The Contribution of Purchasing Management Practices to Enterprise Growth of Micro Restaurant in Uganda

The Contribution of Purchasing Management Practices to Enterprise Growth of Micro Restaurant in Uganda

*Nansereko Racheal Kabuye, Wilson Muyinda Mande and Sadat Lutaaya

School of Business Administration, Nkumba University, P O Box 237 Entebbe, Uganda

^*Corresponding Author

DOI: https://dx.doi.org/10.47772/IJRISS.2024.8120230

Received: 05 December 2024; Accepted: 10 December 2024; Published: 14 January 2025

ABSTRACT

Purpose – The purpose of this paper was to examine the contribution of purchasing management practices to enterprise growth. Micro restaurants always start with little capital, they earn little profits, and for that matter do not show substantive economic worth to the owners. The only viable option is to grow to small, medium and later to large scale restaurants. So, it was important to investigate on how much purchasing practices contributed to the growth of the micro restaurants.  

Design/methodology– In this study, a cross-sectional design was used. Data was gathered from a sample of 300 participants who were mainly restaurateurs. A questionnaire was the main tool used to collection the perceptions of respondents.

Results – Results showed that purchasing management and micro restaurant growth had a clear relationship. The better the purchasing, the more it contributed to micro restaurant growth. Through a simple linear regression, it was found out that purchasing management practices contributed 26% of micro restaurant growth in KCCA markets.

Recommendation: Since 26% was rather low, it was recommended that micro restaurant growth being a function of purchasing management practices restaurateurs form a purchasing cooperative which would yield the benefits of cooperative game theory.

Originality – The research on the micro restaurants in KCCA markets plus the proposal of managing restaurateurs purchasing practices illustrate the fact that this work was original.

Key words: Purchasing, management practices; growth, micro restaurants.

Paper type: Research paper

INTRODUCTION

Purchasing function involves buying the goods and services that an enterprise needs in order to produce other goods or provide services (Johnson, et al., 2021) which are put on market.  This definition agrees with (Mundia, et al., 2021), and (Schulze, et al., 2022) who emphasized that purchasing is a strategic function that involves sourcing, selecting, and managing suppliers to optimize value creation. Furthermore, purchasing is a business management approach that encompasses activities including acquisition of goods through planning, negotiation and delivery of the required inputs by an enterprise (Bals, et al., 2019) Micro-purchase means a purchase of supplies or services using simplified acquisition procedures, the aggregate amount of which does not exceed the micro-purchase threshold (Bäckstrand, et al., 2019). The micro restaurants are therefore involved in such purchases for them to survive and to grow.

In an increasingly competitive economic landscape, micro enterprises (MEs) play a pivotal role in job creation, innovation, and economic development. Globally these enterprises serve as the backbone of local economies, contributing significantly to the Gross Domestic Product (GDP) and providing livelihoods for millions of people (Enaifoghe, et al., (2023), Zafar, & Mustafa (2017), Saah, (2021) and Sendawula, et al., (2023).

Although purchasing is not a new phenomenon, interest in examining its contribution to growth of micro enterprises in particular restaurant business is still new in Uganda. Purchasing model for Micro Restaurant owners in Kampala was as presented in figure1.

Figure 1: Current purchasing model for micro restaurants in Kampala

The current model of individual purchasing by micro restaurateurs

The above model of purchasing showed that the buyer (micro restaurateur) and the seller (trade of food items) meet at the point when products are brought to Kampala markets. After the buyers agreed on what produce they needed for their restaurants, the two parties engaged in the game of haggling or bargaining. The sellers try to get as much profit as possible while the buyers also try to offer as little as possible. Finally, the two parties reach a settlement whereby they agree. This is can be described as a win-win point or equilibrium as the Game Theorists would call it.

 Statement of the problem

In the context of Uganda, purchasing was expected to leverage growth of micro restaurants in Kampala Capital City Markets. However, there are observations which seem to suggest that purchasing has not contributed to the growth of the micro restaurants in KCCA markets. These observations included the following:

In Uganda most MEs do not witness survival in their first year and even those that go through the first years have not survived their fifth year (Kakooza, et al., 2023).

A survey carried out in 2021in KCCA markets revealed that in Owino and USAFI markets (Central Division) 30 micro restaurants had not experienced growth in more than five (5) year period. In Bivamuntuuyo and Wandegeya markets 25 micro restaurants, Kasanga and Kabalagala 15 micro   restaurants, Bugolobi and Nakawa 35 micro   restaurants, Nateete and Kibuye 27 micro   restaurants respectively did not experience growth in a period exceeding five years.

