Kune Food Closes Shop
The start-up was unable to secure additional funding
๐ Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a succinct summary of key capital markets and business news items from East Africa.This week, we cover Kune Food's collapse, the KES 84B fuel subsidy, and the persistent dollar shortage.
.First off, enjoy our weekly business news in memes brought to you by Mtalii Solutions:
Kune Food Closes Shop
Context: In December 2020, Kune Food entered the Kenyan market with a proposition to offer affordable and ready-to-eat quality meals to individuals, corporates, and retailers. The initial solution included owning and operating last-mile delivery, which was until placed under the scope of Uber Eats, Glovo, and Bolt Food.
Funding: In its pre-seed funding round in June 2021, led by VC firm Launch Africa Ventures, Kune Food raised $1M. A $3.5M funding seed round to ramp up operations and facilitate expansion beyond Kenya was in the works in the run-up to its collapse. The food startup had raised $1.45M, with Sidian Bank extending a $140K loan to fund Kuneโs factory.
Financials: In the three months to February 2022 after its official launch in Dec 2021, Kuneโs turnover grew twelve-fold to $37,000 from $3,000. As of March 30, Kune was delivering 600 meals per day at a 48% gross margin with a revenue run-rate of $650K. Some analysts have pointed out that the average meals per day are lower than expected. The overriding questions thus are:ย
Did Kune sell enough to sustain its size?ย
Were they on a path of product-market fit?
Hiring: Kune positioned itself as one of the hottest startups in the region. Even while on its death knell it, was hiring for a Director of Sales position. By all accounts, the organization was headcount heavy and attracted experienced talent. Safe to say that talent was not its Achilles heel. Possibly, OPEX was.ย
Expansion: In August 2021, Kune Food launched Kune Retail, which consisted of 6 microwavable meals costing $2.8. Expanding operations beyond Nairobi, developing new products, and targeting a presence in Sub-Saharan Africa from 2023 were in the startupโs growth pipeline before it ran out of funds to keep up operations.
"Since the beginning of the year, we sold more than 55,000 meals, acquired more than 6,000 individual customers and 100 corporate customers. But at $3 per meal, it just wasn't enough to sustain our growth. With the current economic downturn and investment markets tightening up, we were unable to raise our next round. Coupled with rising foodย deteriorating our margins, we just couldnโt keep going."
Kune Food Founder, Robin Reecht
Winding Up: With recourse including selling to a strategic buyer or fundraising out of the cards, Kune had no option other than to terminate its operations in Kenya 18 months after launch. Rising costs that crushed its margins and inflation made operations at Kune unsustainable.
โTomorrow we will have to close the company, we ran out of money completely. As you know we were supposed to receive an investment of KES 30 million from a French investor. Yesterday, I learned from that investor that they will not invest the money. [...] I spoke to 100 investors at least since the beginning of the year. I have exhausted my options. I am just not able anymore to raise money, itโs impossibleโ
Kune Food Founder, Robin Reecht
Conclusion: Startups anywhere are hard and given the unique nuances of Kenya and the ecosystem in East Africa, one could argue that starting up in the region could potentially be an uphill task. Exuding investor confidence and building a business in parallel requires a lot of introspection and understanding of market dynamics and consumer habits. The latter probably got lost in execution. Kune did, however, build a brand and unique culture. They were out there and got people talking They had the guts to do the impossible which is characteristic of entrepreneurship. They got on the wrong side of the risk curve but it's through such activities that creative disruption is nurtured and future value is built. We wish all of them well in their next innings.
For more details: Check out our Twitter thread:
KES 84B Fuel Subsidyย
Subsidy Matches Taxes: The government footed KES 21B for the fuel subsidy in May, an amount nearly equal to the KES 23B - 24B fuel taxes in the same month. Last week, the National Treasury said it was winding up the subsidy because of its fiscal unsustainability.
โWe collect in this country on taxes on fuel about Ksh.23 billion to Ksh.24 billion. Last month, we paid the oil industry Ksh.21 billion. This means you are pretty much getting your fuel tax-free in Kenya.ย [...] Something has to suffer. When you run a budget, when you have to do one thing, something else is going to suffer because you only have a fixed income. We as Kenyans have to recognize that we have reaped quite a big benefit in the last year on the low prices experienced.โ
Petroleum Principal Secretary, Andrew Kamau
KES 84B Subsidy: The Fuel Stabilization Mechanism has been allocated an additional KES 49.2B after President Uhuru Kenyatta signed the second Supplementary Budget to law this week. The subsidyโs allocation now grosses KES 84B across the two Supplementary Budgets in the financial year ending June 30.
Ghanaโs Fuel Shortage: Ghanaโs monthly fuel import bill jumped 80% from $250M in January to $450M in May on surging fuel prices. The high import bill has necessitated the expenditure of more dollars for fuel imports. The Bank of Ghana is looking unwilling to expend more dollars to import fuel, offering $100M a month at its foreign exchange auctions. Its foreign reserves are down 16% in 2022 to $8.34B and the Cedi is down 28.85% on a Year-To-Date basis.
