Third instalment of the four-part series by FRED AMINGA looks at players filling the vacuum left by challenges facing the retail sector
Small and medium-sized retailers and wholesalers pay their suppliers promptly compared to the big retailers helping circulate cash in the value chain and help producers recoup.
Most small supermarkets pay suppliers on delivery or within 30 days, and for those who drag payments to two months, the amounts involved are not much to have any significant impact on the velocity of cash in circulation.
At any one time, each of the small retailers owe most suppliers less than Sh200,000 for a period exceeding three months, according to a study on Kenya’s retail sector. While the pending payments may be informed by the sizes of the retailers, most small retailers did not owe much to 22 strategic suppliers in a study carried out for the last financial year up to December 31, 2016.
Retailers such as Eldoret Matresses owed suppliers only Sh4,020, Samrat Supermarkets Sh12,273 and Ronak Supermarkets ShSh749.94. A group of small retailers such as Easy Matt, Woolmat, Thika Supermarkets, Stage Mart, Homematt Supermarkets, Eastmatt Stores, Mesora Supermarkets, Chieni Plains and Caren Provisional Stores cumulatively owed suppliers less than Sh2 million in 90 days.
Defence Forces Canteen, which can be categorised as a major retailer based on the thousands of consumers it serves, owed the suppliers only Sh49,997, most of which had not been paid for 60 days.
This was against Sh792 million which had not been paid to the 22 suppliers. In real contrast, however, the major local supermarkets owe the suppliers millions of shillings estimated at more than Sh40 billion by the Ministry of Trade.
This has caused a cash crunch which has affected capitalisation in the chain, impacting negatively on the performance of other players including suppliers and manufacturers.
The move has also impacted negatively on government intentions to target these retailers and increase the share of products sold through the formal retail channels. Retailers were envisaged to trigger growth of gross domestic product (GDP) and stimulate consumer demand-driven investment opportunities, especially among SMEs and the agricultural sector.
In line with Vision 2030, this was to be achieved through attraction of at least three new retailers with more than 10 stores each in the Kenyan economy.
Despite the increasing cash crunch among some of the major retailers, whose shops control about 30 per cent of proceeds, the retail sector is still vibrant with foreign direct investment increasing in the last three years.
Armed with cash and international exposure, there is growing hope the new players could help turn around the sector which has been bossed by local retailers some of whom are now suffering a cash crunch.
The local firms have seen strong growth in the retailing market largely as a result of prevailing strong brand heritage developed through strong advertising and long-term presence in the market as well as having a wide footprint, with their outlets enjoying countrywide coverage.
They were able to maintain market share on account of product pricing, offers, well-stocked outlets and use of loyalty schemes but this could change drastically as new brands dig in.
The landscape is slowly changing as the retail market witnesses increased penetration by international businesses such as Massmart Holdings, Game, Carrefour and Botswana’s Choppies.
These brands are responding to a growing demand for quality international brands as a result of high consumer awareness and exposure. Banking on Kenya’s changing shopping culture among the urban consumers as a result of busier lifestyles and higher spending capacity, the new entrants expect to help meet the demands of the market.
Fortunately, for the new players they come with strict supplier agreements underlining a shift from an era where little regard was put on agreements.
Refusal by some retailers to put essential terms in writing have made it more difficult to establish the intent of parties and to identify their rights and obligations under the contract. “Some retailers refuse or avoid putting essential terms in writing.
This makes it more difficult to establish the intent of the parties and to identify their rights and obligations under the contract,” according to an industry study conducted late last year.
Meanwhile, Kenya is working on the road map towards the development of a framework on ‘Retail Trade Sector Prompt Payment Regulation’ and ‘Retail Trade Sector Code of Practice’ to take care of the challenges that the sector has been facing.
Retailers, suppliers and manufacturers have also recommended an industry-driven regulation geared towards stimulating development of the sector.
A number of tasks are proposed leading to the development of the regulation among them; that State Department of Trade initiates process of formulating the regulation by exploring the legislative framework on which to anchor it.
Suppliers, manufacturers and retailers also need to be facilitated to develop content for the regulation to take on board the benchmarks for prompt payment.