This raised a question on how much had purchasing management practices facilitated the micro restaurants in KCCA markets to grow over the years. Therefore, this study sought to examine how much purchasing management practices contributed to the growth of micro restaurants in KCCA markets in Uganda.

Despite the fact that micro restaurants play a vital role in enhancing economic growth, many of these establishments struggle to achieve growth due to reasons, including limited access to financial resources, inadequate management practices, and severe competition (Baporikar, et al., 2016). Among these challenges, purchasing management practices is overlooked as a critical component influencing enterprise growth and yet purchasing management practices generally aim at enabling an enterprise to have value for money, get profits and grow further (Obanda, 2019).

It is generally considered that between 2 to 3 years a micro business will have transited from its first stage to a small business level and from 3 to 5 years a medium level. These are the normal growth partners of micro enterprises (Smith, 2021).

 Objective of the study

To assess the contribution of purchasing management practices on the growth of micro restaurants in KCCA markets.

Null hypothesis

There is no significant contribution that purchasing management practices make on the growth on micro restaurants in KCCA markets.

LITERATURE REVIEW

As far as purchasing management was concerned, Nyakundi (2017) associated micro enterprises with the ability to provide high levels of customer satisfaction. The increase in demand of customers forced many micro enterprises to review their approaches to management of operations. Whereas Nyakundi (2017) had focused on customer satisfaction, Zazulina (2018), considered strategic approach to purchasing management to be more important. In view of the above debate over whether putting emphasis on customer satisfaction is better than laying out strategies was good but it did not answer the questions of current study which involved growth of micro enterprises especially the restaurants. That meant there was a gap to be filled by the current study.

The concept of purchasing has been viewed differently by a variety of writers. Lysons & Farrington (2006) defined purchasing as a function responsible for acquisition of goods and services for conversion, consumption or for resale. It involves making decisions like what is to be purchased? Where? Why? Plus, how can the supplies be obtained? On their part, Nilisson & Sundlade (2018) defined purchasing as the management of external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured under the most favorable conditions. These concepts of purchasing were interesting; however, they could be generalized to answer the questions of micro restaurants in KCCA, Uganda.

The term Growth has been conceptualized as revenue generation, value addition, and expansion in terms of volume of the business, market position, quality of product, and goodwill of the customers, Gupta et al (2013). On the other hand, Nene (2014) contended that growth was a natural phenomenon that occurred until profits were realized.

The study was hinged on the Game theory because micro enterprises engage in purchasing and purchasing is a game itself. Game theory was developed by (Morgenstern, 1976). This theory was concerned with the general analysis of strategic interaction by two or more people called players. It focused on optimal decision making when all decision agents (players) assumed to be rational with each attempting to anticipate the likely actions and reaction of its rivals (MacKenzie & DaSilva, 2006, Nuemann, 1944). Game theory was mainly used on situations in which ‘players’ had conflicting interests and it was “a description of strategic interactions that included the constraints on the actions that the players could take and the players’ interest, but did not specify the actions that the players took”. Although game theory has been discussed in various situations, there is no application of the same to micro restaurants. This is novel way of looking at game theory especially, cooperative game theory.

RESEARCH METHODOLOGY

 Study population

The study was carried out in central Uganda in Kampala city. Kampala was selected because of its importance as a business hub, its history and accessibility. The study population consisted of 1805 respondents from the five divisions of KCCA. The divisions were: The Central division, Kawempe division, Makindye, Nakawa and Lubaga division. In each division, a representative sample was selected and these helped in providing data.

Table 1: Sampling frame

Source: KCCA Statistical Abstract (2019) and stratified by the author.

Sampling

The sampling process in this study included determining the sample size and the sampling procedure using the following formula: . The product of this computation was 363. When this figure was adjusted to the total number of restaurateurs (1805) using the following formula   it gave an actual sample of 300 people.

After getting the required sample, a purposive sampling technique was used. That is, purposive sampling was used to identify the owners of the micro and small restaurants to be the respondents. This was so because such people were believed to be the decision makers and thus had vital information on purchasing function, process analysis and financial management.

The survey method was considered most appropriate for this study. In consonance with that methods a questionnaire was designed and administered to the respondents. The questionnaire as the main tool had a Likert scale of 1= strongly disagree; 2 = disagree; 3 = neutral; 4 = agree and 5 = strongly agree.

The content validity index was assessed and it was greater 70%. While the reliability when calculated, it gave an average of Cronbach alpha of .864. These two tests indicated that the tool used was appropriate.

Ethical considerations

This research was done with due consideration of the attendant ethics. Approval from responsible authorities were sought, confidentiality as far as personal details was observed and respondents’ consent was sought before data collection.

