Why foreign supermarkets close shop in Tanzania

The decision by some big multinational supermarket chains in the country to close shop citing ‘bad business’ has been attributed to growing trade competition in big cities and ’indifference’ by the majority of buyers towards making purchases there.

Opinion is, however, divided on the question whether the shopping culture of most Tanzanians in buying from the supermarkets has grown or not in the last few years.

In interviews with the ‘Daily News’ in Dar es Salaam yesterday, several members of the public and local business analysts said much as the withdrawal of such big supermarkets as Uchumi, Shoprite and Games from the local market could have been caused by financial constraints by their parent companies outside Tanzania.

Yet some interviewees opined that the closure could have been caused by their inability to face up to competition from other big local businesses. The Executive Secretary of Tanzania National Business Council (TNBC), Mr Raymond Mbilinyi, cited failure to make returns on investments may have made the retail supermarkets close.

He added, however, that the fact that other supermarkets, like the Shoppers Plaza, Shrijees and Imalaseko, thrive was testimony that some chains decided to close after failing to stand up to local competition. “It’s a pure business play here. Any business person or investor looks at such aspects as returns on investment and the business environment. So when they invest, they want to see if they can get returns on what they have invested.

“For example, the Imalaseko Supermarkets Group is run by a local investor. They probably understand the local market context better. But in most cases, both local and foreign investors look at the same factors, hinging on profit,” he noted.

The Uchumi Supermarkets chain exited the Tanzania market late last month in a drastic reorganisation to stop financial bleeding.

Uchumi’s Chief Executive, Mr Julius Kipng'etich, said the company's board had decided to close down its regional units to speed up the process of stabilising its Kenyan operations.

The South African chain of supermarkets, Shoprite, disbanded their stores in Tanzania mid-last year, bringing to an end their 13 years’ operations in the country.

Mr Mbilinyi also looked that issue into a competition point of view, pointing out that in some cases, the withdrawal of investors could also have been influenced by competition.

“In the past, we did not have the practice or tradition of buying daily personal or family needs from malls, but we have seen this grow.

So when an investor comes, they grapple with such competition, they have to fight to ensure they give their customers value for money.

I am not a spokesperson of the Uchumi Chain; but when we look at where they invested - in Uganda and Tanzania - they faced stiff competition.

So they realised that even in the face of their earlier expansion move, they needed a strategy to first withhold and recreate themselves,” explained Mr Mbilinyi.

He noted that it is important for investors to understand the pattern of where they are investing, understand the buying patterns of the population and look at the model they have and whether it fits where they want to invest.

However, according to Mr Mbilinyi, apart from those which have closed; there are some supermarkets which are thriving, including Shoppers, who have opened chains in various places in Dar es Salaam, adding that such supermarkets’ business is growing. “Our role is to secure the business environment.

And for now, we are looking at local content and that is the same issue all supermarkets should look at. Supermarkets should display a lot of supplies produced locally while local suppliers also ensure standards in what they produce,” he said.

Mr Mbilinyi said that although there are also some perceptions that goods in supermarkets were more expensive, that has largely changed.

“You can go to Mlimani City and you will find really ordinary people shopping from Game and Nakumat supermarkets. Many now understand that supermarkets may in fact be better because they are both wholesellers and retailers since they enjoy the advantage of economies of scale,”said Mr Mbilinyi.

A lecturer at the Open University of Tanzania (OUT), Mr Emmanuel Mallya, said while there were regulators for other sectors, there has been none for retailers or supermarkets to follow up on what influences such businesses to withdraw and follow up on the issues to the end.

He, however, said the local economy is not yet big enough to build a consumer glass who fully depend on supermarket purchases. “Many buyers in supermarkets are meant to be middle class, so the government should build that class so as to strengthen a base of consumer class. The consumption is still low,” he said.

An economist, Mr Hussein Kamote said one of the challenges that obstruct some supermarkets from growing is the young culture of Tanzanians in buying from supermarkets.

“So in order for the supermarkets to thrive, people should be able to buy in large quantities, so that they don’t miss the critical mass of buyers.We don’t yet have a significant middle class to provide a really reliable market to support the supermarkets.

That low class with low purchasing power should change,” he said. He also said the structure of the city of Dar es Salaam contributed to people not buying from supermarkets and instead settle for neighbourhood shops or markets.

“Many supermarkets are in towns, yet the structure of Dar es Salaam is such that after office work every day, people head to the suburbs, leaving supermarkets behind in town and go to buy in small shops near their homes,” said Mr Kamote.

But the economist also warned against the culture of supermarkets which procure significant part of their goods from outside Tanzania, thus not fully resonating with local buyers.

“This makes buyers feel detached,” he said. However, he noted that supermarkets also usually have quality high end staff because they are formal and follow all regulations including tax payments, as opposed to some community shops, thus making some people prefer to buy in local shops at cheaper prices.

A lecturer at OUT, Mr Hamad Salim, said some supermarkets withdraw due to conflicts between local and foreign staff.

“We have heard cases where supermarkets have local and foreign staff and that local staff want higher pay while employers end up settling for foreign staff who are ready for lower pay. This creates unnecessary labour conflicts,” he said.
Source: Daily News, reported from Dar es Salaam, Tanzania
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