Nakumatt’s problems continue. Reports keep rolling in about empty Nakumatt stores as the diminishing number of suppliers start to withdraw credit lines, leaving the retailer unable to replenish stocks. From what we can see, Nakumatt has elected to sacrifice some stores in order to keep its flagship stores open and reasonably well stocked.

This strategy hasn’t exactly restored consumer confidence and reassured loyal shoppers that the supermarket will survive what is clearly a torrid period. Rather, it has turned social media into a series of competing claims as Kenyan consumers voice their concerns and air their observations. Someone can’t get milk at one shop. Someone else is pleasantly surprised to find their nearest shop is still reasonably full.

Pretty clearly, unless something else changes, Nakumatt is going to struggle to trade its way out of these problems. On Monday, it was revealed that the Thika Road Mall had started to seize Nakumatt assets to recover recover KES51m ($0.5m) in rent arrears. The same day, Nakumatt’s Twitter account was broadcasting pictures from the Thika Road Mall store showing shelves groaning with stock.

What we know:

1. Nakumatt hasn’t turned into a bad retailer overnight. It didn’t manage to shoo Shoprite from East Africa by accident. It set the model for modern grocery retail in Kenya and there is no fundamental problem with its retail model or strategy.
2. Nakumatt isn’t the only retailer that has had financial problems. Choppies (which acquired Ukwala), Naivas, Tuskys and Uchumi have all reportedly had problems, including delays paying suppliers. In Uchumi’s case, the problems are well known. Nakumatt wasn’t the only grocery retailer in Kenya to bet big on expansion. There are wider concerns about the underlying health of the modern grocery retail sector and whether its growth has outpaced consumer demand.
3. Nakumatt has played a dangerous game. It isn’t the first time the retailer talked up a big investor that has failed to appear. We don’t know what exactly has happened this time. But we do know that Nakumatt clearly hasn’t received the investment it talked about in January and needed, it hasn’t disclosed who this investor is/was and hasn’t communicated clearly about the whole issue.
4. Nakumatt has been squeezing suppliers and landlords for some time. Its cash flow problems date back at least four years. As long as it was seen as a viable retailer, businesses were prepared to cut it some slack. But those days are past. Suppliers in Kenya have been muttering about Nakumatt for months and have reached breaking point.
5. Nakumatt’s ‘full’ stores don’t look totally healthy. Below is a picture from Nakumatt Nyanza, retweeted approvingly on Nakumatt’s own Twitter feed. It’s supposed to tell us that the shelves are full. But it looks to us like a limited amount of stock is being used to pad out shelves. A tiny number of SKUs cover a large number of facings, and that’s not a healthy sign. We see this repeatedly across Nakumatt’s marketing communications.

What does this Nakumatt crisis mean, and more importantly, is Nakumatt on the verge of liquidation?

We don’t know for sure, and unless someone has special insight into Nakumatt’s financial situation neither do they. What we think is:

1. Nakumatt is too big to fail completely. If Nakumatt were to fail completely, the longer term impact on supplier confidence, business confidence and investor confidence in Kenya would take a hit. Tens of thousands of consumers in Kenya rely on Nakumatt. It has a 6,000 employees. If it goes down, it may well take down other businesses that depend on it. Call us optimists, but we still think liquidation is a doomsday scenario. Yes, the Kenyan government has denied a bailout package but it too will be under pressure to not let Nakumatt fail.
2. Nakumatt is still a prize. If Nakumatt liquidates now, so does a whole bunch of hard won value built into the business. That value won’t be instantly acquired by its domestic competitors. There are still international suitors out there who desperately want to acquire a 60 store supermarket network in East Africa. The question is at what price, and under what arrangement and how quickly. We also suspect that things may have moved on and a minority stake is no longer attractive. Because the issue with Nakumatt is poor financial management, the time pressures on due diligence do not play in its favour, unless it sells its self with a large discount for risk.
3. There is no obvious domestic acquirer. If Nakumatt doesn’t find an international buyer or can’t trade its way out of its current problems then it should, in theory, get carved up. The only question is who will buy its stores? Many of its Kenyan stores are robust, profitable and entirely viable. But its non-Kenyan stores are particularly vulnerable. At least among existing Kenyan grocery retailers there isn’t a lot of spare cash swilling about.
4. Nakumatt’s debts are small change for international retailers. We hear a lot about Nakumatt’s debts but for a major investor they are entirely manageable. Small change. The primary issue is the cost of servicing the debt and its impact on Nakumatt’s cash flow. Nakumatt is running a store network with too many underperforming stores, a wobbly domestic market, a 500lb gorilla in the shape of Carrefour’s arrival in Nairobi. It can’t cope with all these things at once.
5. In other words, we don’t think the debts themselves are fundamentally fatal, i.e. that the retailer cannot be viable.

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