Botswana’s retail chain Choppies on Monday said it had struck a deal to buy mid-tier Kenyan supermarket Ukwala for close to Sh1 billion, marking its entry into East Africa’s biggest economy.
Choppies said it had reached an agreement on May 29 to buy ten Ukwala stores located in Nairobi, Nakuru and Kisumu.
“Choppies Supermarket Kenya Limited (the local subsidiary) will buy the assets and the business name for a consideration of approximately $10 million (Sh990 million), subject to final due diligence and inventory valuation,” Choppies said in a regulatory filing at the Johannesburg Stock Exchange (JSE).
The deal, which is being financed through a mix of debt and equity, is still awaiting the Competition Authority of Kenya’s (CAK) authorisation and valuation of stocks held in the stores.
Half of the stores that are up for sale are located in Kisumu, three in Nairobi and the remaining two in Nakuru.
Sources privy to the deal, who cannot be named because the transaction is private, said that Ukwala shareholders had decided to exit the retail business with the sale of the chain’s ten stores to Choppies.
Choppies is entering the Kenyan market through a joint venture with the promoters of Export Trading Group, a Tanzania-based agri-business and logistics company.
Choppies has a 75 per cent stake in the Kenya subsidiary while the remaining 25 percent stake is held by Parin Bharatkumar Patel and Birju Pradipkumar Patel, the two directors of the Export Trading Group.
Choppies says in its filings that its entry into the Kenyan market is being driven by the expected strong growth in the general economy and low penetration in the formal retail sector.
“Kenya’s forecast GDP growth of 6.4 per cent CAGR (compounded annual growth rate) from 2014 to 2018 and an underpenetrated formal retail market provides Choppies with a compelling opportunity,” the Botswana retail chain says, adding that the formal retail market is expected to grow at a CAGR of 32.4 per cent from 2014 to 2019.
Broll Group chief executive Malcolm Horne said in a recent presentation that Kenya accounts for 19 per cent of the formal retail market in the sub-Saharan Africa, which is only second to South Africa, and disposable income that is 14 per cent above the continent’s average.
Kenya’s largest retail chain Nakumatt estimates that the formal retail market generates $2 billion (Sh198 billion) annually but has the potential to rake in $7 billion (Sh693 billion) per year, offering ample room for both local and international retailers to expand.
Choppies, which recently listed on the JSE, is joining the list of foreign retailers that have set their sights on Kenya’s fast-growing retail market that is so far dominated by homegrown brands.
Nakumatt and Tuskys are the country’s largest retail chain with 53 stores each. Uchumi, the only retail chain that is listed on the Nairobi Securities Exchange (NSE), has 40 branches while Naivas has 35 stores.
The Choppies’ May 29 takeover of Ukwala came on the same day that South Africa’s Massmart, a Walmart subsidiary operating through the brand Game, opened its first Kenyan store in Nairobi’s Garden City Mall. French retailer Carrefour has also announced plans to launch Kenya operations by the end of the year.
Carrefour will be the anchor tenant at Centum’s Two Rivers mixed development, a new mall located on Nairobi’s northern bypass, and is set to be the biggest shopping mall in East and Central Africa.
Carrefour is also set to be the anchor tenant at the Hub, a development in Nairobi’s leafy Karen suburb.
The competition authority’s approval of the deal promises Choppies a first move advantage over Tuskys Supermarkets, which had planned to buy six of Ukwala’s Nairobi shops but only managed to close the purchase of one outlet after a protracted legal battle.
The CAK sparked the legal tussle with its insistence that Tuskys’ acquisition of the six stores would curtail competition in Nairobi’s retail sector.
Choppies said it would make key decisions such as rebranding of stores and change of management once the deal gets regulatory approval.
Approval will also make Choppies the first international retailer to buy into a local chain.
Massmart had initially planned to enter Kenya through a joint venture with Naivas but a family feud blocked the deal.
The Walmart subsidiary was to buy a 51 per cent stake in Naivas but has opted to open its fully-owned branded stores.