Uchumi bets on franchise model to grow business

August 10, 2016
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The Chief Executive Julius Kipng'etich says the model has worked for big brands like Safaricom and Equity Bank/FILE
The Chief Executive Julius Kipng’etich says the model has worked for big brands like Safaricom and Equity Bank/FILE

, NAIROBI, Kenya, Aug 10 – Ailing retail chain Uchumi supermarkets is betting on a franchise-model of business to get back to its lost glory.

The Chief Executive Julius Kipng’etich says the model has worked for big brands like Safaricom and Equity Bank.

Speaking to Capital FM Business, Kipng’etich says the model will see Uchumi outsource some services to a franchise that includes an outlets, stock, distribution centres and logistics among others.

“We will share the stock (I supply to them, they stock, I give them a fair price), we share the distribution centres like warehouses but we deliver to the customer as the lowest value possible and we become truly the Uchumi that was originally meant for Kenya in 1976,” he explained.

Kipng’etich took over Uchumi in September 2015 assured shareholders and members of the public that the listed retail chain will be stable in the next 100 days.

Almost a year since he took over, the firm is still struggling with stock challenges, and is yet to breakeven.

The firm has been in constant battles with suppliers due to payment arrears.

During the period the firm also closed its operations in Uganda and Tanzania as well as five outlets within Kenya.

The branches include Taj Mall, Embu, Eldoret Sugarland, Nakuru and Kisii to reduce the retailer’s operational costs enabling it to concentrate its efforts on a leaner structure as dictated by the current business environment.

Kipng’etich explains it has not been an easy road, at least not what he expected when he took over.

“Uchumi has come a long way since I have been here, it has been a tough journey, when I arrived we had to figure out the state of the company, we realized that the books were not sitting well, many suppliers had stopped supplying, we drafted a rescue plan that needed in urgency, unfortunately things never moved as fast, that include land sales, which has slowed down the turnaround of the company.” he stated.

The retailer had planned to raise Sh3.6 billion by selling the land at Ngong Hyper, as well as a 20-acre plot in Kasarani, Nairobi.

 

 

“Fortunately, we have sold the Ngong Hyper and have paid off our debt owed to Kenya Commercial Bank. We are yet to sell the Kasarani land; we are still in negotiations and hope to close the deal soon. The proceeds together with the Sh1.2 billion loan from the government will go towards debt repayment especially to the suppliers,” he added.

The firm owes suppliers Sh3.6 billion; however half of the debt will be converted to equity. The firm also owes banks Sh1.5 billion.

Another challenge Kipng’etich found was the extent of the loss.

“By the time I arrived it was indicating loss of Sh262 million. It looked easy, when we reorganized the books and got the true position, the full year was Sh3.6 billion loss, that shocked me. To recover from a Sh262 million loss is not difficult but a Sh3.6 billion, it’s very difficult,” he explained citing that nobody knew the extent of the damage from the previous management.

But there is hope; He promises the firm will breakeven by the end of this year.

The firm hopes to get back into Tanzania and Uganda once it makes business sense.

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