Nairobi Securities Exchange stock:
- Exit of Ukwala will shift brand loyalty to Uchumi.
The gain in Uchumi Supermarket Ltd (NSE:UCHM) shares came only a day after Choppies Enterprises announced that it had acquired Ukwala supermarkets. The acquisition involves the takeover of three Ukwala stores in Nairobi, four in Kisumu and one store in Bungoma. The aggressive manner in which Choppies has pursued Ukawal deal amid adversity and the resulting consolidation in Kenya’s retail industry appeared to have created appetite for Uchumi shares. Investors seemed anticipate better times ahead for the retailer after it completes its debt restructuring and brings a strategic investor on board.
Converting Sh1.8 billion debt to equity
Uchumi is in the process of negotiating with some of its supplies to convert about Sh1.8 billion it owes them into equity. The retailer is also seeking a strategic investor who will inject about Sh3.2 billion into the business, thus providing a much-needed financial lifeline to help the retailer get back on its feet.
Why Choppies-Ukwala deal is a positive signal
For Uchumi investors, the fact that Choppies waited patiently for more than a year to seal the buyout deal with Ukawal goes a long way to show that international players put a high premium on Kenya’s retail industry. If that is the case, there is no reason Uchumi as a homegrown brand should not do better in the market once it puts its house in order.
Choppies, a Botswana retail operator, is not the only international retailer jostling for a slice of the Kenyan retail market. Carrefour, a French retailer, LC Waikiki, a Turkish fashion retailer and South African Massmart are the other foreign retailers trying to expand in Kenya.
Can Uchumi benefit from brand loyalty?
Besides the signal of opportunity in Kenyan retail market as indicated by foreign stores seeking to expand in the country, Uchumi Supermarket Ltd (NSE:UCHM) investors also appear to bet on the retailer benefiting from Kenyan brand loyalty. The investors appear to hope that after Ukawal exits the scene, shoppers with unwavering loyalty to Kenyan legacy brands will flow to Uchumi.
Nevertheless, the entry of more foreign players with perhaps better retail strategies into the Kenyan market could increase competition and potentially complicate Uchumi Supermarket Ltd (NSE:UCHM)’s recovery.
Nairobi Securities Exchange stock:
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