Why Uchumi will not be extending a begging bowl to Treasury

At Uchumi Supermarkets’ Nairobi West branch, suppliers wait for up to 14 days before being paid for their goods.

But as they do so, they have full access to the outlet’s supply chain system and can see how their goods move.

So far, 50 small and medium scale suppliers are on board and have been furnishing the retailer with goods hoping that customers will pick them up quickly and provide funds for payment.

Nairobi West is a pilot programme that Uchumi chief executive Mohamed Ahmed Mohamed hopes to roll out in its five remaining branches to woo suppliers into giving the retailer another shot at making a comeback.

Mr Mohamed inherited the kind of mess even the best turnaround expert would never wish on their worst enemy. A technically insolvent company that has lost the faith of creditors and shareholders, and whose revival is a long shot.

Poor management

After a series of thefts by staffers between 2001 and 2016 coupled with poor management decisions, Uchumi Supermarkets is now hoping that Mohamed will get the retailer out of its deathbed.

Uchumi is only alive because of a Company Voluntary Arrangement (CVA) granted by the courts. A CVA is a process where a distressed firm is allowed to operate and slowly settle debts owed to creditors, while trying to escape the jaws of insolvency.

Uchumi is the first firm in Kenya to undergo a CVA, after 152 creditors voted to allow the retailer a chance to come back to life.

Mohamed believes past managers and directors went wrong in expanding using suppliers’ cash, as that is one of the main reasons Uchumi is now on its deathbed. Suppliers are afraid of burning their fingers, again.

Some of the big consumer goods manufacturers such as Bidco and Chandaria Industries have suffered with every slip Uchumi since 2001.

The new CEO has put his faith in two things. Paying current suppliers early in the hope that other giant fast-moving consumer manufacturers will have faith and bring their goods back to Uchumi’s shelves, and selling a 20-acre piece of land in Roysambu, Nairobi to inject the much-needed working capital into the retail chain.

Working capital is money used to fill the shelves and ensure that day-to-day operations continue normally.

Selling shares

Uchumi could also end up selling some of its shares to strategic investors though this is a long shot. Mr Mohamed admitted that since he took over, there have been offers to buy Uchumi but he insists processes must be fixed at the ailing retailer before such a move gets the nod.

He has ruled out asking the government for a bailout, and wants to garner the faith of suppliers and shareholders before looking outwards for money. This means the retailer will have to shelve any expansion plans as well.

“We are looking for potential joint ventures and strategic partners. Once we stabilise we can focus on these. Both financial and non-financial institutions are on our radar. We have talked to three financial institutions and a few other non-financial institutions. There were offers to buy into Uchumi but those fell through because of the negative news and information around,” Mr Mohamed said.

“I’m more concerned with working capital than growth at the moment. We shall maintain our existing branches. Let me get my processes right before asking government for money. We are still in consultation with government for support but not necessarily in terms of cash,” Mohamed said.

From more than 60 branches across East Africa, Uchumi now has just five. It used to boast of prime land in the city centre, Ngong Road and Roysambu.

Today the Roysambu land is the only prime asset left but Uchumi’s title deed has been challenged by the military, which forcefully took over the land in April last year.

Kenya Defence Forces parked an armoured tank at the property’s entrance and stationed soldiers there just to show how serious its bid to take ownership of the land is.

Mr Mohamed is, however, hopeful that ongoing talks between Uchumi, the Ministry of Defence and Trade and Industrialisation will see the retailer get back the property.

Sh300 million deposit

Uchumi had just received a Sh300 million deposit from church-owned Jewel Complex when the military laid claim to the land. The deposit was part of a Sh2.8 billion sale price, and the money was expected to breathe life into Uchumi and set in motion a recovery plan.

Rather than go to court, Mr Mohamed believes that a faster and more amicable resolution could be arrived at through government-to-government talks.

“We’ve had discussions and they are still ongoing. We shall still pursue them (talks). There has been movement. Covid-19 has messed things a bit. We had a meeting a week or two before the government announced a partial economic shutdown because of the Covid-19 pandemic.”

“Some of these fights require financial muscle. Court battles can drain you financially. I would rather use that money to help revive Uchumi. If something can be mediated it can be a good step to go that route. We shall only go to court if we have to,” Mr Mohamed said in an interview with Smart Business.

But even with the talks, a group of squatters is still bent on getting the land, as they insist that they inherited it from the original owner, Israeli businessman Meshumor Jacob.

The group has filed a petition in Parliament following court rulings that declared Uchumi the valid landowner.

“If Parliament is allowed to make that decision it will be a dangerous precedent for Kenyans. Any land dispute (even those already determined by the courts) will end up in Parliament and this will challenge the rule of law and fair administrative action.

Uchumi has a title deed for that land. The land is crucial to Uchumi’s turnaround. We have a legal title and we are going to continue talking to the Ministry of Defence,” the CEO said on the Roysambu property.

Uchumi has survived a one receivership spell and two insolvency petitions, and Mr Mohamed is insistent that the retailer can return to being the biggest supermarket chain in Kenya by sales and turnover.

Right before and after the 2004-2009 receivership spell, Uchumi suffered huge heists by managers who plundered suppliers’ debts in overambitious expansion plans and sold the retailer’s prime assets for a song.

In 2017, an out-of-court settlement saw suppliers withdraw an insolvency petition seeking to wind up the company over debts of Sh3 billion.

150 suppliers

Two years later, more than 150 suppliers had not been paid and they went back to court looking to wind up the company again as their dues were now past the Sh4.7 billion mark.

At a June meeting, 152 suppliers voted to waive 70 percent of money Uchumi owes them and give the retailer a chance to rise again.

Part of the Sh1.5 billion owed to creditors will be converted to equity meaning very little money will actually be paid out by Uchumi.

But Mr Mohamed says the same creditors stand to benefit even more if Uchumi is allowed to get back on its feet as there will be far more business and sales to be done on the retailer’s shelves.

“It is difficult for them (creditors) to accept the 70 percent slash but that is still better than letting Uchumi die. If Uchumi dies they get nothing and there is no future business to do at the end of that.”

Every six months for the next four years, Uchumi will have to sit down with creditors and brief them on progress of the revival plan. In the event clauses of the agreement with creditors are breached, any aggrieved party will be free to go back to court and seek winding up of the retailer.

For now, it has to find a way to ensure that the five remaining branches, a mere shell of what was once East Africa’s largest retailer, can instill faith in suppliers.

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