Fear of competition from foreign entrants caused Nakumatt Supermarket to divert billions of shillings into a rapid expansion in a bid to lock them out of strategic locations.
News of entry of new players caused panic within top management of Nakumatt, triggering a costly expansion programme which backfired and ended up sucking up all the money the retailer needed to stay afloat.
To make it hard for them to set up, Nakumatt rushed to ‘snap up’ key locations that would have been a target for the international players.
Among retailers that were looking to enter the market at the time were French retailer Carrefour, South Africa’s Game and Botswana’s Choppies, who are now setting up in the country without a fight.
But this strategy was a big miscalculation because it underestimated the amount of investment it needed and the financial strain it would put itself into.
The ambitious plan collapsed mid-way after the new branches ended up locking up billions of shillings that had been diverted from suppliers and other creditors, making it the last straw to push the retailer into financial ruin.
The retail chain also had to buy out shares held by wealthy businessman Harun Mwau, who was described as a ‘minority shareholder.’
The businessman sold his 7.7 per cent minority stake in Nakumatt Supermarkets for undisclosed amount, to pave way for entry of a strategic investor from abroad.
Sources say the deal flopped when an audit found that Nakumatt’s books were in bad shape.
Nakumatt MD Atul Shah four years ago valued the retail chain at about KSh40 billion.
With this valuation, Mwau could have pocketed about Sh3 billion for his stake. That valuation is highly unlikely today considering that Nakumatt has shut several of its branches.
Nakumatt’s payment to Mwau for his 7.7 per cent stake could have also put a lot strain on the retailer’s finances.
The source said the retailer pumped most of the billions it borrowed into this expansion programme and diverted part of the money owed to suppliers to buy stock for the new branches.
In December 2015, Nakumatt sunk Sh200 million in Busia and Bungoma branches to push its total branch count to 57. In March 2016, it then opened another branch in Kakamega to complete the remodeling of the three supermarkets acquired from Yako Ltd at a cost of Sh260 million.
With that, Nakumatt succeeded to have 12 stores in nine West Kenya counties – Busia, Bungoma, Kitale, Kakamega, Kericho, Kitale, Kisumu, Kisii, Uasin Gishu and Nakuru.
Nakumatt’s woes started with debts, which it slowly start closing some of its branches.
Among the west Kenya Counties, the retailer was only left with the Kisumu Branch after closing all the other entities. Many other branches in Kenya and its neighbouring countries of Uganda and Tanzania closed down.
Operational stalls have been the Nakumatt Mega along Nairobi’s Uhuru High way, Prestige, Embakasi, Lavington, Highridge, Nakuru and Kisumu.
On Monday, the befallen giant posted on its facebook page that it was closing its Uhuru Highway Nakumatt Mega branch and Kenyans were not at peace at all.
Kenyans emotional started reacting on the sad news that seemed to have dag wounds in their hearts, with many not believing how the giant had fallen.