Supermarket foreclosures not a sign of a failing economy

Aug 18, 2017

Surprisingly, nothing is wrong. What is at hand is just market shocks that characterise market dynamism.

By Ezra Rubanda

It is sad that the list of supermarkets succumbing to business foreclosures in Uganda keeps growing; from international brands like Metro Cash and Carry, Shoprite, Uchumi, to Nakumatt.

Of course misery is equally shared by numerous domestic small brand supermarkets that just exit through back doors without much publicity.

The centripetal concern to all parties; supermarket managers, customers, government authorities and business analysists is unearthing what could be going wrong.

Surprisingly, nothing is wrong. What is at hand is just market shocks that characterise market dynamism. Since 2008 to about 2012, Uganda's economy witnessed liquidity bubbles.

Lots of money came in through South Sudan, investment abroad, business boom and increased direct- project donor support.

The excess liquidity translated into induced disposable income and the market sent misleading signals that, like other business strategists, merchants of supermarkets interpreted for middle income status to have arrived for Uganda.

Now that the liquidity source has gradually tightened, the general situation of the economy is in transit to normality by smoothening back to equilibrium where purchasing power is a function of Growth National Product (GNP) in real terms.

Another factor directly crowding out purchasing power, especially for public sector earners is public sector improvement in financial controls and accountability systems witnessed in the last couple of years. The introduction of ICT based accounting and procurement systems may have not yet fully arrived to end public sector corruption and misuse of public funds, but at least reasonable credit is worth apportioning.

Again, with increasing economic hardships and financial literacy, income earners are gradually shifting expenditure priorities from luxurious consumption to saving and investment. Bars are closing too and the real estate sector is worse off.

From intrasector perspective, demise of supermarket model of business in Uganda could be attributed to forces of allocative inefficiency on one hand and competitive efficiency on the other.

All these market turbulences are not necessarily indicators of a declining economy, but one on the course of self-reliant stabilisation.

In countries where supermarket models have worked, the regulatory function on spatial and physical planning is simply effective.

Supermarkets and malls are planned and licensed to serve a given residential area. In contrast, Ugandan urban sectors are randomly mixed up. There can be a commercial entity at any corner of the city. Licensed or not, these shops are easily accessible.

Supermarkets shrive better in monopolistic kind of market structure where they can afford to create price collusions among themselves in order to keep businesses a float. The case of Uganda is different. It is noted that when these international chains were coming in, their competitor analysis simply focused on the strategy of each other. Like ‘David' to ‘Goliath' liberalisation has subjected them to hidden competition from unknown, non-anticipated informal sector nonentities.

At any pole of the globe, food constitutes the most insatiable expense of each household's budget.

In economies where imported food supplies have longer time lags, customers are always compelled to shop in bulk for keeps which make supermarkets get sizeable gross each time a single customer swipes a credit card. In contrast, Uganda is featured with food markets that offer fresh food in piecemeal quantities at all time from open markets available around all city suburbs.

Food items in these daily markets are devoid of secondary costs of refrigeration, packaging and branding, which makes them competitively cheaper compared to supermarket stalls.

The merchandise supplied through Kikuubo to local roadside and front yard shops in residential areas is conveniently accessible and clients leverage on routine interaction to build credit relationships with shop attendants. This has negated supermarkets to a source of products that are not traded elsewhere in the food markets or retail shops.

Unfortunately, such referral niche is so infrequent to sustain the gigantic brands these ‘super' markets wish to be known of. In order to survive management of these staggering supermarkets have been forced to convert payables to local suppliers into investment capital and payment of taxes.

Subsequently, the perception of the whole model is swaying down the drain because to a section of local suppliers in the extreme of their emotions have labeled supermarkets an organised syndicate for cheating local suppliers.

All these market turbulences are not necessarily indicators of a declining economy, but one on the course of self-reliant stabilisation. Entities whose business plan is well aligned to realistic parameters will survive, grow and succeed.

Those currently on the floor only need to rethink otherwise the populous Ugandan market is still open at large for grabs.

The writer is the head of policy, planning and business development at the Uganda National Chamber of Commerce and Industry

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