Tuskys’ bad case gives insight in collapse of other retailers in East Africa

Stephen Mukuha, one of the siblings at the heart of Tuskys Supermarket’s operations for the last four decades, has owned up to the mistakes that have brought the retail chain to its knees.
Mukuha, who owns a 17.5 per cent stake in the business, has revealed how in the last few months he had “broken down” and expressed remorse at how close the siblings had come to losing the grip on the family jewel.
“There’s a prayer I prayed many years ago that Tuskys would not be sold to foreigners, that Tuskys will be ours forever. We wanted to prove we can also do retail like others. It is a big thing for us to have Tuskys run by locals… regardless of colour,” said an emotional Mukuha.
Mukuha was speaking at the Greenspan Mall in Nairobi’s Doonholm where Tuskys started the process of revamping its business after a tough last couple of months that saw some suppliers pull their products off the shelves due to delayed payments.
Mukuha, who started working at the supermarket straight from high school, said he owned up to the failure of the business “100 per cent”.
“I own everything that has happened in this organisation… I own that 100 per cent; the success of this organisation is for us all, but the failure is mine, we are going to make it good because we are committed as a family,” he said.
Mukuha said relationships with landlords, banks, employees and other stakeholders had turned sour when trouble started, but was glad they had been able to win them back.
“We want to pay suppliers on time, we want to go back to where we used to call our customers to come and pick their cheques and they’d refuse,” said Mukuha.
The retailer, which has over has over 50 branches, has been in a restructuring process in the last five years, seeking to separate ownership and management. Tuskys is a wholly Kenyan, privately held company owned by seven children of Joram Kamau, the founder of the business who died in 2002.
It had also set sight on listing at the Nairobi Securities Exchange. This was, however, disrupted by fierce sibling wrangles that saw Githua ousted at some point.
Mukuha said the wrangles had since been settled, even though it was not an easy reconciliation. In 2016, Mukuha was taken to court by his brother Yusuf Mugweru for allegedly slapping him.
“It is in the public domain that the relationship between the shareholders is not good… we’ve been working very hard to make sure that every one of us speaks in on voice. We all have families, and we all know the challenges facing families,” said Mukuha.
“We are here because family, shareholders and suppliers have given us the mandate to bring Tuskys back.”
Mukuha and another brother, George Gachwe, had also been arraigned in court to answer charges of stealing 1.6 million Kenya shillings from the company.
Experts blame internal fraud, sibling rivalry, aggressive debt-fuelled expansion and fierce competition as some of the reasons for Tuskys’ present troubles.
Minutes of a July meeting obtained from Orakam Holdings Ltd – the investment vehicle for Tuskys – shows that the seven siblings were told that the retailer needs Sh2 billion to survive as it searches for a strategic investor.
This month, Tuskys revealed that it owed suppliers Sh6.2 billion and had signed an agreement to have the debts rescheduled for periods between eight and 24 months.
To woo back the jittery suppliers and fill up empty shelves, Tuskys opened a third-party escrow bank account linked to the supermarkets’ tills that will solely handle suppliers’ debt.
This is for suppliers who sign up to a portal that shows goods traded and how much each supplier earns based on their goods sold.
Tuskys Chairman Bernard Kahianyu said they planned to sign up 300 suppliers by the end of August, which would be 90 per cent of their trading partners.
Tuskys might have finally run out of luck. In several of its retail branches, the shelves are empty. And where they are not, behind the neat row of immaculately arranged products where you would usually see additional goods, there is only hollow space.
Just recently, the supermarket chain closed four branches – Digo Road in Mombasa, Kitale Mega, Tom Mboya in Nairobi and Mtwapa Chap Chap. Close to 100 jobs were lost as a result. In Kampala, Tuskys Supermarket, Makerere branch, located at Ham Towers opposite the Makerere University Main gate, also closed around the same time.
Tuskys, which only last year joined the Nairobi Securities Exchange (NSE) incubator programme for firms intending to list in the stock market, is now bedevilled by numerous troubles, including debts to suppliers amounting to Sh1.2 billion.
The Competition Authority of Kenya (CAK) has for a while had the beleaguered retailer in its radar as each passing day seems to take it closer to its possible deathbed.
Tuskys is Kenya’s second-largest supermarket chain, having been overtaken by Naivas, and once it secures an investor, it will mark the end of family-owned top-tier retailers in the country.
How Tuskys started
Tuskys traces its roots to Nakuru’s Rongai area where it was started as a small outfit by Joram Kamau, Mukuha’s father.
When Atulkumar Shah and his brother Vimal started selling mattresses in Nakuru town, they relied on dedicated employees to bring their retail dream to reality.
Of the workers, the most dedicated turned out to be Joram Kago, who worked at Nakuru Mattresses before it morphed into Nakumatt.
Mr Kago gave his blood and sweat for the Shah brothers, and when he decided to retire in 1985 his employer gave him a gift that many would consider strange. To award Mr Kago’s dedication, they opened for him a store in Rongai, Nakuru, which he named Magic Super Store. While most employers would loathe a former worker setting up a competing entity, the Shah brothers ensured that Mr Kago’s Magic Super Store was stocked and well-managed. In fact, the Shah brothers would give him goods on credit – just to make sure the old man thrived.
Because of his past experience, Mr Kago moved to Pandit Nehru Street in Nakuru, and with the help of Nakuru Mattresses, he opened another store to compete with his former employer. Mr Kago knew the inside working of a supermarket and that is how he expanded to Nairobi’s Mfangano Street, where he opened Tusker Mattresses.
A legacy
It was a dream come true: a retirement plan fulfilled and a legacy rolled out.
