Ideas & Debate

Are supermarkets boosting or frustrating our economy?

super

Shoppers at a Nyeri supermarket. Every time supermarkets’ balance sheets crumble, unsecured local suppliers are left in the cold. PHOTO | JOSEPH KANYI

Supermarkets have evolved over the last 20 years to become the most convenient link between suppliers and consumers, gradually taking the place of retail shops that previously dotted urban and rural centres.

This is an irreversible evolution because supermarkets are efficient and effective in linking up the production and consumption sides of our economy.

But some concerns are being raised as to whether the outlets are sufficiently supporting Kenya’s push for growth, especially in the local productive sectors which include manufacturing and agriculture. Both harbour many jobs and SMEs.

Last week the chairman of the Association of Kenya Suppliers was quoted telling supermarket owners: “You owe us Sh40 billion that could have been used to expand our businesses, employ more Kenyans and make our goods more competitive locally as well as abroad. But the delay has forced us to scale down operations and seek overdrafts, which we in turn pass to consumers.”

Other allegations levelled against supermarkets are that cash owed to suppliers is being used to fund ambitious regional expansion. The retailers have also been accused of introducing their own branded goods to compete with suppliers.

Now that supermarkets have become a key outlet of national production, they should accept to be part of the national solution and not an impediment to economic expansion.

Indeed, local goods sitting on supermarket shelves are a good measurement our country’s progress towards production and value addition.

Supermarkets should therefore become strategic partners in ongoing government efforts to grow the manufacturing and agriculture sectors.

They should express and practice commitment to prioritise and promote local goods as opposed to imports. The government and supermarkets should jointly prepare a list of goods that, over given timelines, should not be imported.

Within those timelines, local producers should avail goods of comparable quality and prices. I strongly feel this is a “must do” issue for the government. Where necessary the government may have to intervene with protective fiscal actions.

On the other hand, the Kenya Bureau of Standards (KEBS) has a critical role of drafting minimum standards that must be met by local goods to ensure high quality.

I am here using the word “minimum” deliberately because the ultimate achievement of global standards is a step by step journey and work in progress.

I will now discuss the payments issue which appears to be the main complaint raised by suppliers.

Payments are essentially a contractual issue which touches on who, between suppliers and supermarkets, should be financing the working capital of the goods sitting on supermarket shelves.

Claims by suppliers indicate that the burden of financing goods is heavily skewed against them, but I am sure the supermarkets have their version of the story.

I will here narrate an experience that fits well with the subject matter. A couple of months ago, my favourite local brand of honey disappeared from the shelves of all major supermarkets.

Available brands did not meet my quality expectations and I had to revert to an expensive imported brand. Those who use honey will agree with me that quality is everything when it comes to honey.

I took the trouble to locate the parker of the vanished honey. I was informed that they had stopped deliveries to supermarkets because of delayed payments, going to six months.

Cut production

The parker, who is an SME working with farmers in the semi-arid region, had opted to cut production and distribute through smaller retail outlets which pay more promptly.

From this humble story of honey, one can see that there is a genuine problem with supermarket payments to suppliers and this is impacting local production, jobs and SMEs. The other lesson is that quality standardisation is important for consumer acceptance of local goods.

My other story relates to me as a dairy farmer. I recently complained to a key processor when they reduced milk producer prices.

The processor explained that although they pay farmers on the 15th day of the following month, supermarkets pay them several months later.

This results in high overdraft costs which reduce capacity to pay higher prices to farmers. Yes, this is impacting milk production across the country.

Every time supermarkets’ balance sheets crumble, unsecured local suppliers are left in the cold. Their businesses and associated supply chain stakeholders are financially weakened.

One cannot fail to see a whole load of opportunities to be gained by streamlining supermarkets to be key enablers of the productive sectors.

The target should be a supermarket sector that is working in sync with the rest of the economy and where every player becomes a winner.

I expect supermarkets to draft a self-regulating code that defines how to meet the wider stakeholder expectations. On their part, the Industrialisation and Trade ministry has an obligation to engage supermarkets to ensure that they play a fair and proactive part in supporting the economy.

Mr Wachira is director of Petroleum Focus Consultants. Email: [email protected].