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Tuskys abandons bid to lease brand amid struggle for survival

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Tuskys abandons bid to lease brand amid struggle for survival


Tuskys

A Tuskys outlet in a Nairobi mall. FILE PHOTO | NMG

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Summary

  • The franchise was to allow the retailer to keep its brand alive in addition to generating fees from the associations.
  • CAK had agreed to exempt the franchise agreement from regulations prohibiting restrictive business practices by companies in the same industry.
  • The retailer has lost most of its stores due to non-payment of debt to owners and suppliers.

Tuskys, a struggling supermarket chain, has dropped the bid to lease its brand through a franchise after losing most of its stores due to non-payment of debt to owners and suppliers.

The retailer had received approval from the Competition Authority of Kenya (CAK) to allow several independent retailers to trade using its brand at a fee following delays in closing a Sh2.1 billion financial deal with a mysterious foreign investor. .

People familiar with the franchise deal say it has collapsed as the retailer struggles to stay afloat amid mounting debts from banks and suppliers.

The franchise was to allow the retailer to keep its brand alive in addition to generating fees from the associations.

It also offered the cash-strapped Tuskys, whose branches have shrunk from more than 60 to fewer than seven, a chance to bounce back in the future should they get deep-pocketed investors.

The move followed a limited franchise strategy by rival Uchumi Supermarkets, which also went through tough times.

Tuskys has rejected a creditor court petition requiring it to disclose the foreign investor seeking to bail it out more than a year after the supermarket chain announced a financing agreement.

“Comments from the supermarket indicated that Tuskys had abandoned the franchise agreement,” said a source, who asked not to be named on an issue they are not authorized to discuss publicly.

The CAK had agreed to exempt the franchise agreement from regulations prohibiting restrictive business practices by companies in the same industry.

Tuskys was betting that his brand would be strong enough to attract business partners who would supply the stores and pay the employees and rent.

The retailer has been losing employees, customers and suppliers as its cash flow problem worsened amid shortages that have left it with empty shelves and led to the closure of dozens of outlets.

In its heyday, the retailer was an acquisition target for global giants seeking to establish themselves in East Africa like Walmart.

The investor who intends to provide Tuskys with the $ 2 billion loan seeks to guarantee the debt using all the shares of the supermarket operator, putting existing shareholders’ ownership at risk in the event of default.

The anonymous investor, based in the Cayman Islands, a tax haven, was ready to disburse the funds, but sought approval of the deal from Tuskys shareholders, including the allocation of the shares.

A successful franchise strategy was expected to keep the retailer’s brand alive, giving it time to raise the funds necessary to rebuild its national network.

Tuskys had the option to buy from the franchisees in the future and regain full ownership of the business.

The franchise model faces several challenges in the Kenyan retail market, including meeting standards such as customer experience, product types and variety.

The largest and most successful supermarkets are owned, operated and centrally coordinated by the same entities.

Such an ownership structure also offers advantages such as cost sharing, including marketing and logistics.

Tuskys, which was at one time the largest in the country by sales and branches after the collapse of Nakumatt Holdings, has closed many of its stores across the country, including in major cities like Mombasa and Kisumu.

Outlets closed by the company include Digo Road in Mombasa, Mtwapa in Kilifi and Tom Mboya Branch in Nairobi’s central business district.

Tuskys’ decline began with defaults on supplier debt, an issue that came to the attention of the CAK in April of last year. The regulator intervened, requiring the retailer to pay overdue debt, among other directives.

Rivals have taken advantage of its shrinkage to take up space in previously occupied branches. Naivas, for example, recently signed a lease with Greenspan Mall owner Ilam Fahari I-Reit.

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