Tusker Mattresses mirrored Nakuru Mattresses in many ways and the two grew side by side in Nairobi. While Nakumatt, as Nakuru Mattresses was later named, adopted the elephant as its logo, Mr Kago’s outfit picked the Big Five, with the tusk as part of the logo. His vision was to run it as a family business.

And soon, a cut-throat battle started between the two and when Nakumatt had 32 branches, Tuskys had 30. When Nakumatt grew to 64, Tuskys grew to 60.
Both retailers hid loss-making ventures by chest-thumping, failed to pay billions in suppliers’ debts, got away with tax evasion and money laundering links at the collapsed Charterhouse Bank, and went into aggressive expansion drives using money they didn’t have.
As Nakumatt reported a Sh70 billion turnover, Tuskys boasted Sh40 billion. They were the top two giants and both took advantage of Uchumi’s perennial troubles to climb to the top.
Nakumatt ventured into three other East African countries (Uganda, Tanzania and Rwanda), while Tuskys went into Uganda with plans to expand to the other two.
Even after Mr Kago died in 2002, Tuskys remained just a few steps behind Nakumatt. It was the second-largest retail chain.
Even with death, Nakumatt was first, and Tuskys is now closely following behind. If Mr Kago’s scions fail to pick one out of the 10 foreign investors that have shown interest in buying the supermarket, then Tuskys will be as good as dead.
Mr Kago’s death would expose to the world that the patriarch was the glue that held the family together, as five of his children would go into a bitter war for control of the company.
This rivalry has been one of the main reasons why Tuskys’ owners are unable to sit down and come up with strategies that may rescue their father’s dream from the jaws of death.
On one side sits Yusuf Mugweru and on the other are Stephen Mukuha, Samuel Gatei, John Kago and George Gachwe. They don’t like each other. Samuel, John, George and Stephen believe their brother is stubborn and is trying to take control of the firm’s management.
Yusuf insists his brothers have deliberately locked him out of company affairs to hide dirty deeds, including embezzlement.
A reason the company survived this long is because the Office of the Attorney-General is yet to issue guidelines on how shareholders can wind up a company under the Insolvency Act of 2015.
When National Assembly passed the Insolvency Act into law, the Attorney-General’s office was supposed to issue guidelines on how to commence winding up proceedings, which can usually be done through two ways: by shareholders or by creditors. Then Attorney General Githu Muigai only published guidelines on winding up by creditors.
Current AG Paul Kihara Kariuki has been in office for two years, and is yet to publish guidelines on how shareholders can start winding up proceedings.
Since 2015, Yusuf has been waiting for the guidelines to be published, so that he can file a motion to wind up Tuskys.
10 foreign-owned private equity funds have expressed interest to buy out Tuskys, but all have one condition: that all siblings must exit the company.
The potential buyers are not relishing partnering with Joram’s family as they could become the centre of nasty sibling wars that risk burning their investment.
“The problem with Tusker Mattresses Limited is the manner in which it is run by a couple of directors to the exclusion of others. At this point in time Yusuf is unaware of any investor that has come forward.
“And in typical fashion, they’ll confront him at the last moment and expect him to agree. Which of course he will not,” Yusuf said of the plans to bring on board investors.
The fourth born insists that until he is shown Tuskys’ books of accounts and told in detail about the Sh1.6 billion allegedly stolen in 2012, he will not consent to the deal.
The sibling rivalry played out again in 2017 when Stephen, John and George resolved to rescue Nakumatt by injecting Sh3 billion into the now collapsed retailer. Yusuf was left out of the talks and he opposed the move, which the Competition Authority was eventually unable to allow, owing to the boardroom wars.
If Tuskys is unable to get out of the ICU, the retail chain risks laying off its over 6,000 employees at a time the Covid-19 pandemic is ravaging the economy.
But even if the siblings manage to seal a deal, they will have to kiss goodbye to the family’s time at the retail chain. As they will have to sell all their shares, their father’s legacy will come to an end.
In the recent past, other huge retailers in East Africa have also closed shop due to economic hardships
Nakumatt, with over 60 stores across the region and annual revenues of $700 million, is by far the largest and most controversial of the surprising collapse. A month after closing down two outlets in Nairobi, troubled regional retail chain Nakumatt closed three of its stores in Uganda that include Acacia mall in Kololo, Village mall in Bugolobi, and Victoria mall in Entebbe.
Another retail store is reviewing its interests in East African market. Shoprite Holdings Ltd, Africa’s largest consumer goods retailer, is evaluating its operations in East Africa as part of a wider plan to exit markets that have proved to be unprofitable.
The South African-based retail giant which has operations in 14 African countries said in its 2019 annual report that several markets have been under performing including Mauritius, where it closed its operations last year due to continued non-profitability.
PEP, another South African clothes retailer has cut prices by 30 per cent as it plans to exit the Uganda market. Low-cost clothing retailer Pep Stores set up in six African markets. Pep Stores has closed the last of its 20 stores in Zimbabwe, ending a 20-year presence in the country.
According to PEP Group of Companies country general manager, Mr Liaan Max Scholtes, adverse market conditions in the retail industry have resulted in severe pressure on the Pep Africa business, necessitating consolidation of the business over recent years.
Metro Cash and Carry (U) Limited and Quick Save Stores operations also didn’t last long enough despite being some of the local market pioneers in retail chain business in Uganda. They were closed in 2007.
Uchumi closed shop in 2015 after failing to become economically viable in Uganda and Tanzania. Uchumi’s operations had started faulting through its persistent failures to pay rent, utility bills and suppliers.