A man walked up to a beautiful woman at the supermarket and asked, "You know, I have lost my wife here in the supermarket. Can you talk to me for a couple of minutes?"
The woman is intrigued and asks him, "Why?" The man replies, "Because every time I start talking to a beautiful woman, my wife appears out of nowhere"
The supermarket business is a tough business. By the time Nakumatt was collapsing into a debt-ridden heap, it owed about Sh18 billion to suppliers. Hard-working manufacturers, importers of goods and aggregators of fresh produce for whom delayed payments had been the bane of their cash-starved existence.
If the Nakumatt board of directors had been reading their board packs keenly, particularly the financial ratios, they should have noticed that the days payable ratio was growing at an alarming rate.
The days payable ratio shows the amount of time that companies take to pay creditors and therefore demonstrates the rate at which a company is burning through cash. If the days payable are high, then creditors are not being paid quickly and, in fact, are actually financing the company as their debts are being used as an alternative to short-term borrowing from a bank.
Conversely, the days receivable ratio shows the amount of time that companies take to receive payment from their debtors. In the Kenyan supermarket business these would typically be in the 3-5 day range as the bulk of shopping is done by cash or mobile money with a small percentage doing credit card purchases which take 3-5 days for the card companies to settle with the supermarket.
Thus the spread between days payable and days receivable is a sweet spot for an efficiently run company: receive your sales in cash as quickly as possible and pay your creditors in the longest time that you can negotiate or dictate. This reduces a company’s need to borrow from a bank for working capital as it uses its supplier debt to finance the working capital cycle.
But wait a minute. Did Nakumatt even have a board in the first instance? Well, they had sign boards for their more than 60 retail outlets, cheese boards for the Camembert and Brie de Meaux served at the owner’s quarterly celebratory lunch and diving boards for the owners to jump off into the depths of a plunging pool during luxurious summer holidays in the Greek Island of Mykonos.
But certainly, not a board of directors who should have provided independent oversight over the financial and operational performance of that supermarket behemoth.
So it was with great pleasure when I read the June 2022 media announcement by French private sector financier Proparco on its conditional investment in the Naivas Supermarket business.
Partnering with Mauritian conglomerate IBL Group and Germany’s DEG, they jointly acquired a 40 percent interest in Naivas. After waxing lyrical about the benefits of the investment, part of which would be used to pay out other institutional shareholders like the International Finance Corporation and a few other private equity funds, Proparco stated what opportunity lay ahead.
“This transaction also offers Proparco the opportunity to provide targeted expertise to Naivas and its stakeholders on environmental, social and governance matters…as well as further developing the local eco-system involving suppliers of the Naivas store network.”
In the Business Daily on June 27, 2022, an article titled “Proparco of France buys Sh3.7 billion Naivas stake” stated that Naivas is set to close the financial year ending June 2022 with a gross turnover of $860 million (Sh101 billion) and an ambition of raising it to $1 billion (Sh117 billion) in the next financial year.
The same article quoted the IBL Group Chief Executive Arnaud Lagesse as saying, “With 84 outlets in 20 cities and towns across Kenya, it has put modern grocery within everyone’s reach. Naivas also contributes to the Kenyan economy, notably by employing over 8,000 people.”
Naivas is not a piddling roadside kiosk. Not with an annual turnover approaching an eyewatering billion dollars and 8,000 employees in 20 towns across Kenya. That turnover is off the backs of hundreds of suppliers who in turn employ thousands of employees.
Naivas, quite simply, is a substantive Kenyan economic cog. So yes Proparco, we look forward to what we hope will be obsessive governance starting with an effective board of directors and the commitment to uplifting a proudly Kenyan supplier ecosystem.
This is because every time we Kenyans start getting attached to a local supermarket chain, disaster, like the missing wife in the anecdote above, appears from nowhere. Ask the Tuskys and Nakumatt owners. Proparco, you and your external shareholder consortium are riding a huge moral obligation stallion. Please do not let Naivas suppliers and employees down. Good luck!
