Uchumi Supermarkets’ regional subsidiaries cost the retailer Sh2.4 billion in cash injection every year but returned losses for the past five years leading to their closure this week.
The retailer Thursday disclosed it has consistently pumped Sh200 million a month into its five Ugandan branches and six Tanzania branches “to help them meet their financial obligations.”
Despite this significant investment, its Uganda business posted a net loss of Sh28 million in the year to June 2014 while the Tanzania arm recorded a net loss of Sh150 million in the same period.
The two units posted losses of Sh25 million and Sh104 million respectively in the year to June 2013, a sustained loss that has forced the retailer to pull the plug on the operations.
“Unfortunately, efforts to turn these businesses around have proved futile and the Board considers that it is no longer tenable to continue the support,” the NSE-listed retailer announced Thursday in a statement.
“The board has resolved to cease support to the operations with immediate effect…and that the two companies cease operations and make arrangements as may be necessary for settlement of their creditors’ claims.”
Uchumi said the two countries constitute 4.75 per cent of its entire business but account for a quarter of its operating costs, ratios which did not justify the high cash injection which was “straining its liquidity”.
The retailer, which has been on a downsizing mode after Julius Kipng’etich joined as CEO, has turned to selling its prime assets in Nairobi to raise money to pay its suppliers, reflecting its perilous cash position.
Uchumi recently hired a Nairobi-based company, Hipora Business Solutions East Africa, to investigate theft by staff in Uganda and Tanzania and identify the retailer’s prospects of surviving in both markets.
Closure of the 11 loss-making branches has seen Uchumi send home 900 employees, even as it seeks funds to settle debts owed to their creditors in the two countries.
“The Board is pursuing various avenues of raising funds to meet these obligations and finance its activities over the coming Christmas and New Year period which is typically a busy one for the retail sector,” Uchumi said in the statement.
Uchumi was the first local supermarket chain to set up in Uganda while in Tanzania, it its Kenyan competition was Nakumatt since both Tuskys and Naivas are yet to venture there.
Uchumi’s decision to concentrate on Kenya marks an about-turn in strategy from the one fronted by its former CEO Jonathan Ciano.
Mr Ciano, who was sacked in June for alleged mismanagement of the retail firm, early this year expressed optimism about the East African market, stating that he planned to open at least 10 new branches across the region.