Botswana retailer Choppies is set to invest Sh754.7 million in loss-making Ukwala Supermarkets in which it acquired a 75 per cent stake earlier this year.
The multinational retail chain says in its latest trading update that it will invest the cash to open 12 more stores in the local subsidiary over three years.
The planned capital expenditure comes as Ukwala made a net loss of Sh270.1 million in the year ended June and is projected to remain in the red in the current financial year.
“Our operations in (Kenya) will remain loss-making in full-year 2017 as we continue to build our store base and invest in operational infrastructures,” Choppies said in the report.
Choppies says Ukwala currently has eight stores in the major towns including Nakuru and Kisumu.
The capital expenditure will add to Choppies’ investment of Sh1 billion to acquire the controlling stake in the retailer where the minority 25 per cent equity is held by Export Trading Group, a Tanzanian firm.
It will spend Sh143.3 million in the current financial year and Sh305.7 million each in the subsequent two years, with four new stores to be opened in each of the three years.
The multinational said Ukwala had revenues of Sh443 million in the year ended June, with the gross profit standing at Sh77.4 million while the gross profit margin coming in at 17.4 per cent.
Ukwala’s average basket size was Sh391.7, indicating that the retailer is still heavily dependent on lower middle class shoppers.
The supermarket is set to introduce loyalty cards which have become a major tool for customer acquisition and retention.
Major retailers including Nakumatt have loyalty programmes that reward shoppers with points that can be redeemed for goods and services. The retailer recorded a footfall — defined as the number of people entering a shop — of 1.1 million.
The new branches will significantly expand the supermarket’s current total retail space of 14,199 square metres.
Ukwala closed the review period with 566 employees and a warehousing space of 3,448 square metres.
The Ukwala buyout made Choppies the first international retailer to buy into a local chain, with the Johannesburg Stock Exchange-listed firm saying it was attracted to the local market by projections of strong economic growth and low penetration in the formal retail sector.
The multinational said it expects Kenya’s formal retail market to grow at a compounded annual growth rate of 32.4 per cent from 2014 to 2019.
A recent report by research firm Euromonitor International projects that Kenyan cities will register the highest growth rates in consumer spending over the next 15 years, outpacing Nigeria, South Africa and Cameroon metropolises.
The report covering 24 cities estimates that consumer expenditure in Kisumu will rise by 277 per cent from $0.6 billion (Sh60.6 billion) in 2015 to $2.2 billion (Sh228 billion) in 2030 at the equivalent of last year’s prices.
The Kenyan lakeside city is followed by Mombasa whose consumer spending is forecast to rise 221 per cent from $1.6 billion (Sh161.6 billion) to $5.1 billion (Sh518.7 billion) over the same period as per the Euromonitor.