Cover Story
“It is expected that over time,
founders develop sentimental
attachment to their business, and
it is that passion that catapults the
businesses to success.”
meets the eye, and the bulk of the problems stem directly
from the management.
Despite growing in size and stature over the years,
executive management of the business remained tightly a
close family affair. Its rapid expansion has been described
as overzealous and on the other hand has been perceived
as the reason the business was able to stay afloat for a bit
longer.
Speaking at the East Africa Property Summits 2015
held in Nairobi, Thiagarajan Ramamurthy the then
Nakumatt regional director for strategy and operations
dispelled the argument that the entry of foreign retail
outlets posed a threat to the retailer since Nakumatt’s
demographic reach was just 10 percent of the entire
market, of which he estimated to be worth USD$ 7 billion.
Will Nakumatt emerge from the rubble alive?
Despite, the catalogue of unfortunate events that
have befallen the mega retailer, the prospects in the local
retail sector have never been brighter and may be the
reason why the Shah family has obstinately maintained a
tight grip on the business hoping for future prospects of
growth.
In a deal that probably signifies the first step
towards the revival of Nakumatt, the retail franchise has
entered strategic partnership with Tuskys Supermarkets
and leveraging on the latter’s goodwill with suppliers,
Nakumatt’s shelves are restocking. Already Nakumatt
Ukay and Junction Mall as at beginning of November could
resume full operations.
However, though specifics of the merger remain
scanty, this is a short term solution and the Shah family
still has the large KSh 18 billion cloud looming above
them. One of the known avenues for such a predicament
may require the Shah family to secede control of the
business and trade the debt for equity. However, Mr.
Shah has remained adamant and he clenches tightly to
the seemingly sinking ship, brimming with hope that a
solution is within sight.
Peter Muga, family business expert at the Institute
for Family Business says that patriarchs of family
businesses find it hard to cede control of their businesses,
and many only allow it as a measure of last resort.
“It is expected that over time, founders develop
sentimental attachment to their business, and it is that
passion that catapults the businesses to success,” he
adds.
Pradeep Praunrana, CEO Athi River Mining got
emotional when it was clear that the only way out for
the business was to cede control of the family owned
business. Similar to Atul Shah, Pradeep’s business
expansion ambitions came at a cost, as the business
accrued unsustainable debt an d in 2016, a KSh 14 billion
capital injection from CDC Group, meant the family
relinquished control of the business.
Managing Director of Sagaci Research, Julien
Garcier says that for family owned businesses that have
burgeoned into mega franchises, it is a strategic decision
to open the business to external specialists, who will
provide value and the expertise need to contain the
growth.
“From my perspective it remains key that the local
retailers invest in knowledge and expertise to help them
compete in the present environment, especially now with
increased entry of the international retailers jostling for a
share of the market,” says Mr. Garcier.
He argues that Nakumatt’s misfortune could impact
other locally based retailers in terms of how suppliers,
landlords and other stakeholders perceive them.
Potentially it could trigger a confidence crisis. And with
the ongoing influx of international brands like Carrefour,
Shoprite, Game providing a much welcome alternative at
the expense of homegrown retailers.
Nakumatt Smart points
Nakumatt arguably boasts of one of the most
comprehensive and efficient customer incentive systems.
For instance, the Nakumatt Global card which doubles
as both the loyalty and prepaid card allows shoppers the
convenience of shopping within Kenya and even abroad.
“The card allows loading of up to 6 currencies which
will still earn the customer loyalty points at no cost to the
merchant even when a purchase is made from abroad,”
said Mr. Ramamurthy.
However in light of recent events, the rewarding
system has been rendered dysfunctional which has left
customers puzzled.
“Loyalty points redemption is not available under
present circumstances but rest assured that once the
retailer resumes normal operations, the customers will
NOVEMBER 2017 • THINK BUSINESS | 27