Debt Markets
IMF Delays Disbursement: The IMF has delayed the approval of the third tranche of Kenyaโs 38-month $2.34B financing package to unlock a KES 27.8B ($244) funding line in the current financial year. With the close of the financial year less than a week away, approvals and subsequent withdrawals are likely to happen in the 2022/23 fiscal year.
KMRC MTN: Kenya Mortgage Refinance Company has said the second tranche of its KES 10.5B 7-year bond, whose target is KES 2.6B, will be issued in mid-2023. The first tranche was a KES 1.4B offering earlier this year which was oversubscribed by 480%, with received bids coming in at KES 8.1B.
Debt Ceiling: The Senate this week approved the increase of the debt ceiling from KES 9T to KES 10T, giving the National Treasury more headroom to borrow internally and externally. The development comes as Kenyaโs Eurobonds yields continue to trade at all-time high territory on investor concerns about Kenya's debt following comments on debt restructuring.
Treasury Bonds: In the last auction of the fiscal year ending June 30, the Central Bank of Kenya accepted bids worth KES 19.6B out of a KES 25B target. The average interest rates of the accepted bids were 13.942% and 11.766% for the fifteen-year and three-year reopened instruments.
T-Bill Yields Up: Yields on 91-day, 182-day, and 364-day Treasury bills increased by 0.088, 0.067, and 0.013 percentage points in last week's auction in an environment of rising interest rates in the financial markets.
Dollar Shortage or Demand-Supply Gap?
Itโs a gap!: Bankers have weighed in on the dollar shortage and have pointed out that market sentiment and the perception of a dollar shortage are to blame for the current situation with the US currency in the markets. This is in line with the position of the National Treasury and of the CBK on the matter.
"There is a perceived demand of dollars. Hence to the market, the demand for dollars looks more than what it is, creating a sentiment of lack of dollars. This has also seen auctioning to the highest bidder and the price of the dollar keeps rising because of that effect.โ
NCBA MD, John Gachora
More Hikes: The NCBA MD, who was recently re-elected as KBA Chairman, has also proposed more rate hikes by the CBK to neutralize the current dollar situation in the market. He said the hikes would make shilling-denominated assets more attractive and discourage the hoarding of dollars by market players:
โThe cure is to make holding Kenya shilling assets more valuable than the dollar. Interest rates in the US are rising, raising risks in emerging markets as witnessed in the ongoing capital reversal. We must make it more valuable to hold the Kenya shilling.ย We have a fair amount of imported inflation, our inflation is a bit linked to the dollar, so in addressing inflation by raising interest rates, we will also be indirectly addressing the dollar problem.โ
NCBA MD, John Gachora
Parallel Exchange?: Meanwhile in the markets, there are frustrations from manufacturers who canโt get access to dollars. The current dollar situation in the market has seen quotes for the currency widen by a margin of KES 10. In March, the pricing differential stood at KES 2.ย
Nigeriaโs Downgrade: Due to persistent foreign-exchange shortages in Africaโs largest economy, the MSCI is considering downgrading the MSCI Nigeria indexes to standalone market status from frontier market. Nigeria has been rationing dollars on account of lower oil income that contributes to about 90% of foreign exchange earnings.
What Else Happened This Week
โฝ Multichoice Wins: Multichoice has won a suit it filed in 2019 that sought to compel ISPs, including Safaricom and Jamii Telecom Limited, to block live sports streaming sites on their networks.
๐ NSE Selloff: The Nairobi All Share Index has been on an accelerated slump to touch multi-year lows with performance rivaled only by Sri Lankaโs stock index. Accounting for 50.8% of the NSE at the market close last week, Safaricom was down 39.13% YTD.
๐ Naivas Stake Sale: A consortium including the International Finance Corporation and French private fund Amethis is exiting the retailer through the disposal of a 30% minority interest to a group of investors led by Mauritian conglomerate IBL Group. The IFC-led consortium bought the stake at KES 6B.ย
Interest Rates Watch
๐ช๐ฌ Egypt: The Monetary Policy Committee of the Central Bank of Egypt held its lending rate steady at 12.25% in its June 23 sitting.ย
๐ฟ๐ฆ South Africa: The inflation rate breached the Central Bank ceiling by 50 bps to reach 6.5% in May. This sets the stage for aggressive rate hikes by the South African Reserve Bank to contain inflation. The MPCโs next sitting is on July 21, 2022.
๐ธ๐จ Seychelles: Monetary authorities in Seychelles are set to give the direction of key monetary variables in the coming week. Inflation in the archipelago stands at 2.1%, while its key policy rate is currently at 2%.
Chart of the Week
