- Manufacturers have accused Nakumatt, Naivas and Tuskys of holding more than Sh8 billion.
Kenya’s leading supermarket chains are entangled in a multi-billion shilling debt row with suppliers who accuse them of refusing to pay for goods delivered to their stores.
The suppliers, through the Kenya Association of Manufacturers (KAM), have written to three leading retailers Nakumatt, Tuskys and Naivas over undue delays in payments that have forced them to borrow heavily — and expensively — to keep their operations afloat.
Manufacturers said the retailers owe them at least Sh8 billion — an amount KAM says has put some of its members at risk of going bust.
In the letter to the retail chains, KAM says holding back payments (some dating back to 2014) amounts to economic sabotage and has demanded immediate release of the funds.
“Many of our members are now facing dire cash flow constraints, forcing them to borrow heavily to finance their operations,” Phyllis Wakiaga, KAM’s chief executive, says in the letter dated September 9.
“Some of them have now been forced to borrow heavily and their boards are unwilling to permit further borrowing and as a result putting them at the risk of going into receivership.”
KAM says it has formed a team to resolve the matter even as it asks the retail chains to “propose a suitable date when your senior management can meet with the committee”.
The manufacturers lobby has invited Simon Gashwe (Naivas’ chairman), Atul Shah (Nakumatt’s managing director) and John Kago (Tuskys’ chairman) to a meeting to discuss the matter.
Pradeep Paunrana, the KAM chairman, accused the retail chains of using their extraordinary market power to unfairly dictate business terms, including payment periods.
The dispute resolution meeting is scheduled to take place on Wednesday morning.
Leading retail chain Nakumatt and third placed Naivas denied owing suppliers any money. Nakumatt also denied receiving any letters from KAM demanding settlement of the debt.
Tuskys, the country’s second-largest retailer, however, acknowledged receiving KAM’s letter, saying it intends to meet the team this morning “to resolve any outstanding issues”.
Tuskys also acknowledged outstanding payments to suppliers even as its peers evaded the subject by declining to comment on the matter.
Tuskys chief operating officer Peter Leparachao said the firm would attend the meeting with KAM, but declined to divulge the amount of money the chain owes suppliers.
“I have seen the letter (but) I am not able to go into specifics because the payments are processed by the finance department,” Mr Leparachao said.
Naivas managing director David Kimani, however, insisted the retail chain does not have any tussle with its suppliers even as he acknowledged receiving the letter from KAM.
The retailer, which is ranked third with 38 branches and revenues of approximately Sh16 billion, said it would not be attending the meeting slated for today.
Mr Shah, the Nakumatt managing director, however, denied receiving a letter from KAM. The retail chain, which has a presence in Kenya, Uganda and Rwanda with 54 outlets, is the market leader with estimated revenues of Sh52 billion last year.
Mr Shah said Nakumatt Holdings would not be sending a representative to a meeting he termed general.
“Our corporate policies do not provide us with any liberties to discuss supplier payment terms with third parties,” he said.
Tuskys’ invoice period is between 60 and 120 days and is based on the relationship that the retail chain has with specific suppliers and the type of the product they deal in, said Mr Leparachao.
Products like furniture and electronics have lengthier invoice periods compared to fast-moving goods such as milk, sugar, cooking oil and bread.
Naivas said it settles invoices for fast-moving goods like sugar in a fortnight while payment requests for items like cooking oil are honoured in 21 days.
Payments for slow-moving goods like furniture are cleared after approximately 60 days, Mr Kimani said.
Delayed payments are a thorny issue in the global retail industry, having recently engulfed even global retail giants such as Britain’s Tesco.
The UK retail chain was early this year accused of bullying and paying its suppliers late in a scandal that eventually saw it announce a Sh42 billion shortfall in revenues.
Tesco was accused of, among other things, demanding extra payments for products to be prominently positioned within its stores and irregularly booking revenues from suppliers.
Investigations, which were later expanded to cover the UK’s top four retail chains, prompted the UK government to give the sector regulator powers to fine such retailers one per cent of their revenues for breach of the code of conduct.
“Late payments can have disastrous effects on a small firm’s cash-flow and pushes many businesses to the brink,” said the UK’s Federation of Small Businesses (FSB) chairman, John Allan.
The tug of war between KMA and the country’s three top retail chains is the latest crisis to hit the industry.
French retail giant Carrefour’s planned entry into the Kenyan market received opposition from the usually calm suppliers after the retailer set out stiff conditions for doing business with it.
The retailer, for instance, wanted suppliers to pay a non-refundable fee of Sh1.4 million to do business with it and commit to paying monthly rebates, over and above supply profits.
Other stiff rules touched on merchandising, partial deliveries and the use of refrigerators in the retail chain’s store, all of which the suppliers termed restrictive.