Kenya supermarkets snub offer to buy S.Africa’s Game storesThursday October 06 2022
South African retail giant Massmart, which operates the Game Stores, plans to shut down its three outlets in Kenya, after rival supermarkets snubbed sale offers, giving a new dimension to the troubles facing the supermarket business in the region.
The firm has started talks with its staff ahead of the stores’ official shutdown, marking the end of its seven-year struggle in the market and adding to a growing list of local and foreign retailers that have closed shop in recent years.
The Johannesburg Stock Exchange-listed retail giant said on Wednesday that it did not find domestic buyers for its 14 Game stores in Kenya, Uganda, Tanzania, Ghana and Nigeria after putting them up in the market last year.
The retailer said in March last year it would also explore the option of engaging potential buyers to improve the performance of some of its stores under the management of investors and entrepreneurs with a better understanding of local market conditions.
“Massmart initiated a process over a 12-month period to investigate... the opportunity to sell our East and West African stores to local investors. Unfortunately, this initiative did not deliver a meaningful outcome,” the company said.
Kenya has become a tough market for retailers following the collapse of Nakumatt and Tusky’s, which had dominated for decades.
Uchumi has also struggled to survive the cut-throat competition as deep-pocketed newcomers such as French retailer Carrefour and Quickmart battle for a space in the market.
Anton Wagenaar, a director at the South African retailer, said the decision to exit Kenya was made in March 2020 and the supermarket commenced negotiations with various landlords to surrender their leases ahead of time.
Game vice-president of merchandise Neville Hatfield said the review had sought to “investigate, as a preferred option, the opportunity to sell our store to local investors”, but the initiative had “unfortunately … not yielded meaningful results”.
“We have, therefore, initiated potential store closure consultations with our staff members in the potentially affected stores,” Mr Hatfield said.
The planned exit of retailer Massmart will add to the growing list of firms from Southern Africa to close shop in Kenya.
It comes a few months after Shoprite, another Southern African retailer, closed shop barely two years after launching operations in Kenya. Shoprite cited underperformance of its supermarkets for the closure.
The firm said the underperformance was worsened by impacts associated with Covid-19.
But fierce competition from cash-rich retailers such as Naivas, Quickmart and Carrefour in a sector, could also have contributed to the exit.
Investment analyst George Bodo said most South African firms launch in the country without a proper understanding of the Kenya market demographics.
Mr Bodo said unlike South Africa, Nairobi does not have a large thriving middle class.
“The retail penetration in Kenya does not seem to be growing,” he said, adding that the informal channels such as kiosks, open-air markets and local shops still rule.
“They don’t seem to get it right because they come thinking that the retail penetration here is huge. The South African and Kenyan markets are very different,” he said.
Before that, the South African owners of Nairobi’s Fairview Hotel, Town Lodge and City Lodge Two Rivers also exited the Kenyan market over mounting debts.
City Lodge revealed that it sold three hotels in Kenya and one in Tanzania to real estate investor Actis for a combined Sh1.0 billion.
The company indicated the East Africa units were loss-making to the tune of Sh2 billion as at the end of 2020.
Earlier in 2017, Tiger Brands, also of South Africa, left the Kenyan market after disposing of its 51 percent stake in the local unit, Haco Tiger Brands, to late billionaire businessman Chris Kirubi, who then held the remaining 49 percent share.
The firm also stated that Kenya was a difficult business environment, leading to its exit.