Institution: Pioneer International University

Course: Bachelor of Education Arts

Faculty: School of education

Name of the student: Ruth Nyakundi

Registration no: BEDA/0342/2020

Unit name:

Unit code:

Lecturer Name:

Assignment: The rise and fall of Nakumatt supermarket.

Date of issued:

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INTRODUCTION
The Nakumatt Supermarket is a family retail company, which originated in 1978 in a small town
of Nakuru in Kenya and managed to grow into a leading household retail company in the
region. Up to 2014, Nakumatt supermarket had stores in four countries in EAC, namely Kenya,
Uganda, Rwanda, and Tanzania and had plans to expand business to other markets such as
South Sudan and Nigeria.

The individual behind this success is Mr Atulkumar Maganlal Shah who was an ambitious
entrepreneur. He believed that he could exploit the growing market of EAC by expanding his
business to other member countries. Mr Shah inherited the mattress business from his father
and managed to develop a strong household brand in the region. Originally, the then household
name of the supermarket was Nakuru Mattress, but after some years of success, the store
changed its name from Nakuru Mattress to Nakumatt with an elephant in blue colour as the
store’s logo.

By February 2017, Nakumatt supermarket had 65 stores and was operating in four of EAC
members countries’ markets, namely Kenya (46 stores), Uganda (9 stores), Rwanda (3 stores),
Burundi (1 store) and Tanzania (5 stores) with a space floor of 20,000,000 m2. The leading
retailer was estimated to have 6,500 employees, annual sales of US$620 million, and more than
20,000 items in their stores with more than 6,500 employees in the region (Omondi, 2017,
Primrose Management Limited v Nakumatt Holding Limited and anothers, 2018).

By October 2017, EAC’s largest retailer was declared bankrupt. All the stores within and outside
Kenya including Rwanda, Uganda, and Tanzania were closed. Suppliers took the retail company
to court after having suffered huge losses following the closure of the retailer. Few of these
suppliers looted the stores with the hope of redeeming the incurred losses. Simply put,
Nakumatt’s prestige was in the mire, as the company headed for a total collapse.

Everyone in the region was asking himself/herself, what has gone wrong with Nakumatt
supermarket.? In general, the current case is a lesson that sheds light on the rise and collapse of
one of the greatest household names of family stores in EAC.

The business environments of todays’ world are turbulent where operations under dynamic
and complex business situations rely on forward thinking strategies. The business environment
is complex because of various factors; technology, increased competition, modification of law,
changes in customers’ expectations which contribute to disruptions that require the firm to be
resilient (Liu, 2013). For this reason organizations need to react swiftly, which often leads to a
change of strategy in order to maintain or gain competitive advantage. Strategic change
requires planning and implementation as a lot of tasks arise that need attention. Strategy
formulation and implementation are primary management practices that have been in
existence for a while. The current key challenge for management dwells in the implementation
of strategy compared to the formulation of it. Some Factors That Led to the End of the Era of
the Nakumatt Supermarket included the following as discussed below.

Expansion Was Not Manageable

In general, one of the most interesting aspects was that, despite all the losses in the home
market in 2009, the family retail company expanded to Uganda and Rwanda (see Table 1). This
suggests that Nakumatt was highly indebted to lenders in both countries. In Rwanda, Nakumatt
acquired City Supermarket through external financing. This resulted in the failure in paying
suppliers of the services in both markets soon after the expansion. As Forsgren (2002) argues,
even though a firm can expand in the country with which it is familiar, they still have to
implement the expansion strategy gradually so that they can gain information that is more
practical. This suggests that the desire for expansion was not well calculated by the retailer’s
management. This led into the retailer’s collapse in the market, which is close to the home
market.

Furthermore, in 2013, Global Credit Rate named Nakumatt as a high-risk firm to be liable for
loan. That means, Nakumatt Supermarket was not stable financially, although the retailer used
a technique of acquiring other stores to portray that they were financially strong. This is due to
the reason that in all the three countries, the retail firm was experiencing difficult economic
situation, and some suppliers took the company to court for failure of paying for the services
rendered to the store. The retailer’s experience of managing overseas operation was poor, as it
did not take time to learn business environment in the foreign market but focused on
increasing the number of stores.

