Kenya’s seemingly thriving retail sector has finally shown its true colours as a treacherous road to riches.
Yet Naivas has chosen to dive straight into the deep end of the pool, opening one supermarket branch after another, at a time when its peers are facing financial woes.
In 30 years, the retailer has 69 branches, the most that any Kenyan supermarket chain has ever had - many of them after the fall of their erstwhile larger rivals.
Even in their prime, Nakumatt, Uchumi and Tuskys never got past 65 branches.
Nakumatt has since collapsed and the other two are on their death beds.
Despite the retailers’ crash due to unsustainable debts that sent shock waves through the sector, to Naivas, it was a lesson on what not to do.
The supermarket’s managers dismiss the claim that its rivals’ rapid expansion was to blame for their collapse.
“Expansion is not a problem. How you expand is. Stores like Shoprite have close to 3,000 stores in Africa. Here, we have towns that don’t have supermarkets. We will keep growing,” says Naivas Chief Commercial Officer Willy Kimani.
The blossoming retail chain has opened ten branches in 2020 and targets ten more next year.
Peter Kahi, a partner at PKF Consulting firm and insolvency practitioner, has previously faulted the expansions in the retail sector, saying they mostly lead to accumulation of debt.
“Due to the low-profit margins, the retailers are always in an expansion spree. This leads them to use even supplier money thus creating more debt,” he said. “The retail market is quite challenging; the margins are very low, that’s why you see them expanding so that they do volumes.”
But Naivas insists its expansion is well strategised.
It had to liaise with external investors even as it sought to unfurl its wings and open more branches. In an interview early this year, Naivas Managing Director David Mukuha said selling a 30 per cent minority stake to a consortium of investors last year to raise Sh6 billion was one of the best business decisions they ever took.
Mr Mukuha said the supermarket bet on the credibility of the partners and their diverse range of investments. Private Equity fund Amethis became the first external investor into Naivas, alongside its partners DEG, MCB Equity Fund and International Finance Corporation, an investment arm of the World Bank.
Amethis has helped Naivas in corporate governance, according to Kimani, and gave it a clean bill of health to expand across the country.
To Kimani, the short and medium-term goal for Naivas is to be a market leader with sights on regional markets. “We can expand into different formats locally, either do hypermarkets, or small formats. All we want is to be in every corner of the country.”
To avoid dragging along underperforming outlets, Mukuha then said every branch that fails to perform within two years is shut.
“If you’ve ten branches that are not performing, then you’ll be eating profits from other branches,” he said, adding that Naivas has closed three non-performing branches in the last three years.
And Kimani concurs, noting that the firm does an analysis of profitability for individual outlets. It is left of Naivas to take lessons out of stories of collapsed predecessors.
The Kenyan market had its behemoths tussling for a spot at the top - alongside Nakumatt and Tuskys were Uchumi and Ukwala.
None is a force anymore. And one of the other reasons were cited for their downfall was “cannibalisation”.
Giving an example of Nakumatt, Peter Kahi said the fallen retail giant that once boasted of more than 60 stores spread out across the region “bit more than it could chew.”
Nakumatt had many branches close to each other. “Before we open a store, we ensure there is a sufficient market. We look at the unit by unit profitability,” he says, giving an example of two outlets opened at Gateway Mall within metres of each other, which he says happened due to increased customer demand.
Kimani downplays family feuds as a major cause for business failure, shifting the blame to other factors. He says the Mukuha family has proved that family-ran businesses can thrive, noting that the survival of retail entities hinges on various scenarios.
“Over-reliance on key stores, poor corporate governance, change in government policy, expansion to other countries, road and infrastructure expansion switch off key stores and they become unprofitable. All these could also change the fortunes of a business,” said Kimani.
“In the (2013) Westgate terror attack, Nakumatt was highly affected. The branch there was contributing up to 15 per cent of the total revenue of the retailer. That was a huge loss, and obviously such could take even take the strongest retailer to its knees.”
Naivas has opened food markets to customers on a daily basis. In what has been billed as a difficult year, Naivas managers took pay cuts in support of junior staff.
The 38-year-old, who has been with Naivas for 11 years, says they will invest in small towns where other retailers have avoided.
Hitting 5,000 employees is another landmark he cherishes.