Analysis of the contribution of purchasing management to enterprise growth

The current study hypothesis stated that “purchasing management has no significant effect on the growth of micro and small restaurants in KCCA markets”. So, the first test of Pearson’s Product Moment Correlation (PPMC) yielded results which showed that there was a moderate positive significant relationship between purchasing management practices and enterprise growth [r (300) =.512, p<0.01].

The implication of this statistic was that purchasing management and micro restaurant growth had a clear relationship. The better the purchasing was managed and executed, the more it contributed to micro restaurant growth. In enterprises like micro restaurant that use materials like food items which are perishable. The purchasing has to be done every day. For that reason, purchasing function is very critical to micro restaurant growth.

The contribution of purchasing management to micro restaurant growth was further subjected to a simple linear regression. This gave the following results: in the model summary of the R² was .262 which translated into 26%. This meant that purchasing qua purchasing explained 26% of the enterprise growth.

This same test of regression showed that there was linearity between purchasing management practices and micro restaurant growth F (1, 298) 105. p<0.01. This meant that any change in purchasing management practices led to a similar change in the and enterprise growth. Linearity was important because it indicated that the micro restaurant growth was a function of purchasing management practices especially among the micro restaurants in the KCCA markets.

Source: Field research data

The regression results of β = 512, p<0.01 confirmed that the second hypothesis that “Purchasing Management practices had no significant contribution on micro restaurant growth in KCCA markets” was not supported. This led to conclusion that the statistical results indicated that the contribution was positive and significant. For that matter, the concept of purchasing management practices in the case of Micro restaurants in KCCA markets, had a moderate, positive and significant contribution to growth.  In that way the alternate hypothesis, “Purchasing Management practices had a significant contribution on the growth of Micro Restaurants in KCCA markets” was supported instead. For that reason, it is appropriate to assert that purchasing management practices were a very important function for micro restaurants growth in KCCA markets.

Indictors of growth of micro restaurants in KCCA markets

To determine the key indicators to enterprise growth as far as Micro and Small restaurants were concerned, a multiple regression was run. This revealed that only three factors explained growth. In the shown in the table 4.

Table 4: coefficients of indicators of enterprise growth

Although seven factors were considered, the multiple regression results showed that only the following were significant: increment in capital (Beta =.406, p<0.01), employment of more staff (Beta = .257, P<0.01), and increase of customers (Beta = .231, P<0.01)    explained micro restaurant growth.

The rest of the items: market expansion, having more branches, government policies and use of technology were not significant illustrators of growth the Micro and Small restaurant enterprises in KCCA markets.

DISCUSSION OF RESULTS

Business growth has been described as an increase in the enterprise size, revenue, market share, and profitability over time Sendpulse (2023). This concept of enterprise growth is in line with the perspective taken by the current study.

Enterprise growth has also been explained in terms of expansion so as to generate additional profits. A business enterprise can grow in one or more areas to achieve this expansion. Some common areas of enterprise growth according to (Munsey , 2023)

 include: Product development; Sales and marketing; Customer base; Brand reputation; Employees. Besides marketing and employees, these factors differ from those identified in the current study. The difference arises from the fact that Munsey (2023) was concerned with large scale enterprises while the current study focused on micro restaurants.

Whereas authors like those of Sendpulse, (2023) contended that “people help businesses grow both directly and indirectly”, in the current study, these people translate into customers, into market share and into income for the business. At the end of the day, it is growth of the enterprise or micro and small restaurants to be specific. Whereas Sendpulse, (2023) argued for four main types of business growth as organic, Strategic, Internal and Partnership enterprise growth, his thinking was for large enterprise. Micro restaurants were only included in organic growth type and therefore several propositions were given by different authors.

Earlier on, Churchill & Lewis (1983) had suggested five stages of enterprise growth. These were: (1) existence, (2) survival, (3) Success, (4) Take off, (5) resource maturity. It also been argued that business growth was determined by several factors including individual characteristics, organizational characteristics, strategy, planning, and personal values of entrepreneurs (Street & Cameron , 2007). This study intrigued others who decided to test these ideas.  So, authors (Sarwoko & Frisdiantara, 2016) undertook the test and confirmed that that individual factors like experience and motivation influenced enterprise growth in small and medium enterprises (SMEs). The further contend that organizational and environmental factors also play a part.

All the above literature brings out some common factors of enterprise growth. Some were similar to the findings of the current study. In that way it can be concluded that the current study had universal concordance.

The World Economic Forum on Africa (2023) argued that Africa’s SMEs need more than money to ensure their growth. Apart from finance, restaurants needed regulation, technology, innovation support, market access, tax incentives and support. Whereas these views are viable in their own right, they were not within the catchment area of the current study which focused on purchasing management practices.