In Kenya (home market), Nakumatt lost good locations to competitors. In general, there were
some measures, which were not supposed to be taken by the retailer including, for example,
buying four shops of Tie stores in Tanzania; instead, the retailer should have concentrated on
the home market and carried out gradual expansion in Tanzania.

Infrastructure Challenges

Another parameter worth mentioning here is the shortage of infrastructure that hampers retail
internationalization in East Africa. Most of the incidents that caused losses to the modern
retailing firms in the region could have been avoided if there were proper infrastructure; for
instance, the leading East African retailer Nakumatt faced a series of accidents attributed to
poor electricity installations, causing one of its stores in Nairobi to be reduced to ashes.
Furthermore, power blackout is very common in the regions causing many traders to rely on
standby generators. As a result, the cost of operations increased, and in some cases, it was
revealed that the generators were a source of fire accidents as was the case with the above-
cited example of Nakumatt’ in Nairobi store.

Some of the incidences that occurred to the family retailer company paved the way for its
collapse. Chronologically, the fall of the family business started in 2008 when one of the retail
stores was demolished because it was built on the road reserve. When the family business was
in need of capital injection to finance its expansion after many crises in 2009, the deal with
Satya Capital an equity financier based in London, went sour (Manson, 2013).

Political Instability and Terrorist Attacks

Political instability and terrorist attacks became a limiting factor in retail internationalization in
the EAC market. The leading retailer in East Africa had earmarked the capital of South Sudan,
Juba as the strategic area for investment. However, this plan seemed unattainable and would
have taken a long time for them to implement because South Sudan political climate was and
(still is) not stable following tribal wars. Furthermore, Uganda and Kenya were affected by
terrorist attacks that threatened the expansion of the sector in the region; for instance, after a
2012 terror attack in Kampala which claimed 75 lives and Kenya’ Westgate attacks which
claimed 67 lives in September 2013, people have been avoiding visiting shopping malls.

Suppliers’ Refusal to Do Business with Nakumatt

By October 2016, many suppliers refused to work with Nakumatt supermarkets due to payment
delay. The situation became worse in Uganda after some of the suppliers were reported to loot
the stores and appropriate some of the items as reparation of some of the costs of their
services delivered to the stores. In general, one of the reasons leading to the emergence of
modern retail in African and East African market in particular is the acceptance of suppliers in
the host country to supply goods to retailers on credit (Nandonde & Kuada, 2016). Therefore,
delay in payment that characterized Nakumatt made it to be delisted by many sophisticated
suppliers with enough capital. These suppliers can be categorized into suppliers of goods and
services. Suppliers of services such as property owners confiscated Nakumatt’s goods, and in
some countries, property owners sought for court order to confiscate the retailer’s items. Some
property owners obtained court order to evict Nakumatt from their property, making the
retailer suffer huge losses resulting from either theft or damage of the items. Following
payment delay, suppliers in different markets refused to supply products to Nakumatt
supermarkets. This made the retailer experience challenging times in the foreign and home
markets; for example, some of its stores in Uganda had empty shelves after the suppliers
refused to work with the retailer.
Suppliers’ Refusal to Do Business with Nakumatt

By October 2016, many suppliers refused to work with Nakumatt supermarkets due to payment
delay. The situation became worse in Uganda after some of the suppliers were reported to loot
the stores and appropriate some of the items as reparation of some of the costs of their
services delivered to the stores. In general, one of the reasons leading to the emergence of
modern retail in African and East African market in particular is the acceptance of suppliers in
the host country to supply goods to retailers on credit (Nandonde & Kuada, 2016). Therefore,
delay in payment that characterized Nakumatt made it to be delisted by many sophisticated
suppliers with enough capital. These suppliers can be categorized into suppliers of goods and
services.

