Kenya: Nakumatt goes into administration in a move that means – for now – it dodges the threat of liquidation.
The High Court in Kenya has allowed the troubled supermarket retailer to go into administration. The order follows a petition by four Nakumatt suppliers, who had sought administration rights as part of a business recovery plan for the retailer. Nakumatt CEO Atul Shah has also welcomed the move.
The administrator, Peter Kahi of PKF Consulting, will now have 60 days as the independent administrator to create a recovery plan that creditors and suppliers agree with. Nakumatt applied for an administration order in October 2017, as it would allow the retailer some leeway in its dealings with landlords lining up to evict it from properties as a result of non-payment of rent.
Nakumatt has argued that a proper recovery plan will allow the business to recover. That recovery, if it happens, will focus on a handful of branches. From more than 60 stores twelve months ago, Nakumatt is down to 34 stores now. Under administration, its total branch numbers will likely fall further, to around 20 supermarkets. If it can hold onto them, Nakumatt’s recovery will be driven by its Mega, Prestige, Galleria, Lavington, Ukay, Ridgeways, Nakuru and Village branches.
Trendtype believes that Nakumatt has not become a bad retailer overnight but it will face an uphill battle: we know that behind the scenes former Nakumatt suppliers have pledged their allegiance elsewhere: to Choppies, Carrefour, and potentially even Shoprite if it decides to exploit Nakumatt’s weakness. At the same time, rival Naivas has spent the last twelve months expanding its own store network. Nakumatt Ridgeways, for example, faces direct competition from both Naivas’ new store directly opposite.
The reality is that at 20 stores, Nakumatt would be back to where it was in 2010.
Sure, a step back – a lot has changed in 8 years – but Kenya’s supermarket sector is still very immature. There is no dominant player: if there was one, Nakumatt was it. There is no dominant supermarket retail model in the way that Shoprite and Pick n Pay have established in South Africa. Nakumatt has to work hard to win back the trust of its suppliers, it fundamentally needs to reorganise itself so that it becomes less of a Shah family concern and is more transparent and accountable to potential investors.
We think one long term issue is that Nakumatt needs to re-establish out where it positions itself in the market. Carrefour, at least in Nairobi, has redefined what a premium supermarket/hypermarket is. Naivas is seeking to move itself upmarket and occupy some of Nakumatt’s territory. Choppies is looking to grow by appealing to precisely the finite numbers of value-conscious Kenyan consumers that complain about Nakumatt’s prices but enjoy the shopping experience and variety. The alliance with Tuskys – a return to a bygone era when the two companies were more closely related, hints at what might be.
It is becoming clearer that the fastest growth will come from the value segment of the supermarket sector – a larger number of customers on limited incomes seeking value and quality in locations they routinely visit. Rather than what we’ve seen in the previous 5 years – more, larger premium supermarkets, often in premium malls.
Edit: on the 26th January the administrator appointed Tuskys to assume operational management of Nakumatt – a prelude to the two retailers resubmitting plans to merge.
