The inside story of Uchumi supermarket’s turnaround
On Tuesday, May 31, President Kibaki presided at the return of Uchumi Supermarkets to the Nairobi Stock Exchange.
This was the culmination of a long journey from those dark days of June 2006 when the Capital Markets Authority suspended trading the shares of this retail giant and the main creditors placed it under receivership.
Having been the Minister for Trade at the time, I can share my subjective account of the heady days.
When Uchumi closed its doors in June 2006, it threatened the livelihoods of over 12,000 shareholders, most of whom were small scale investors.
Half of them had only months earlier put their savings in the “failed turn-around” effort of the Sh1.2 billion rights issue.
In addition to these were the thousands of suppliers who were owed money without security, and the hundreds of millions owed to creditor banks.
Uchumi, apart from being an iconic Kenyan brand, has always been a leader in accommodating ordinary Kenyan suppliers on a giant retail platform.
The fact that Kenyan meat products are now the mainstay of supermarkets, that fresh vegetables cost almost the same at Uchumi as at the peri-urban open markets, that there is an established Christmas Uchumi goat sale, are testimony to a company that has consciously built a value chain that extends to many Kenyan villages and manyattas.
That June, I hurriedly convened a meeting in my office with representatives of the main creditors, suppliers and investors of Uchumi. The immediate challenges were multiple.
First the main creditors, KCB and PTA banks, had to be prevailed upon not to liquidate the assets of the fallen giant.
This was very radical in a country where receivership is virtually a mortuary service with few cases of recovery.
Secondly unsecured creditors, mainly small-scale suppliers, had to be calmed down and made ready for some sacrifices while we explored a rescue route.
Third we had to think of how to navigate the outdated and hostile loops and practice of the receivership law.
And fourth, at least Sh680 million had to be raised to deal with immediate operational and creditor demands.
We set up a crisis management team headed by my then PS, Mr David Nalo, which met on a daily basis in the initial phase and prepared for weekly meetings in my office.
The creditor banks were willing to bid their time so long as we could find the money to execute the emerging rescue plan.
Mr Kimani Rugendo was doing a good job calming down fellow suppliers. We discussed proposals for interim managers who later became the Ciano team.
How to get Sh680 million from government was now my headache. The day before I was to meet President Kibaki to put in a pitch for the money, I had a round of golf with my friend, Prof Kimura.
He recounted how he had asked his graduate class of economics whether a rescue for Uchumi was possible or even desirable.
About 100 per cent replied in the negative. Later that day, a Cabinet colleague gave me a lecture on how not to throw good money after bad money, and how Uchumi, as a private business, should live with the risks of the market place.
When I met the President, he typically gave me rapt attention. He asked very telling questions about the chances of a turn-around.
He showed a deep personal empathy with the Uchumi brand which he had helped nurture over the years. I recounted the pain of mama mboga who depended on Uchumi.
I confessed our failure to stop the bungled rescue plan which had seen small investors pour all their earnings from the KenGen share into the Uchumi rights issue.
After lengthy discussions, the President looked me in the eye and asked me directly:
“Mukhisa, do you think this thing will work?” I answered him directly that I believed it would work and it was a risk worth taking.
He told me he would provide the money and asked me to work with the Treasury in preparing a Cabinet memorandum.
As we celebrate the good job done by Ciano and his team over the intervening five years, I draw a number of lessons from the experience.
Too many businesses which can be salvaged are being killed by a primitive mindset among most receivers and an unjustifiably backward receivership law.
Banks have the capacity to help steer businesses under strain to safety more than they have been willing to do.
When significant couriers of national value like Uchumi are under threat, a fetish about the rules of the market place should not make leaders renege from patriotic responsibility.
Dr Mukhisa Kituyi, a former Minister for Trade, is a director of the Kenya Institute of Governance. [email protected]
