Uchumi, the blight on Chris Kirubi’s image as business leader
In On December 13, 2001, the Industrial and Commercial Development Corporation (ICDC) made a bold step in seconding Christopher John Kirubi to the Uchumi Supermarkets Ltd Board of Directors.
Mr Kirubi was coming in to fill the big shoes of successful decision makers like Suresh Shah, who had found himself at Uchumi in similar fashion.
Mr Shah was a revival expert and was tapped from the ICDC in 1980 after an attempt to have Italian firm Standa SPA run Uchumi resulted in massive losses over four years.
Employees turned into thieves and robbed the retailer blind. Mr Shah had turned Uchumi into a retail industry juggernaut.
By the time Mr Kirubi joined Uchumi in 2001, the retailer was doing more than Sh1 billion in turnover, raking in well over Sh150 million each year in profit, and had cash reserves of a similar amount.
Chris Kirubi leaves the High Court in Nairobi on October 21 2009 where he was charged jointly with 13 others with conspiring to defraud Uchumi Supermarkets Limited.
Mr Kirubi was appointed board chairman at Uchumi at a time he and the ICDC were significant shareholders, owing to the government’s divestment from the supermarket chain.
The hubris that came with nearly guaranteed profits, huge cash reserves and prime assets led Mr Kirubi into pushing for an expansion drive that sparked off Uchumi’s first collapse and a long receivership spell.
At first, Mr Kirubi’s policies worked, as the retailer’s turnover rose by more than Sh100 million to Sh1.3 billion in his first year as board chairman.
Also read: AG on the spot for halting Kirubi case
But the expansion drive that would last another two years came with extra operation costs, and auditors would later reveal that some branches were opened without proper feasibility studies or business plans.
Some of the stores opened turned out to be poor investments as there were no customers to buy the thousands of goods displayed on the shelves.
Company records were so poorly kept that auditors were unable to unravel who was stealing from Uchumi or how they were doing it.
Some of the goods being stocked did not make sense, like greeting and success cards worth more than Sh70 million that no customer wanted to buy.
In 2004, the retailer’s board of directors, led by Mr Kirubi, opted to sell one of Uchumi’s most valuable assets at one third of its value, and to a firm that has attracted controversy over the years.
On June 11, 2004 the Uchumi board resolved to sell a building in Nairobi’s city centre that housed the retailer’s Aga Khan Walk branch.
Allgate Ltd bought the building for Sh147 million, before leasing it back to Uchumi for Sh1.7 million a month. At the time, the building was worth nearly Sh500 million.
As Uchumi was in bad shape, the sale was a desperate move.
By 2005, Uchumi was broke, making losses and was unable to repay bank loans of more than Sh3.6 billion.
The culture of employees taking a five-finger discount on expensive items on shelves, and which almost collapsed the retailer in its early years, was back. Goods worth millions could not be accounted for.
And for the first time in nearly 30 years, suppliers were not getting paid on time for goods they supplied to the retailer.
Mr Kirubi and his team had brought down a success story that stood on a three-decade foundation.
Sensing collapse, Mr Kirubi and ICDC informed the public that Uchumi would be raising money through a rights issue – sale of new shares to raise capital – and the move was well received.
But as people were buying into Uchumi with the hope of reaping dividends, Mr Kirubi and ICDC were selling off some of their shares, an indication that they might have seen the end of the road and opted to cut their losses at the expense of gullible investors.
Uchumi raised Sh1.2 billion through the rights issue, but most of the money was channelled to the non-performing Uganda and Tanzania branches.
In June 2005, Mr Kirubi resigned from Uchumi Supermarkets Ltd, bringing to an end one of the retailer’s most difficult leadership eras.
South African John Masterten-Smith would take over from Mr Kirubi, albeit for only a year before the worst happened.
In June 2006 the supermarket chain still owed KCB and PTA banks Sh891 million and suppliers were breathing down Uchumi’s neck over unpaid invoices of more than Sh1.8 billion.
The two banks placed Uchumi in receivership, a move that cast the spot light on one of the few but spectacular failures in Mr Kirubi’s business life.
The government appeared intent on having someone pay for the collapse, and two years after Uchumi went into receivership, Mr Kirubi was charged in court alongside 13 others over the Aga Khan Walk building sale.
Lloyd Masika officials Amin Akbekali Manji and Shamash Habib Manji were also arraigned, as were Allgate Ltd directors Atul Raichand Shah and Deepak Kantilal.
They were accused of defrauding Uchumi Supermarkets Ltd, and 15 witnesses – mostly former Uchumi workers – were called in as witnesses.
Chief Magistrate Gilbert Mutembei acquitted all the accused by finding that Uchumi was not a parastatal hence the charge against the suspects was not capable of minting a conviction.
Mr Mutembei held that the prosecution should have withdrawn the case after the first two witnesses testified, as it was evident that the suit was heading nowhere. BY DAILY NATION
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