Some foreign supermarkets have been unable to drive sales to pay suppliers and consequently exited the market In the past few years, Uganda has witnessed a rapid increase of supermarkets in the urban centres and suburbs characterized by a change from stores trading in luxurious goods to supermarket brands stocked with fast-moving consumer goods (FMCG).
For convenience, this article adopts the word ‘supermarketisation’ to describe the rapid rise of supermarkets or large retail stores in the country. Examples of these supermarkets brands include; Shoprite, Capital shoppers, Kenjoy, Quality among others.
This rise in the supermaketization trend can be attributed to the favourable investment climate, an increase in urbanisation, the rise of a middle class and changes in tastes and preferences amongst urban consumers. Supermarkets are also perceived to offer better product quality, safety, variety and customer service which in turn provides opportunities for producers and suppliers to expand their market and profits.
Research shows that, while this may be the case, it poses challenges for the traditional retailers who risk being excluded from the market. This notion is based on the idea of economies of scale where large stores are able to out-compete the smaller retailers because they can attain efficiency by vertically integrating their channels of distribution.
However, some foreign supermarkets in Uganda such as Uchumi, Nakumatt, and Tuskys have been unable to drive sales to pay suppliers and consequently exited the market whereas their local counterparts still trade on. Which shows that suppliers are vital towards the survival of a market in terms of the products they provide and the timeliness of the delivery of the products, otherwise customers can move to rival supermarkets where product quality and availability is guaranteed.
Perhaps one can argue that the local supermarkets are able to understand local tastes and habits and tailor their merchandise to the needs of local consumers which the foreign supermarkets may not accommodate. There is also the possibility that the foreign supermarkets are subjected to many costly regulatory requirements like providing NSSF for workers and taxation, which renders them uncompetitive relative to their local counterparts.
Regardless of the reason, however, competition in this instance is price-driven whereby supermarkets change the retail setting from the urban centres to the urban peripheries to exploit lower rents. In turn, consumer traffic is diverted from small retailers in urban centres. This trend is evident in developed countries but is yet to come to Uganda.
Research identifies […]
