KENYA – Unga Group’s bakery subsidiary Ennsvalley has moved to cut costs by shutting more than five of its in-store bakeries in favor of supplies from its central commercial kitchen in Nairobi.
Ennsvalley said the closures were also necessitated by Nakumatt Supermarkets’ decision to renovate some of its outlets.
“This move is motivated by the need to consolidate certain business operations as the central bakery in Nairobi and Nakumatt’s intention to renovate the outlets,” the company said in a statement.
Ennsvalley added that it will continue to operate in-store bakeries at Nakumatt’s Mega, Galleria, Junction, Thika Road Mall and Village Market branches in Nairobi and Cinemax in Mombasa.
Consolidation of Ennsvalley contributed to a 51.8 per cent increase in Unga’s staff costs to Sh1.1 billion ($10.62m) in the year ended June 2016.
Unga said it would focus on operational efficiency at Ennsvalley besides product quality.
The miller invested in the bakery as part of its strategy to develop value-added businesses built on its key raw materials including wheat and maize.
Ennsvalley, for instance, buys baking flour from Unga, which faces increased competition in its traditional milling business.
The bakery’s range of breakfast products includes bread, cakes, doughnuts, cupcakes and cookies.
Reduction of in-store bakeries marks a reversal of the company’s recent expansion plan that included an agreement to operate Chandarana Supermarkets’ current and planned on-site bakeries.
Unga said the bakery’s revenues grew in the year ended June 2016 but did not disclose its profitability which was impacted by restructuring and investment in equipment.
Prior to its acquisition, Ennsvalley in 2014 reported a net profit of Sh25.3 million ($244.279) on revenues of Sh737.8 million ($7.12m) representing a margin of 3.4 per cent.
Unga disclosed that it reduced the amount it invested to acquire the 52 per cent stake in the bakery from NAS Holdings to Sh465.2 million ($4.49m) from the initial Sh541.6 million ($5.23m), citing subsequent changes in the VAT Act that are averse to the subsidiary’s business.
The listed miller had earlier said it was considering selling a minority interest in Ennsvalley in the short term and it remains to be seen whether such a transaction will be effected.