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Kenya: Nakumatt sticks toexpansion despite failure to land new investor

Failure to net an investor to inject more capital into Nakumatt Holdings is not going to hold back the supermarket's expansion programme, Mr Atul Shah the retail chain's managing director said.

The East Africa's largest retail chain in terms of branch network missed the Sh2 billion it hoped to raise from sale of a 30 per cent stake, but says the expansion plans go on with new branches set for Nairobi, Coast and Rift Valley regions this year .

The supermarket chain is anchoring its battle for the control of the East Africa's retail business as it warms to the low-end markets which it had shunned.

Two new stores will be opened in Changamwe and Malindi in Coast with three more branches to be located in Nakuru and Nairobi.

Mr Atul Shah, managing director, said attempts to raise more capital to bolster the aggressive expansion programme that saw it acquire a rival supermarket for Sh400 million in March failed because investors undervalued the supermarket.

This was after the fire disaster that destroyed its Nairobi Downtown branch and the demolition of another branch on Thika road to pave way for the construction of a superhighway.

The retailer was in talks with Satya Capital, a London-based private investment provider and Kingdom Holding Company - an investment group associated with the Saudi Arabia royal family to inject about Sh2 billion to enable the retailer continue opening new branches.

"The offers for the purchase of the 30 per cent stake fell short of our expectations by a wide margin; we were not getting the right value. As a result we have shelved those plans for one year. Our focus is to plough in earnings from our operations to increase our branch network," said Mr Shah, but declined to mention the offers that the investors had put on the table.

But the retail chain's new enhanced branch expansion programme is raising eyebrows at a time of low sales following a global recession and high inflation in Kenya which reduced the purchasing power of most families.

Mr Shah, the majority shareholder of the supermarket chain which is also owned by Hotnet Limited, a company associated with assistant minister John Harun Mwau, said the branch expansion is being carried out from the company's own resources with the belief that sales will pick up in 2010 as the country's inflation is on a downward trend.

Data from the Kenya National Bureau of Statistics indicates that Kenya's year-on-year inflation rate increased marginally to 3.6 per cent in July from a revised 3.5 per cent in May.

The retail chain's expansion programme comes on the heels of recent consumer confidence surveys indicating that most consumers have slowed down on expenditures.

A survey by private research firm TNS Research International last month indicated that consumer confidence index which had been on the rise for three consecutive months into March, declined into June.

The quarterly index now stands at 115 down from 120 points in March as a result of increasing uncertainty about the future prospects for business, labour market, crime and corruption.

Consumer confidence is an indicator for economic trends as the degree of optimism of consumers regarding the state of the economy is directly reflected in their spending and saving behaviour.

But these statistics are unlikely to deter Nakumatt's expansion drive as plans are underway to open a branch in Nakuru while in Nyeri a new location has been identified where a branch will be located.

In Nairobi, the retailer is looking at two sites on Lang'ata and Kiambu Road.

The company has already opened four new outlets within Nairobi' city centre.

The shops are located near City Hall, on Ronald Ngala street, Moi and Haile Selassie Avenues.

The supermarket chain boasts of 15 outlets in Nairobi alone and a total 29 branches spread across Kenya, Uganda and Rwanda.

Analysts are raising concerns as to whether the supermarket chain can sustain some of its branches that are located in the low-end market segment which are already dominated by Tusky's and Ukwala supermarkets.

But Mr Shah says Nakumatt's expansion programme is a little different from the ones done by some of its competitors.

"In our case we are not constructing buildings, instead we are renting the space, this reduces our costs significantly," said Mr Shah.

Source: allafrica.com

Publication date: 8/19/2010


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