Supermarkets feel the heat from growing e-commerce

Buying a two-kilogramme (kg) packet of maize flour for Sh45 is certainly unimaginable for Kenyans who have been grappling with sky-high prices for the staple food.

But this is turning out to be a reality following a deal between online store Jumia and Tuskys Supermarket.

The two retailers will sell Soko Ugali brand at Sh45. The price of the flour had shot up to more than Sh150 for 2kg packet before the government intervened and allowed for importation of cheap maize. 

This new partnership points to the rapidly growing e-commerce sector in the country, increasingly disrupting the retail landscape.

The endless queues of customers that have been common at supermarkets are gradually getting shorter as more Kenyans sit comfortably in their homes and shop using their mobile phones.

This trend partly explains the current woes bedevilling the retail chains in the country.

Google Kenya Country Manager Charles Murito, notes that technology has had a great impact on how individuals live their lives today. 

“It is estimated that individuals look at their phones up to 150 times a day. This, combined with customers who know what they want and how quick they want it delivered encourages the developments in e-commerce,” said Murito.

As more Kenyans move to the online space to do their shopping, retail chains are feeling the heat.

Market analysts warn that the road will get more slippery for retailers if they do not devise strategies to keep pace with quickly evolving technology. 
While online shopping is posing immense threat, it is hardly the only reason supermarkets are gasping for breath.

Cashflow problems

A number of them have been unable to manage their cashfow leading to piling up of debts.

Leading retail stores such as Nakumatt, Tuskys, Naivas and Ukwala (now Choppies) have been at loggerheads with suppliers for failing to pay them on time.

The depth of the retailers’ cashflow problems came to light last week when it emerged that Nakumatt and Uchumi had not paid their staff May salaries.

Nakumatt was yet to pay 1,555 employees and had sent over 100 others at its main warehouse on compulsory leave citing low business volumes.

Uchumi Supermarkets, which has about 1,300 employees, is also facing financial distress making it unable to fulfil its obligations.

A study titled Kenya Retail Sector Prompt Payment 2016 revealed how unfair trade practices have damaged the relationship between retailers and suppliers.

Late payment and issuing bouncing cheques, were common complaints, according to the report by the State Department of Trade in collaboration with the Retail Trade Association of Kenya, Kenya Association of Manufacturers and Association of Kenya Suppliers.

“Retailers are not honouring the agreed terms of payment, some taking as a long as over a year whereas the agreed period was 90 or 120 days,” read the report.

“Retailers owe over Sh40 billion in arrears, which besides affecting suppliers cash flow adversely has eroded margins, in some cases to the negative.”

Rising competition

As a result, some suppliers, such as Tharaka Honey, have been forced out of business operations, since they could not service bank loans.
Eastern Gas Distributors was forced to seek more loans to remain in business.

Local retail chains also have to deal with  rising competition from  new entrants such as French giant Carrefour and Botswana’s Choppies.