Choppies set to exit Kenya over poor show

Choppies Supermarket—which has its roots in Botswana—has revealed plans to exit the Kenyan market four years after acquiring Ukwala stores for Ksh1 billion ($10 million).
The retailer has been struggling to grow market share in an increasingly competitive retail market characterised by the merger of some of its rivals like Quick Mart and Tumaini and the declining fortunes of erstwhile big players like Uchumi and Nakumatt.

The retailer held an extraordinary general meeting (EGM) with its shareholders on Wednesday, during which it announced that it had listed its Kenyan assets for sale. It had also classified its 12 stores as distressed.

Competition in Kenya’s retail sector is heating up with multinational supermarket chains like Carrefour, Shoprite and Game Stores opening outlets in recent years in an attempt to cut the dominance of Tuskys and Naivas, both of which are indigenously owned.

“Zambia has a steady performance in a volatile economy, Kenya’s distressed business has been identified for disposal. Tanzania and Mozambique are distressed while Namibia is performing as expected,” Wilfred Mpai, Choppies director told shareholders during a presentation.

“In Botswana there is steady income flow under difficult trading circumstances, South Africa North West business is distressed and identified for disposal.”

Choppies has 12 stores in Kenya and had announced plans to treble that number over the next three years before it faced financial difficulties.
Operating costs

This year, Choppies shut down two outlets as the retailer experienced stockouts amid rising operating costs.

The retailer, which operates more than 130 stores in its Botswana home market, South Africa and Zimbabwe, bought a 75 per cent stake in Ukwala Supermarkets for Ksh1 billion ($10 million) with the remaining shares held by the local shareholder—the Export Trading Group (ETG).

ETG recently offered the Kenyan unit of Choppies a Ksh600 million ($6 million) shareholders loan in a bailout aimed to settle suppliers’ debts that had restricted fresh stocks.

A deal brokered by the retailer and the Association of Kenya Suppliers (AKS) will see Choppies release half of the $6 million debt to unfreeze fresh stocks. The other 50 per cent will be split into two tranches and paid within three months after every six weeks.

Choppies is not the only southern African-based retailer that is facing headwinds in the Kenyan market.

TFG, a fashion retailer, has also been performing poorly in the rest of Africa forcing the company to retreat back home.

Last month, TFG said it will decide next year whether to continue trading in Kenya and Ghana where it has at least six stores in each market.

Internal trouble

Choppies is also facing internal trouble after its CEO, Ramachandran Ottapathu, was suspended in May after being accused of malpractices including sale of ghost stock to inflate sales.

This was revealed in a forensic audit. However, Mr Ottapathu linked his suspension to a fallout among the directors following his push to boost transparency and governance in the Choppies board.

Wednesday’s EGM was held to resolve the boardroom wars and review the forensic reports. Choppies chairman and former Botswana President Festus Mogae said he will be stepping down from that role.

Choppies shares have been suspended on both bourses since November 1, 2018 on account of the company’s auditors PwC’s inability to finalise the 2018 financial statements due to some irregularities.