Why Kenya’s big supermarket chains are death traps for small businesses

Nakumatt branch at TRM shopping mall which closed doors this month

By Nick Thiong’o

About a decade ago, a lot of hope was placed on Kenya’s formal retail sector.

It was expected that the growth of the sector would be critical in creation of jobs, wealth and even ease the hustle of getting basic household items under a single roof as opposed to the situation then, where one had to shuffle from shop to shop looking for items and even then not guaranteed that they would find all they were looking for.

So much hope was placed on the industry that it was included as among the key economic pillars of the country’s development blueprint Vision 2030.

Fast forward to 2017 and the story of the retail sector is one filled with frustration and the sector has left a clear trail of destruction. While in the years that followed the launch of the Vision 2030 saw a growth in the sector, it has been on a steady decline since 2013. The sector grew to account for 11.2 per cent of Kenya’s Gross Domestic Product (GDP) in 2012, this has come down to five per cent in 2016, the lowest in more than a decade.

The decline is evident in the retail stores that major supermarkets have closed, lay off of employees, defaulting on rental payments and the non-payment of money owed to suppliers, which has had the effect of seeing some suppliers close shop.


A new report commissioned by the Ministry of Industrialisations demonstrates how the retail industry is crumbling, with the owners lacking any coherent strategy to salvage their investments.

The Government is equally at a loss on how to save the sector, which is largely privately owned, with only one retailer –Uchumi – being Government owned and where state has twice pumped in taxpayer money to resuscitate it.

Thousands of people working in retail are now staring at job losses as major retailers look to cut costs. Many property developers are going for months without rental payments from supermarkets.


The biggest travesty has however been on small businesses that are owed what add up to hundreds of millions of shillings by the supermarkets.

So hard hit are the numerous small and medium companies that they are now facing an uncertain future as supermarkets withhold payments for goods and services supplied to retailers.

In the report titled Study on Kenya Retail Sector Prompt Payment, the suppliers say they are owed Sh40 billion by retailers denying them working capital, forcing them to borrow to finance operations and at times pay salaries and service debts to financiers.

Retailers however say money overdue to suppliers amounts to less than Sh1 billion and observes that Sh40 billion entails short and long term financing instruments, which are still in service as no defaults have been reported by any financier.


The Ministry of Industrialisation estimates that the money owed to suppliers could be more than the Sh40 billion and has cast doubt as to whether the industry will live to up to the Vision 2030 expectations. This is especially considering that other than its own decline, major supermarkets are presiding over the death of other enterprises, particularly SMEs.

Uchumi Hyper, Ngong
Uchumi Hyper, Ngong

“The Government places the amount owed to suppliers at an even higher figure than Sh40 billion given disclosures obtained from troubled retailers whom the government has engaged in trying to understand their challenges,” said the report.

“Despite the conflicting numbers of the amount owed, all parties are in agreement that late payment is a challenge that requires urgent action.”

“The Government is therefore concerned by the level of outstanding debt in the retail sector because of the threat it poses to the Vision 2030 goal of promoting a vibrant retail sector as an outlet of agricultural and manufactured products.”


Of the Sh1 billion overdue payments owed to suppliers, Sh700 million is being held by five top retailers. According to the report, the two most troubled supermarkets, Nakumatt and Uchumi, account for the largest share of the debt 73 per cent.

A number of suppliers owed by the supermarkets are being forced to scale down operations, at best, while at worst, they are being forced to close shop. Either of the two scenarios has resulted in the loss of jobs, directly and indirectly, and the quashing of the dreams of many entrepreneurs, who are being forced to shut down their companies for failure by retailers to pay money owed to these business for goods and services supplied.


One such company is Tharaka Honey Bee Products that closed down in March this year following late payments from retailers. The company could not keep up payments to its creditors or pay employees on time. The family business, which produced honey and honey products as well as beverages, was employing 20 people at its Ruai based facility as well as providing indirect employment to bee keepers in Tharaka Nithi, Meru, Baringo and West Pokot Counties.

Other than late payments from the supermarkets, the firm was also being short changed, with retailers asking a margin that was too high for the stocking Tharaka Honey Bee Products on their shelves.

“Besides, the company also saw its profitability being squeezed out by retailers who were asking for a margin of 25 per cent on their asking price,”

“The company struggled to remain afloat through cash sale to other outlets and also scaling down production. In March 2017, decision to close the company was arrived after the directors realised that they were being forced to borrow to pay for workers’ salaries. They opted to stop production and instead exhaust the remaining stock while awaiting their payments from retailers without having to incur recurrent costs of running the company.”


Natural Salt Manufacturers, another SME is facing a similar fate. The firm produces salt, for both human and animal consumption using raw salt sourced from Himalaya in Pakistan. It had curved a niche market for its products and doing fairly well but then retailers started issuing the firm with bouncing cheques.

The report details how despite its payments being held by the retailers the business was able to secure financing to import a batch of raw salt with expectations that it would have been paid by the retailers by the time the salt arrived in Mombasa. This was however not to be and it had no money to clear the cargo, which resulted in additional charges as the vessel waited at the port for the firm to source for more funds to clear it at Mombasa.

The firm has since halted production of some of its products and laid off workers in a bid to stay afloat.

“The company… relocated from a prime address to a new upcoming residential area off Thika Road as a strategy of coping with cash flow challenges associated with late payment,” said the report.

Lay off

“As a result the company had to lay off its workers pending resumption of the production… the company relies on livestock (rock) salt which is paid on cash, to have its doors still open.”

The firm’s owners told the authors of the report that the Government needs “to act and act very fast in order to ensure that once a supplier delivers goods, they are paid by the agreed date. This is the only saviour to these dreams and jobs created by this company”.

There are other numerous firms that have had to close down due to late or even non-payment for goods and services supplied to supermarkets. Other larger firms that might be in a position to absorb such shocks are also reeling as they have to go for credit to sustain operations. Such facilities as bank loans charge interest, something they do not get from retailers for late payments.

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