- Wal-Mart-owned chain to open discount store after family feud soils bid for Kenya’s retailer.
- The firm failed to clinch acquisitions that would have given it a substantial footprint in east Africa’s biggest economy.
- Massmart will now concentrate on opening its Game store by the end of this year at the upcoming Garden City Mall on the Thika Superhighway.
South African retail giant Massmart has opted to set up its branded stores in Kenya after the collapse of its bid to acquire a majority stake in Naivas Supermarkets.
The Johannesburg Stock Exchange-listed retailer said for the first time on Tuesday that it had called off its quest for the 51 per cent shareholding of Naivas after a family feud by the target’s owners derailed the takeover.
Massmart’s Africa director Mark Turner was quoted by Reuters saying the company had failed to clinch acquisitions that would have given it a substantial footprint in east Africa’s biggest economy.
“Going into Africa is not cookie cutter, if it was more cookie cutter we could roll out a lot quicker, but it’s not. It’s really getting into those markets and understanding them,” Mr Turner said.
Turner added the company — 51 per cent owned by Wal-Mart Stores Inc — would concentrate on opening its Game store by the end of this year at the upcoming Garden City Mall on the Thika Superhighway.
Massmart’s Game stores are discount shops which sell fast-moving consumer goods (FMCG) and non-perishable groceries through 114 stores in 12 African countries.
“The Massmart position is that we remain interested in investing in Kenya from both a greenfield and an acquisition perspective,” said Massmart in an e-mail response to inquiries by the Business Daily.
Massmart is seeking entry into Kenya’s growing ‘malling’ culture fuelled by Kenya’s growing middle class with increased disposable incomes to splash.
The Sandton-based retailer had been angling to set up shop in Kenya through acquiring Naivas but ran into headwinds when one of family members moved to court in August last year to oppose the impending sale.
Naivas, which currently has 30 outlets in Kenya, made about Sh16 billion in sales in 2012.
Naivas has overtaken listed retailer Uchumi as Kenya’s third-largest supermarket chain by revenue behind Nakumatt and Tuskys.
The top three retailers in Kenya are family-owned, making them prime targets for acquisition, with Uchumi, ranked fourth, the only listed retailer in East Africa.
A Citigroup study shows that Kenya’s 30 per cent retail penetration is the highest in the region and only second to South Africa’s 60 per cent – whetting the appetite of multinational stores seeking to set up base in Nairobi.
The research identifies East Africa as the next growth frontier for huge South African retailers as well as some of the world’s biggest investors keen to cash in on a growing middle class and rising consumer spend.
Massmart’s revenue clocked Sh589 billion (R72.2 billion) in the year ended December 2013, making it 10 times bigger than Kenya’s biggest retailer Nakumatt on sales.
The collapse of the Massmart deal is a big blow to Naivas, which has been forced to cede retail space to Nakumatt at Next Gen Mall on Mombasa Road in Nairobi. The mall has 100,000 square feet of retail space.
An official at Nextgen told the Business Daily that Naivas lost its bid as anchor tenant for the mall when Massmart pulled the plug on the takeover early this year.
The dominance of homegrown and family-owned retailers has acted as a barrier to entry of foreign chains as siblings squabble over inherited wealth.
At Naivas, Newton Kagiri Mukuha is seeking to stop the sale on grounds that his brothers led by Simon Gachwe Mukuha and David Kimani Mukuha excluded him from owning a piece of the retail store, which targets low-income earners.
Mr Gachwe in a replying affidavit said the property was subdivided among himself (25 per cent), Mr Kimani, who is also the Naivas finance manager, (25 per cent), Peter Mukuha (20 per cent) and their sisters Grace Wambui and Linet Wairimu, with 15 per cent each.
They further accused Mr Kagiri of having “squandered multiple opportunities” to own shares in the business when he mismanaged the Rongai Self Service Store which grew to become the supermarket chain.
Mr Kagiri told the court that he contributed Sh20,000 in 1990 of the Sh100,000 seed capital that led to the establishment of Naivas Supermakets by their late father Peter Mukuha Kago.
Mr Kago was the brother of Joram Kamau, the founder of Tuskys Supermarkets, and the family feuds offered a rare peep into the lives of the secretive families that that run the two retail chains Mr Kagiri, represented by advocate Evans Ondieki, said that he stood to suffer irreparable loss if the sale of a 51 per cent stake to Massmart Limited was allowed to proceed.
Mr Mwangi opposed the application saying a “stranger” should not block operations of a limited liability company that he is and has never been part of.
In another dispute Tuskys shareholders are engaged in a court battle for control of the business, with some of the directors blaming outsiders for engineering an aggressive takeover.
Yusuf Mugweru, who owns 17.5 per cent of Tuskys, has accused his brothers Stephen Mukuha, George Gachwe and Frank Kamau of drawing funds from the retailer through dubious entities without his knowledge.
According to court documents, Mr Mugweru argues that related companies and subsidiaries such as the defunct Enkarasha, popMEDIA, Kenspore, Magic Pay and Ndykak Investments were formed without a board resolution.
Tuskys is Kenya’s second largest retailer by sales and has a total of 52 outlets with regional presence in Uganda and Rwanda. Nakumatt Holdings is currently in talks to sell about 25 per cent of the business to foreign equity investors.
The retailer, ranked the largest in East Africa, is valued at Sh34 billion ($400 million) meaning prospective suitors will have to cough about Sh8.6 billion to get a quarter of Nakumatt.
Nakumatt is owned by the Shah family and Hotnet Ltd, a company associated with former Kilome MP Harun Mwau.
Nakumatt has turned to commercial banks for funds after buy-out talks with a consortium led by London-based private equity firm Satya Capital collapsed. Satya Capital is associated with Dr Mo Ibrahim.
Nakumatt’s sales grossed Sh56 billion in the year to February 2013 and the retailer has 42 stores with regional operations in Uganda, Tanzania and Rwanda. It has already acquired three Shoprite stores in Tanzania as part of a strategy to consolidate its market share in the EAC member country.
Tier-two retailers such as Ukwala, Eastmatt and Chandarana as well as independent retailers such as Tumaini, Jaharis, Selfridges and Rikana supermarkets have also been opening new outlets to grow their market share especially in upcoming satellite towns and urban centres.
Companies from South Africa have found it difficult to crack the Kenyan market, prompting the exit of big brands like Cinema company Nu Metro, fast foods giant Nandos, household goods outlet Supreme Furniture and magazines publisher Media24, a subsidiary of the JSE-listed Naspers.
However, South Africa’s Truworths, and Mr Price have been successful, thanks to a franchise agreement with local retailer Deacons which also formed a joint venture with Woolworths.