The Rise and Fall of Uchumi Supermarkets !

Early Years and Government Support

Foundation

Uchumi Supermarket was established on November 17, 1975, as a public limited liability company by three Kenyan parastatal companies: Industrial and Commercial Development Corporation (ICDC), Kenya Wine Agency Limited, and Kenya National Trading Corporation. The government-owned entities aimed to create outlets for equitable commodity distribution and support Kenyan manufacturers.

First Store

In 1976, Uchumi opened its first store on Aga Khan Walk in Nairobi. This was the first self-service store in Kenya during a time when most retailers operated through over-the-counter kiosks. To ensure success, Uchumi's shareholders signed a contract with Standard SPA, an Italian supermarket chain, for training Kenyan staff.

Partnership Challenges

Despite the partnership with Standard SPA, investigations revealed that the Italian chain was only managing Uchumi on paper. The store was overstaffed, and employees were looting the business with no effective management. Despite offering good products at affordable prices, Ochumi's business model was not profitable.

Turnaround and Privatization

Suresh Shah's Leadership

To address the financial challenges, Ochumi brought in Suresh Shah, a revival expert and manager at ICDC. Shah successfully turned around Uchumi 's fortunes, cutting losses to 250,000 shillings in his first year, albeit at the expense of 70 out of 225 workers.

Privatization and Listing

In 1992, the government decided to sell 40% of its stake in Ochumi. The company underwent privatization and was listed on the Nairobi Stock Exchange (now Nairobi Securities Exchange) on August 14th, becoming the first supermarket in Kenya to be listed. Shares were distributed to the public, employees, and institutional investors.

Growth and Success

During this period, thanks to competent management, Uchumi reached its best position ever, with profits exceeding 150,000,000 shillings and annual turnover growing to 1,200,000,000 shillings. The company's success was a source of pride, with satisfied staff, growing employment opportunities, and readily available essential goods.

Expansion and the Beginning of Trouble

Nationwide Expansion

With other chains like TuskYs and Nakumatt expanding, Uchumi embarked on its own nationwide expansion in 1997. This ambitious move aimed to capitalize on the growing retail market and solidify Ochumi's position as a national leader.

Chris Kirubi's Leadership

In December 2001, ICDC seconded Chris Kirubi to chair the board of directors at Ochumi. Kirubi, a prominent Kenyan tycoon, had acquired a 5% stake in ICDC by 2005. His leadership marked a turning point in Ochumi's trajectory.

Expansion Challenges

The expansionist drive, while increasing profits, also significantly increased operational costs for the six new branches. By 2004, Uchumi had taken loans totaling 3,600,000,000 shillings to fund the expansion. The branches were not well-researched and remained unprofitable.

Internal Issues

Poor management and internal theft further exacerbated the situation. Employees were stealing from the firm, and no money was being raised internally to offset the growing financial burden. These internal issues contributed to Uchumi 's mounting financial woes.

The Rights Issue and the Sale of Agakanwok

Rights Issue

In 2005, Kirubi's team decided to request funds from shareholders through a rights issue. The money was intended for expansion, but ironically, Kirubi and ICDC sold their shares during the rights issue.

Misuse of Funds

The 1,200,000,000 shillings raised from the rights issue was channeled to loss-making branches in Uganda and Tanzania. By this time, Uchumi was still in debt, and suppliers were not being paid.

Sale of Agakanwok

In a desperate move to raise cash and hide losses,Uchumi sold the building that housed its first store on Aga Khan Walk to Argate for 147,000,000 shillings. Later, it was revealed that the building was worth significantly more, and it was leased back to Ochumi for an extortionate 1,700,000 shillings per month in rent.

The First Crisis and Receivership

Audit and Financial Strain

An audit by the Trade Minister, Mukhesa Kitui, exposed poor record-keeping, which facilitated theft by both workers and managers. The audit revealed discrepancies between the number of goods claimed to be supplied and what Uchumi had in its inventory. The company reported a loss of 257,000,000 shillings in 2004, which ballooned to 957,000,000 shillings by June 2006.

Closure and Receivership

The financial strain led to the sudden closure of all Uchumi stores on June 1st, 2006, marking the first major crisis in the company's history. Ochumi was put under receivership, and the NSE suspended trading of Uchumi shares. This incident highlighted one of the few business failures of Chris Kirubi's career.

Revival Attempts and Further Challenges

Uchumi 's Uncertain Future

Leadership Changes

Julius Kipng'etich Natiche was appointed as the new CEO in August 2015, hoping to steer the company back to profitability. He implemented cost-cutting measures, including closing unprofitable branches.

Financial Woes

Despite efforts to restructure the company, Uchumi 's financial woes continued. By 2020, Ochumi's debts had exceeded 5,000,000,000 shillings, leading to the closure of multiple stores, including all operations in Uganda and Tanzania.

Debt Settlement

On July 1st, 2020, Uchumi s CVA (Company Voluntary Agreement) for debt settlement was approved. Creditors agreed to take a 3,200,000,000 shilling loss and convert the rest of their debt to equity.

Uncertain Future

Uchumi remains operational but continues to face significant challenges. Leadership changes, market dynamics, and ongoing financial constraints will play a crucial role in determining the company's future.

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