Kenya’s #2 supermarket chain, Tuskys, has announced a round of redundancies on the back of a fall in profits for the second successive year. Tuskys has 6,000 employees in Kenya and Uganda, but has not revealed how many are being laid off.
For some time Tuskys has looked strategically directionless and ill equipped to deal with the new competitive landscape.
It has not, we understand, resolved its supplier debt. Not is it paying its suppliers promptly. It seriously entertained a merger with Nakumatt (the two firms have a long connection dating back to their founding), even as the scale of Nakumatt’s debt crisis was emerging.
Tuskys has long talked about setting up a franchise business – a good idea to leverage the brand and the supply chain – but has not yet rolled the programme out. It has talked about investing in its online platform, but with such minimal sums it does not look serious.
In 2019 Tuskys joined the NSE’s IBUKA accelerator board, which is aimed at fast-tracking Kenyan companies going public. At the time, Tuskys said it was seeking to list on the NSE in late 2020. Since then, there has been little evidence this will happen.
Meanwhile, Tuskys is under sustained attack in Kenya: from Carrefour, which now has seven large stores in Nairobi; from Naivas, which has expanded in the past four years, now taken on significant investment and overtaken Tuskys as the leading supermarket chain in Kenya; from local player Chandarana, which is also expanding; from Shoprite, which has three stores in Kenya; from Quickmart, which has also received investment to expand and merged with Tumaini.
In short, Tuskys is being squeezed from both sides – premium supermarkets and more mass market players.
Tuskys is also under pressure in Uganda, where both Shoprite and Carrefour are expanding.
Tuskys faces a real risk of coming under further financial duress without outside investment. The question is whether it is fit for investment? Investors looked at Nakumatt’s finances, for example, and walked away.
Tuskys, which is also subject to a family feud over ownership, has the potential to be a messy, complicated and risky acquisition. We know from several investors that the scale and hidden nature of Nakumatt’s debt, its rapid shift from success story to failure, has spooked investors. If there is any sense in which Tuskys’s finances are opaque and its governance poor, the chances it can find investment plummet.
The lesson from the failure of Nakumatt, Uchumi and Ukwala/Choppies is that it may simply be enough for its competitors to sit back, watch Tuskys fail, and cherry pick from its store estate.
Update (26 Feb 2020): Tuskys CEO Dan Githua says that the retailer has only made redundant five employees, blames the leak on internal politics.
