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Death of Supermarkets in Uganda: Why Shoprite and Uchumi Are Closing?




By Ian Ortega 

Last month, everyone was shocked with the announcement that Shoprite was closing its branch at Metroplex Naalya. Yet, its closure wasn’t the first we’d witnessed in Uganda. At UMA show grounds, we had the mighty Metro Cash and Carry. It wasn’t so long before they closed, owing in part to their incompatible business model that required shoppers to have membership.

Moses Kaketo, a business analyst attached to Summit Business review had some explanations for the closure of Shoprite Naalya.

“Research shows most Ugandans generally do their shopping at small family stores known as Dukas – these are located near their homes and are visited almost daily partly because shoppers want to touch base with residents, as well as get credit terms. The supermarkets and groceries are popular amongst trendy aspirants and progressive affluent who make only 17% of the population. These buy only high-end products like energy drinks and deodorants. The majority of folks who frequent supermarkets buy foodstuffs like bread and meat.

The report identified seven segments in Uganda. 41% of Ugandans including evolving Juniors, Wannabe Bachelors and struggling traditionals who survive at near subsistence level. Across all consumer segments, affordability and recommendation are vital determinants of purchase.

As the report notes, companies that work with these realities at the back of their mind realize Uganda’s hidden potential. The Supermarkets in Uganda are energy suckers. Because of competition from farmers interested in having their products on their shelves, Supermarkets do not pay up-front for the foodstuffs on display. Instead, they require suppliers to supply on credit or until they sell. That means, if their products do not move, they take it and the resultant loss is met by the supplier. That is a good model.

But what about your small farmer who supplies onions? In the normal course of things, the supermarket gets stock free of charge and sells at a profit only then to pay the supplier. That is like using free money from the bank! However, the model is different for small shops and traders in the traditional market like Nakawa. Vendors must make down payment to get stock, yet some of their clients take items on credit.”

In this piece, Kaketo was able to define the boundaries within which every Ugandan supermarket would be expected to work. It thus came as no surprise when one of the very first groups to hammer down Uchumi was the suppliers that hadn’t been paid for long. As a result, Uchumi had to close off all of its branches, as employees complained about not being paid their salaries for long and suppliers cried about the money Uchumi owed them.

It should thus come as no surprise if in future, even the Supermarkets posturing in Uganda at the moment also do close up. Of all the supermarkets that could have understood the Ugandan market and the behaviours, it is Mega Supermarket which is located just opposite the old taxi park.

And not only that, Mega Supermarket got its location right, but it also understood that Ugandans are not expensive shoppers largely because we don’t have a middle class. Most supermarkets which come to Uganda work on the assumption that there is a middle class. This is a myth. Truth of the matter, the Ugandan middle class is largely inexistent. Even the few who identify as a Ugandan middle class, are thousands of people who live mouth to mouth, servicing loans at the workplace and from colleagues.

Thus for someone seeking to open a supermarket in Uganda, they ought to face the fact that we don’t have people who frequent supermarkets to do large scale shopping. Secondly, most Ugandans prefer to purchase products from retailers with whom they can establish a relationship. Some supermarkets have addressed this by introducing the shoppers cards where regular shoppers earn credits and discounts.

There is also the issue of men being the ones who shop mostly in the supermarkets. For these men, they do their shopping late in the night. At this time, most Ugandan supermarkets are closed. There are a number of factors to be negotiated by the brains behind the supermarkets.

Because of lacking market, supermarkets end up having goods that overstay on the shelves. Most shoppers complain of buying expired goods, rotten foodstuffs and a number of complaints. And because supermarkets don’t make a down payment to suppliers, these suppliers would rather give products to a local retailer than to a supermarket that will even require them to send a voucher.

Uganda is still a country in a transition from a peasant life to a modern one. There is an omnipresent peasant lifestyle in our shopping behaviours and everything we do. Thus we ought to accept these facts and make allowances for them in every new business we start in Uganda.

Finally, supermarkets will have to understand that Ugandans want to buy low-priced products. Mega Supermarket understands this concept. It will stock toiletries made in Uganda which an average Ugandan will be able to afford after a day’s work. Thus, what we need in Uganda are not supermarkets per say but a scaled version of a Ugandan retail shop. We need to adopt lots of principles and characters of the duukas and chakala shops and transpose them into the supermarket model.

Ugandan supermarkets should also begin to understand that a Ugandan shopper expects supermarkets to organise themselves around their lives rather than building their routines around store opening hours. They expect to buy whatever they want, any time, any place in the most convenient way to them. Thus a drunkard stumbling back home from a night club will expect to enter any supermarket in the wee hours of the night and purchase something to eat. It is the realization that a customer is king. That has eluded supermarkets for so long.

Thus big chains will have to refocus if they are to win over customers from the local retail shops. If they fail to do this, they will go down the same route as Uchumi and Shoprite.

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