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Uchumi starts its journey of East African regional growth
Uchumi starts its journey of East African regional growth

Uchumi starts its journey of East African regional growth

RETAILER NEWS - Jan 14th 2013, 09:01

Uchumi, Kenya’s third largest retail supermarket chain, plans to use the additional funds it is seeking from its shareholders to finance regional expansion and refurbish its outlets.  

Speaking to Smart Company, Uchumi chief executive Jonathan Ciano said the retail chain would embark on an aggressive growth programme next year, with a focus on the East African region to take advantage of a growing middle class.

The owners have approved the creation of an additional 100 million shares in the lead-up to the rights issue. The price will be determined next year.

Uchumi has lined up a series of branch expansion plans in Kenya, Uganda, Tanzania, and South Sudan with an eye set on establishing stores in Rwanda and Burundi.

The supermarket’s appetite for expediting expansion is motivated by the rising level of competition from its peers in the local and regional market — Nakumatt, Tuskys, Naivas, Ukwala, and Chandarana — that are also in aggressive expansion mode to widen customer outreach, protect their turf, and grow revenues.

A Kestrel Capital report released early this year says that increased competition from smaller players and new entrants in Kenya’s retail industry is expected to put pressure on the supermarket’s earnings. However, Kenya still holds unexploited opportunities for retail chains, more so in major towns that are mostly underserved.

In Kenya, the supermarket plans to open branches in Maua, Kisii, Kisumu, Ukunda, Mombasa Island, Eldoret, Natete (Uganda), Mbale (Uganda), and Kampala (Uganda) this financial year. Currently, it boasts 26 branches in Kenya, Uganda, and Tanzania. In Tanzania, the supermarket has been invited to consider opening branches at four potential sites.

Opened five outlets

In the past financial year, the retail chain opened five new outlets to increase traffic and grow its revenue to cushion itself against depressed margins and low per capita consumption. The branches include Quality Mall in Tanzania, Gulu, Kabalagala, and Freedom City in Uganda and Taj Mall in Nairobi.

Mr Ciano said the subsidiaries in Uganda and Tanzania are now self-sustaining and will break even soon. “The subsidiaries are relatively new and have picked up very well, and are in their lower levels of maturity. They don’t just grow very fast. We gave them time and they’ll be able to break even any minute now,” said Mr Ciano.

He said the growth potential in Kenya and the regional market is the biggest motivation for the supermarket to move and cash in on the fast-growing economies and consumer markets of the East African region.

Although the subsidiaries weighed down the supermarket’s profits, given the tough operating environment that eroded consumers’ purchasing power, Mr Ciano was optimistic that next year would present a suitable operating environment for the retail chain to contribute significantly to overall earnings.

“We are upbeat that 2013 will not be as tough as 2012,” he said. For the first time in a decade, shareholders were issued with dividends worth Sh80 million. They also approved the increase of the nominal share capital of the company to Sh3 billion from Sh2 billion through creation of 200 million new ordinary shares of Sh5 each.  

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