Beautiful, self-motivated and full of energy, Jane Kugonza was an exceptional accountant with a sense of style.
She held the latest iPhone model and had a particular liking for red stylish shoes with matching lipstick and leather bags. A certified chartered accountant, Jane was an envy of those who knew her: the boys wanted some piece of her while the ladies envied the attention she commanded. However, her beauty and false innocent look led to the collapse of a business in a Ugx. 3 billion fraud scheme.
Jane worked with two assistants, Julius Okiring and Maria Atukunda in her finance department. Both were degree holders pursuing to become chartered accountants. A finance manager (FM), Jane was the managing director’s darling. At one of the staff meetings he applauded her saying: “if everyone was as hard-working as Jane, the sky would be the limit for this company — Metrol (U) Ltd.”
Metrol (U) Ltd or Metrol was established in 2001 by James Musisi to tap into the telecom franchising business opportunities. A shrewd entrepreneur, James is a business school graduate. By 2004, he had positioned Metrol as the leading airtime franchisee (distributor) for Bravo telecom, one of the three telecom companies in Uganda at the time. As the business expanded, James recruited the services of his brother, Peter Musisi to take over as Managing Director/ CEO. James moved on to more challenging roles. He established a new company, JM Ltd, and diversified into the construction and money lending businesses. He remained as the Chairman of Metrol’s board of directors.
Metrol’s franchising business
Telecoms use the franchising model to ensure efficient sales and distribution of their products and services. Franchising is one of the strategies that most international companies use to enter into new markets. It involves little, if any, capital investment on the part of the franchiser as it entails using another firm’s successful business model and resources. For the franchisor, the franchise is an alternative to building ‘chain stores’ to distribute goods and avoid investment and liability over the chain of stores strategically located countrywide. The franchisor’s success is the success of the franchisees. The distributor or franchisee is said to have a greater incentive than a direct employee. The former has a direct stake in the business, unlike an employee.
At the time Metrol got the franchise deal, the competition was small both at franchise and telecom industry level. There was a lot of inefficiency to the extent that the franchisor (Bravo telecom) would provide airtime to Metrol on a 60-days credit. Due to weak credit collection and cash flow management practices at both entities, the credit exposure increased to 120 days.
Retail airtime distribution is a cash business. All stock sales are made on cash. The franchisee or super dealer (Metrol) sets minimum daily sales targets. Metrol was required to buy a minimum of Ugx. 300m from the franchisor (Bravo telecom) at a 90% discount. The 10% commission to the franchisee is to cover operating costs and some profit. On a typical day, the Metrol made gross cash sales of 400m, of which Ugx. 360m went to Bravo Ltd and the balance (Ugx. 40m) was retained by Metrol. This translated into Ugx. 1.2 billion monthly gross revenue for Metrol.
Metrol’s business was all about managing the distribution channels. Below is how this was being done.
(i) Stockists (wholesalers) – buy airtime in bulk and resale to sub-dealers and/or end-users. These are not restricted from selling products of other telecom providers. Therefore, they are more competitive because their delivery teams can sell products of all telecom providers. This hedges them against the risks of a single telecom. Bravo requires her franchisees to sell airtime to stockists at a commission not less than half of the franchisee i.e. not less than 5%. As a result, Metrol would earn maximum revenue of 5% for sales to stockists.
(ii) Sub-dealers (retailers) buy airtime in small quantities and resale to end-users. Metrol would sell to this category at about 4% of their commission. About 20% of daily sales were made this way.
(iii) Delivery teams – Metrol had agents who delivered airtime to retailers or sub-dealers. They were insured up to Ugx. 30m though they often delivered airtime worth just Ugx. 10m! They distributed to all sub-dealers who were unable to pick airtime from Metrol’s distribution point, at the head office. Metrol paid 1% commission to delivery teams for their services. This accounted for about 10% of the sales.
(iv) Metrol also sold directly to end-users at its various outlets within her designated territories by the franchisor. Metrol boasted of prime locations around Kampala’s Central Business District and major suburbs. The commission margin on direct sales was 10%. This channel accounted for about 30% of Metrol’s total sales.
Copyright Mustapha B Mugisa, 2019. All rights reserved.