Suppliers of services such as property owners confiscated Nakumatt’s goods, and in some
countries, property owners sought for court order to confiscate the retailer’s items. Some
property owners obtained court order to evict Nakumatt from their property, making the
retailer suffer huge losses resulting from either theft or damage of the items. Following
payment delay, suppliers in different markets refused to supply products to Nakumatt
supermarkets. This made the retailer experience challenging times in the foreign and home
markets; for example, some of its stores in Uganda had empty shelves after the suppliers
refused to work with the retailer.

Limitation of Free Movement of Goods in the Region

One of the challenges the family firm faced within the EAC market is the limitation of the flow
of goods due to protectionism policies introduced by member countries. Thus, it is very
important for any actor to understand the market uncertainty; just knowing the data of the
market would not enable any firm to overcome uncertainty (Forsgren, 2002). The failure of
Nakumatt shows that the retailer did not take time to learn the process of internationalization.
This is evident from the desire to open stores in different countries within a short time. As
Forsgren (2002) argues, a firm can start and continue to invest in just one country or in few
neighbouring countries instead of investing in several countries.

Nakumatt’s management desire was to connect entrepreneurs from different countries with
buyers in the region; in practice however, this dream could not be realized. The retailer faced
challenges of free movement of goods due to restriction policies in different countries within
the region; for example, in 2017, the Kenyan government banned the importation of wheat and
liquefied gas from Tanzania, and later, the Tanzania government retaliated by restricting the
importation of ice cream, unprocessed foods, and milk products from Kenya (Mburu, 2020).
This limited the retailer’s plan of connecting producers within the region and, hence, limiting
the growth of the company.
Marching Forwards Towards the Future

By February 2017, Mr Atul Shah believed that the Nakumatt would regain its lost glory by
introducing different techniques. However, the measures came in too late. The suppliers had
lost trust to work with Nakumatt supermarket due to payment delays, which led to the
retailer’s poor performance. As Vahlne and Johanson (2013) suggest, relationship is very
important for a firm’s internationalization in the neighbouring countries. In Africa, open market
pays in cash; it is obvious that the failure of paying suppliers in time was like committing suicide
to any retailers. This led to the deterioration of the situation to the retailer, as many suppliers
refused working with Nakumatt in both foreign and home markets.

Furthermore, the expansion decision in Tanzania was a miscalculation because the Dar es
Salaam market seemed too difficult to penetrate; for example, Game Supermarket has been in
Tanzania for more than 11 years, but it had only one store in Dar es Salaam. In that regard,
having many stores in Tanzania was not a good option for the retailer. In practice, the
expansion strategy within the region was supposed to have been implemented organically
instead of exponentially by acquiring the existing firms.

Conclusion

Retailers who would like to expand within East Africa must pay attention to many factors
including understanding of the marketing environment, which is very important. This entails
that the best approach for internationalization is to have franchising and licensing rather than
fully owned retail format. This may help retailers to learn marketing practices suggested by
Uppsala model. Furthermore, the study shows that to be successful in the region, commitment
of physical resources should be done slowly after the retailer has gained knowledge on
marketing practices. In general, marketing practices are very fragile in the regions and
restrictions of goods are very common among partners’ states. Therefore, managers should
learn how to do business with local suppliers who have the experience of doing business with
open market.

Dissemination of information especially from a retail giant like Nakumatt Holdings company in
its regions leaves a lot to be desired. Pray for the life of how Nakumatt can be having such a
crisis and it has taken a reactive instead of a proactive stance when it comes to crisis
management. Nakumatt has no public relations strategy. A great number of organizations have
no communications strategy leaving their dissemination of information to ‘management’ most
of whom have no knowledge or skills on how to do this. Nakumatt as noted earlier and in most
of my comments in my case study that they failed to learn from their previous mistakes and
predict possible threats probabilities ought to happen has affected in them in learning through
a post-crisis review. A good crisis management team would have controlled capricious issues of
the financially strained supermarket. Suspended supplies to the retailer in the face of piling
debt add more weight to the sinking giant retailer that is now crumbling down due to gross
mismanagement, poor strategic decisions, tax issues and massive internal losses executed by
some defiant employees and suppliers. Finally, the elephant would not have fallen and is now
almost out if the Nakumatt Holdings company did not realize the signals and maybe look for a
financial back-up plan that would have help it go back to its normal operations.

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