Shoprite exit: Can foreign retailers survive in Uganda?

The announcement on Monday by Shoprite, a South African retailer, that it was leaving Uganda and Madagascar raises additional doubts about Uganda’s economy’s capacity to support a major investor. After 21 years in Uganda, the management of the Johannesburg-listed company said that it was redirecting its resources to more profitable countries.

Nigeria and Kenya, both financial powerhouses in Sub-Saharan Africa, have previously opted out. By the beginning of the year, the firm had over 2,900 locations in 15 countries, including five in Uganda, before exiting four of them.

The majority of the stores are in Southern African nations. The news came two days after the company agreed to purchase Massmart’s food division for up to 1.36 billion Rand ($90 million), indicating that it was exiting other areas to concentrate on Southern Africa.

Shoprite’s sales decreased 8.4% in the half-year ending December 2020, or 784 million Rand (US$ 51.8 million), with Kenya, Uganda, and Madagascar accounting for roughly 46 million rand (US$ 3 million) of the reduction. Timothy Kalyegira, a social critic and experienced business writer, believes Uganda is not the sort of market that can attract and maintain multinational merchants.

“They, like the Silicon Valley behemoths Facebook, Google, and Amazon, can’t generate money here. He alludes to the weak economies and restricted purchasing power by saying, “There’s no money for them.” Too many little stores are competing for space in Uganda’s market. Retail stores, especially groceries, textiles/garments outlets, furniture, and other home products, account for 80 percent of MSMEs, according to the ministry of commerce and industry. These are the types of industry leaders that international supermarkets must compete against. Because these bring services to the customer’s doorstep, supermarkets must rely on affluent consumers, either on weekends or in the evenings of working days when employees are getting ready to leave the city.

The UAE-based franchise holder for French retailer Carrefour has been in negotiations with Shoprite to purchase their Ugandan holdings since earlier this year, according to sources. Neither of them has come out to deny or acknowledge anything. This reminds me of the time when Nakumatt, a Kenyan store, was planning to leave Uganda. Shoprite was said to be taking over its companies, including the premises, at the time. It was never the case.

For a variety of reasons, foreign-based supermarkets have had a difficult time in Uganda, resulting in poor sales. Ugandans still have a strong traditional shopping habit, preferring to do business with local retail stores in their areas for a variety of reasons, including personal relationships.

Nonetheless, many people still regard supermarkets as a haven for the wealthy, where their favorite stocks are either unavailable or prohibitively costly. Supermarkets, for example, must consider packaging of their items in addition to the obvious realities such as paying higher taxes, paying higher rent, and hiring somewhat more costly employees.

This raises the price even more than in the neighborhood store, where a simple plastic carry bag would serve. For the last four years, supermarkets have been attempting to modify their business models as the government executes the “Buy Uganda, Build Uganda” program, which aims to promote local products and limit importation of items that may otherwise be produced locally.

Retailers must set aside half of their entire shelf space for locally made goods, according to a guideline implemented in 2014. This has had an impact on firms that set up shop in Uganda to expand their markets for items from their home countries, particularly agricultural products.

While this was a kind gesture on the part of Ugandan manufacturers, many have now stopped supplying shops due to the terrible economic climate in the country. “They despise having to pay. You provide them with goods, and they issue you with an invoice, but they never pay you on time. Others claim that before they can pay you, they must first sell all of your items. This isn’t going to work,” says Beyeza Adrian, a fruit grower who supplied many Kampala shops.

Surprisingly, local supermarkets appear to be doing okay. Capital Shoppers, Mega Supermarkets, and Quality Supermarkets are among them. Shoprite, Nakumatt, Tuskys, and Uchumi, all of which are Kenyan, have seen their rise, fall, and eventual exodus.

The three were accused of owing local vendors billions of shillings in unpaid supplies, space rent, and employee salaries. Shoprite is hoping that stability in its home country will help to turn around its fortunes, which have been harmed by the closure of bars and drinking bans in South Africa during the COVID-19 lockdowns, as well as shop looting during the recent riots sparked by former President Jacob Zuma’s detention.