected to add to the bottom line once additional, albeit one-off expenses such as staff training costs are covered.
In the financial year ended June 30, 2012 the retailer posted Sh273.9 million profit down from Sh390 million a year earlier, a 29.8 per cent drop, which was attributed to increased expansion costs.
Sales grew to Sh13.8 billion from Sh10.77 billion, a 28 per cent increase which was also attributed to branch growth.
“We are likely to see sales growth going forward being buoyed by the increased branch network coupled with the optimisation of new branches that were opened during the previous financial year,” said the FIB coverage note.
The retail sector is also attracting investors such as private equity funds.
“Most of these vehicles have a similar investment strategy focused on high-growth SMEs in consumer-driven sectors such as telecoms, financial services and retail,” said a report on private equity funds done by consultancy firm Deloitte.
