Kenya’s largest retail chain Nakumatt is set to acquire three stores belonging to South Africa’s Shoprite in Tanzania in a multi-billion-shilling deal that is expected to be completed by March next year.
The acquisition gives Nakumatt a bigger presence in Tanzania where it debuted in December 2011 with the 34,000-square feet Nakumatt Moshi outlet.
The deal involves the takeover of three Shoprite outlets — one in Arusha and two in Dar es Salam — and is valued at Sh4 billion.
“We have been informed of the said takeover by Nakumatt and the whole deal is set to be concluded March next year,” a senior Shoprite manager in Arusha told the Business Daily on the phone.
But Nakumatt Holdings managing director Atul Shah sought to play down reports of a deal involving the two retail chains.
“There is no news on this, will let you know if anything like this develops,” Mr Shah said in an email response to inquiries by the Business Daily.
The impending acquisition marks the latest phase of cross-border expansion by a Kenyan retailer.
Like Nakumatt, Kenya’s second-largest retail chain Uchumi Supermarkets has a regional presence with outlets in Uganda and Tanzania besides cross-listing at the Kigali Securities Exchange in Rwanda.
Shoprite opened its first shop in Tanzania in 2001 and its exit comes a few months after the Tanzanian government warned it against rampant importation of products from South Africa.
“Shoprite was importing up to 80 per cent of its products from South Africa – a move that was clearly aimed at promoting manufacturers back home and it seems the Tanzanian government warning did not go well with them causing the exit,” said another source familiar with Shoprite’s operations.
It is this change in regulatory environment that has seen Nakumatt move to acquire Shoprite stores, increasing its Tanzanian footprint to four outlets.
Shoprite Group of Companies is one of Africa’s largest food retailers. It operates 1,334 corporate and 406 franchise outlets in 17 countries across the continent and the Indian Ocean Islands.
Shoprite was previously the biggest retailer in Tanzania ahead of rivals such as Shreejis Supermarket, Shoppers Supermarket and the high-end Village Supermarkets.
Nakumatt, which runs 35 stores in East Africa including Rwanda and Uganda, has crafted an ambitious expansion plan that should see it venture into more African markets in the medium term.
The target markets under the plan that should see the company transform into a Pan African retailer include Burundi, Zambia, South Sudan, DRC, Nigeria, Botswana and Malawi.
The buyout of Shoprite in Tanzania will be Nakumatt’s latest acquisition after it took over four Woolmatt Supermarkets outlets in Nairobi in March 2010 for Sh400 million.
Nakumatt plans to fund the aggressive expansion drive using proceeds of an impending sale of the retail chain’s 25 per cent stake to a strategic investor. The retail chain is owned by the Shah family and Hotnet Ltd, a firm associated with former Kilome MP Harun Mwau.
Nakumatt’s biggest rival Uchumi Supermarkets has also embarked on a regional expansion drive seeking to diversify away from the domestic market.
Uchumi, which has 30 outlets in East Africa, plans to open eight more branches in the next six months. Of the new branches, four will be in Kenya, one in Uganda, and three in Tanzania.
Nakumatt and Uchumi expansion comes amid rising competition on the home-front with the growth of formerly small rivals such as Tuskys and Naivas.
Tuskys, which has more than eight branches in Nairobi’s city centre, recently expanded its CBD presence with the takeover of three Ukwala Supermarkets outlets in a deal that is currently before the Competition Authority of Kenya.
Acquisition of Ukwala branches has put Tuskys ahead of rivals in terms of CBD presence. Nakumatt has four branches while Uchumi and Naivas have two stores each in the same locality.
Intense competition has seen the retailers almost converge on the pricing of most products, leaving location and floor space as the key competitive factors.
Consumer studies have shown that supermarkets located near bus stops benefit from higher customer traffic as shoppers frequent outlets that offer them convenience in terms of commuting.
Retailers occupying larger spaces in shopping malls also gain from their ability to stock a larger variety of products that appeal to big-spending top and middle class households.
It is such considerations that saw Nakumatt acquire Woolmatt’s strategic outlets, including the one located on Nairobi’s busy Tom Mboya Street.
Shoprite’s decision to sell its Tanzania business to Nakumatt bucks the trend where more of its homegrown peers are entering East Africa, attracted by growing disposable incomes.
South Africa’s Edgars, Foschini, and Massmart booked space in the upcoming Garden City in Nairobi, which is billed as Kenya’s largest shopping mall with a total of 50,000 square metres.
Massmart had also announced plans to enter the Kenyan market next year by acquiring a majority stake in Naivas Supermarkets but the deal has been embroiled in ownership disputes.
Naivas Supermarkets ownership has been riddled with controversy after a family feud erupted leading to court battles that have since stopped the transaction process.
The entry of the South African retailers in East Africa is set to increase competition in the local retail market where economic growth has created a middle class with larger spending power.