Local supermarkets stand ground as foreign players crash out
|Nakumatt Oasis Mall. Photo The Observer|
Five years ago, it was thought that foreign players would displace local supermarkets such as Mega Standard, Quality and Capital Shoppers, in a tightening industry. However, as ALI TWAHA reports, local players have found a way of marking their turf.
In 2015, Uchumi’s chain of supermarkets closed down, leaving several customers, employees and service providers stranded. The supermarket had been in the industry since 2005. Initially based at Garden City, it spread out to several districts, in a bid to shut out any local competition.
With Uchumi now out of the industry, Nakumatt Holdings managing director, Atul Shah admitted last October, that they were also struggling financially.
In a statement posted on social media platforms, Nakumatt Holdings said they were, “faced with a number of unforeseen business challenges”. However, sources within have revealed to us that they secured a loan from Orient Bank, last month, to offset some of their challenges.
So what are these unforeseen challenges that have allowed local players to thrive in the face of better funding and more exposure to foreign markets by external competitors?
An investigation by The Observer has established that some local supermarkets have been able to cut down on major operational expenses, to remain competitive.
For instance, most of the local supermarkets own their premises, a matter not shared by the likes of Shoprite and Nakumatt, which have been compelled to pay expensive rent to stay in business. For instance, court documents show that at the time of its closure, Uchumi was paying Shs 22m per month in rent for its Gulu branch alone. It is still unclear how much South Africa’s Shoprite and Nakumatt are paying for their outlets, although real estate experts agree that being in prime spaces, rents are at a premium.
According to Everest Kayondo, the chairperson of Kampala Capital Traders Association (KACITA), local supermarkets are now a business within another.
“When you get to this sector were they are selling wrapping papers at Capital Shoppers, I detected it could be a business within a business but again I never tried to dig deeper. All I wanted was to get service and I run away,” said Kayondo.
Sources familiar with operations at Quality, Mega Standard supermarket and Capital Shoppers, told The Observer that the supermarkets have segmented locations that are categorized as prime locations, and are available to premium distributors for rent.
These sources, who declined to be named for fear of losing their jobs, indicated that some manufacturers pay premium rent to have their products displayed exclusively.
“Thus what you see as a supermarket is actually a set of stalls that someone has rented … thus the owner is not only making money on the products sold on the shelves, but also collects rent there,” a source said.
The rent agreements with distributors usually see the supermarkets availed with free labour, only called “merchandisers.”
These are the people one finds standing by the stalls, arranging products, restocking or marketing the goods to customers.
“[For instance], the people in green are mostly cleaners. Those you see with branded T-shirts are called merchandisers. They are responsible for ensuring the goods are well arranged on the shelves and always stocked. They come here every day,” said a source at Mega Standard Supermarket.
Asked whether the merchandisers are facilitated by the supermarket, the source said, “They are paid by the factories that send them here. The supermarket does not facilitate them in anyway.”
Michael Kyaligonza, is one such merchandiser for Pepsi products, we found him at Quality supermarket in Naalya. He confirmed that the companies pay to have their products stocked at the prime position within the supermarket.
“Yes, it happens because a supermarket cannot give you such a big space for free. But I don’t know much about that [how much they pay],” Kyaligonza explained.
“My job however, is to come here and monitor expiry dates on our products and to ensure that the goods are well displayed to catch the eyes of customers.”
At Shoprite and Nakumatt supermarket the merchandisers are not as many as those at Mega Standard and Capital Shoppers retail chains, which entails that these may have a higher wage bill than their local counterparts.
URA SUSPICIOUS TOO
Kayondo says business players believe the local supermarkets have survived by maintaining a sparse workforce that is also poorly paid, while not spending on the groceries they sell; which is supported by free labour from distributors and free rent.
This business model has authorities at the Uganda Revenue Authority (URA) thinking hard already.
“It is hard to tell what a supermarket receipt means in taxes due. In our pilot, we want to begin with people who are involved in general trade: supermarkets and retailers,” said Saka Henry, the commissioner domestic taxes at URA, recently.
The move according to Saka, will help them determine the actual profits made by some of the supermarkets.
URA has been studying the problem for some time and plans to install machines in the supermarkets to make it harder to make sales without proper receipting of sales made.
The Electronic Fiscal Devices (EFD) will provide more insight into what the supermarket is actually selling. With the system in place, the taxman will no longer have to do auditing because information regarding sales will be redirected in real time to their servers.