Nakumatt Supermarkets is currently on a free fall from grace. With debts estimated to stand at around Sh. 15 billion, delayed salary payments, empty shelves, idle staff, unremitted statutory deductions and unpaid suppliers, the famed retailer is facing imminent death that can only be eroded by a fresh capital injection of up to Sh. 7 billion. As Kenyans internalize the shock of a once blossoming company that is now chopping away block by block, we spoke to financial experts on the most critical lessons you can draw from the sad tale of Nakumatt on how to run and sustain your business.
Pricing: According to Samuel Gichohi, the Business Development Manager at NIC Securities, if you run a medium or mini supermarket, you must always avoid marking up your prices on the basis of being located in a high end neighbourhood. “If there are smaller competitors, you should leverage on economies of scale to out-price them. You’ll be in for a rude shock if you mark up your prices simply because customers from well-off neighbourhoods will stream in. Shoppers will eventually realize that it is cheaper to buy at the wholesale shop!” he says.
Get an investor when you’re on top: Nakumatt attributed its failure to pay its employees in May on lack of a capital injection from a private equity fund. According to Gichohi, this is because the retailer is seeking a strategic investor from a disadvantaged position. “It is always prudent to invite a public investor or strategic private investors when you are on top. This is because your valuation will be at a premium,” he says. His sentiments are echoed by Nyoro, who notes that while many equity funds may have expressed interest in bailing out Nakumatt, their price is most likely too high for the retailer. When in a cash crunch, Gichohi advises that you should scale down as soon as possible. “No investor will pump their money into a dying business,” he says.
Online retailing: According to Ndindi Nyoro, the head of Investax Capital Limited, if you’re in business, you must always know how to digitize your products to remain relevant to your customers’ needs. He notes that currently, the retail business is suffering a disruption caused by online shops. “Previously, if you needed a bicycle, you’d have to walk all the way to Nakumatt or any other supermarket and buy one. Today, you only need to log online and purchase one from an online shop such as OLX or Jumia which is then delivered straight to your doorstep. The need to attend a physical retailer is waning,” he says.
Suppliers: According to Nairoibi based entrepreneur Tonnie Mello you should treat your suppliers as partners rather than entities you can do without. “Business is an ecosystem. You support your partners for your own good” he says. “This will ensure that your level of sustainability remains high. Sustainability will always be the first rule in business.”
Expansion: It is good for a growing business to expand. However, never overdo it. This is the mistake Nakumatt made. With over 67 branches, the retailer is now being forced to shut down non-performing units and send ‘idle’ employees on compulsory leave. “Expansion should be a function of organic growth and it should only be driven by demand,” says Gichohi.