On the other hand, (Eton et al, 2021)) had indicated that one major factor that served to ensure growth of micro restaurants in Uganda was financial inclusion. This could be done by educating the public about financial services, and reducing the cost of credit especially for the restaurants who want to borrow. This literature’s emphasis on reduction of the cost of loans, that is, interest agreed with the current study because it was found that loans imposed a very big financial burden on micro restaurants. This partly explained why over 20% of the micro restaurants did not breakeven at the time when they should have.

However, the findings in the current study indicated that purchasing management practices alone contributed 26% to the growth of the micro restaurants in KCCA markets.  Furthermore, the findings were juxtaposed with literature and identified that in some aspects the conclusions were similar.

RECOMMENDATION

To better the growth of micro restaurants in Kampala markets, an adoption of the cooperative purchasing theory was recommended instead of the non-cooperative game theory employed by the restaurateurs as illustrated in the model below.

Figure 2: Cooperative purchasing Model

Source: Developed by the researcher 2024

A cooperative game theory also known as a coalitional game was advanced as the best game for purchasing because the restaurateurs would be able to form a purchasing cooperative. With this, they would be able to place orders for bigger volumes of raw foods. For instance, instead of each restaurateur buying individually one or two bunches of matooke, the representative of the purchasing cooperative would place for 100s of bunches. In that way, the cooperative game theory would lead to stronger bargaining power of the cooperative representative, the cost price of each bunch would go down because of buying in bulk, the demand for quality can be heeded, the prices of raw food items may remain stable for some good time and restaurateurs would yield more profits.

For better results in the application of the model, restaurateurs would upgrade their association associations and club to purchasing cooperatives to enable each restaurateur to place orders with the leaders of the association who in turn would get suppliers to deliver food stuffs. And to be rest assured of quality food stuffs, leaders should monitor the process of orders placed with suppliers to achieve value for money.

A cooperative game theory is advanced as the best game for purchasing. In game theory, a cooperative game also goes for an alternative title, coalitional game. It is so called because consists of groups of players, that is buyers and sellers. Each of these form binding “coalitions” with external enforcement of cooperative behaviour. In that way the cooperative game theory differs from non-cooperative games in that there is either no possibility to forge alliances. The implication here is that the restaurateurs form a purchasing cooperative. With that, they would be able to place orders for bigger volumes of raw foods. For instance, instead of each restaurateur buying individually one or two bunches of matooke, the representative of the purchasing cooperative would place for 100s of bunches. In that way, the cooperative game theory would lead to:

1. Stronger bargaining power of the cooperative representative
2. The cost price of each bunch would go down because of buying in bulk
3. The demand for quality can be heeded
4. The prices of matooke may remain stable for some good time
5. Restaurateurs would yield more profits

Given the above advantages, when restaurateurs join the purchasing cooperative, they would realize that opting out of the coalition would be tantamount to breaking away from possible benefits which action is not profitable. This is the core of the cooperative game theory.  The cooperative game theory is more beneficial than the non-cooperative game theory which explains the current purchasing practices employed by the restaurateurs of the KCCA markets.

Illustration of the cooperative game theory for purchasing by restaurateurs in the KCCA markets

Table 5: non-cooperative game

Source: Figures from field research

The above non-cooperative game theory can be compared with the cooperative game theory in table 5. The sellers of matooke would incur the following costs if they sold to individual restaurateurs:

1. Labour costs for 2 days
2. Storage for two days
3. Transport cost to move matooke to every KCCA market
4. Trading licence in every market
5. Possible ripening of matooke since they are perishable goods
6. Hiring lorries for extra days

In view of the inconveniences plus costs involved, the matooke traders find more profitable and convenient if they sold their matooke in bulk in one day. So, the cooperative game theory would lead to a scenario like this.

 Table 6. Cooperative game

Source: constructed by the researcher

In the cooperative game theory, purchasing game as illustrated in table 6, the offers given by each side are based on the understanding that the food items are to be bought in bulk and supplier also being them in large quantities. With this arrangement, for example, matooke are delivered in one specific store, tax is paid once. Each restaurateur picks the amount of matooke she needs for two or three days. In the final analysis it becomes more profitable to restaurateurs as they would purchase at the whole sale price or in bulk.

Some of the characteristics of the cooperative game theory are: Restaurateurs having common interests. In this case, all the restaurateurs would have one have a common interest in achieving a specific goal of purchasing at reduced prices. The restaurateurs would identify and agree on price threshold.

 Once the restaurateurs have a clear understanding of their shared interest, they can work together to achieve it. Secondly the restaurateurs would engage in information exchange: Cooperation requires communication and information exchange among the restaurateurs. The restaurateurs ought to share information about their requirements. By sharing information, the restaurateurs can better understand each other’s goals and work towards achieving them together.

In cooperative games, restaurateurs voluntarily come together to form coalition or purchasing cooperative and make agreements. The restaurateurs must be equal partners in the coalition, and any agreements must be mutually beneficial. Cooperation is only sustainable if all restaurateurs feel they are receiving a fair share of the benefits.

In cooperative games, agreements between restaurateurs are binding and mandatory. Once the restaurateurs have agreed to a particular type of food stuffs, they have an obligation to follow through. The restaurateurs have an obligation to trust each other to keep their commitments, and there must be mechanisms in place to enforce the agreements. By making agreements binding and mandatory, the restaurateurs would be able to achieve their shared goal of purchasing at a reduced price.

CONCLUSION

In conclusion, micro restaurants in KCCA markets had not experienced any growth. Research revealed that the restaurateurs were interested in enterprise growth. However, to grow the enterprises needed to have a clear-headed purchasing management practices and having an understanding on the value of cooperative purchasing since this model would bring benefits to both the buyer (micro restaurants) and sellers (traders in food stuffs).

Based on the findings and conclusions the following recommendations were suggested: –

1. Restaurateurs in KCCA markets have some associations and club. These could be upgraded to a purchasing cooperative. Each restaurateur would place orders with the leaders of the association who in turn would get suppliers to deliver food stuffs.
2. Train leaders of the association in purchasing management. This would enable the leaders to use the cooperative game theory.
3. The micro restaurants would be trained in the benefits of purchasing perishable and non-perishable goods in bulk.
4. Their association would also create a quality assurance committee to monitor the quality of the purchased food stuff.
5. From the academic perspective, the study illustrates the applicability of the cooperative game theory to micro and small business for categories of business proprietors like the restaurateurs in KCCA markets.

The above recommendations are expected to affect not only the buyers but also the sellers who would to be organised so that they would deliver food stuffs in bulk. It implied therefore that both the restaurateurs would have to create coalitions or cooperatives in order to satisfy their customers.

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APPENDICES

Appendix 1:  Questionnaire

Nkumba University

P O BOX 237 ENTEBBE, UGANDA     Date: June 2024

email: rachealkabuye86@gmail.com

Tel: +256772017157 / +256702557063

Dear respondent

I am a PhD student at Nkumba University carrying out research on the restaurants in Kampala City Council. So, I request you to kindly fill the questionnaire below. There is no right or wrong answer. You are only requested to tick the alternative you most agree with. The information will be used without revealing your identity because it is for academic work only.

Thank you for your help.

Sincerely,

Rachel Nansereko

PhD Researcher

SECTION A

DEMOGRAPHIC CHARACTERISTICS

Kindly Tick in the appropriate Box.

1. My sex is ___________ (1) Female _____ (2) Male ________
2. My age is between (1) 18-28 ___ (2) 29-39 ____ (3) 40-49 ___ (4) 50-59 ____60 and above ____
3. My business is based in————– division (1) Kawempe ___ (2) Rubaga ____Makindye ____ (4) Central ____ (5) Nakawa _____
4. I have spent —— years in this business (1) Less than 5 years ____ (2) 6 to 10 years __ 11 to 16 years ___ (4) 17 to 20 years _____More than 21 years _____

5. My Highest Education Background is? (1) No formal Education ___ (2) Primary ____O Level ____ (4) A Level ____ (5) Certificate ___ (6) Diploma and above __

6. My marital Status (1) Married____ (2) single ____
7. Size of My Family (1) One person ___ (2) Less Than 5___ (3) 6 and above ____
8. Money I use at home daily is from: (1) Business ____ (2) Spouse ___ (3) investments__
9. I was trained to manage a business: (1) Never ____ (2) Once ____ (3) Several Times __
10. I pay tax to run this Business (1) Daily ___ (2) Monthly____ (3) Annually ___

SECTION B:

PURCHASING MANAGEMENT (PM)

The abbreviations in the table represent, 1. SD= Strongly Disagree, 2. D= Disagree, 3. N= Not sure, 4. A= Agree, 5. SA= Strongly Agree in line with the questions

SECTION C

FINANCIAL MANAGEMENT (FM)

 SECTION D

ENTEERPRENURESHIP INTENTIONS (EI)

SECTION E

ENTERPRISE GROWTH (EG)

1. Please state any idea or experience about purchasing and running restaurant.
2. What challenges have made it hard for your restaurant business to grow?