Christo Wiese: been there done that

Liquor, agri­cul­ture, fur­ni­ture, fash­ion, food — Christo Wiese has been there, writes Marc Hasen­fuss

Financial Mail - Investors Monthly - - Front Page -

It has been a me­an­der­ing jour­ney for re­tail ty­coon Christo Wiese in and around in­ter­na­tional re­tail­ing mar­kets.

Older read­ers may re­mem­ber that Wiese tilted at the UK mar­ket in the 1990s, but re­treated sans the re­turns he may have ini­tially en­vis­aged.

But the prime mover be­hind some of SA’s most suc­cess­ful su­per­mar­ket and fash­ion chains is now back in the in­ter­na­tional re­tail game with a bang.

This time, Wiese is not di­rectly driv­ing the push into global mar­kets, but rather leav­ing that task to two spe­cialised in­vest­ment ve­hi­cles — Brait and Stein­hoff In­ter­na­tional — where he holds con­sid­er­able sway.

This is a com­pletely dif­fer­ent tack to the mid-1990s thrust when Wiese, who had by then al­ready en­joyed con­sid­er­able suc­cess with the Shoprite su­per­mar­ket and Pep fash­ion chains, started build­ing an off­shore re­tail­ing em­pire through Trade­hold (now re­con­fig­ured as a hy­brid in­vest­ment com­pany). In the UK Wiese had bought Brown & Jack­son as a beach­head for a low-cost re­tail thrust, later bring­ing in Pound­stretcher, Your More Store, What Ev­ery­one Wants and The Fa­mous Brunswick Ware­house.

Du­pli­cat­ing the suc­cess­ful af­ford­able shop­ping of­fer­ings of Shoprite and Pep in the UK may have seemed a good idea at the time, but the re­tail brands splut­tered along, mainly due to man­age­ment chal­lenges, ad­verse trad­ing con­di­tions and a lack of crit­i­cal mass.

Wiese grad­u­ally ex­ited the UK busi­ness, but there was some tan­gi­ble ben­e­fit in that stores were also opened in Poland from the UK base. These were later brought in un­der Pep­kor, which to­day runs more than 500 stores in Poland and neigh­bour­ing coun­tries in Eastern Europe.

Trac­ing Wiese’s route back into in­ter­na­tional re­tail via Stein­hoff In­ter­na­tional and Brait is rather in­trigu­ing.

Par­tic­i­pa­tion in Stein­hoff, for in­stance, can be traced back to Wiese’s in­volve­ment at un­listed liquor pro­ducer KWV in the late 1990s. Wiese stepped into KWV at a time when it ap­peared there might be an un­wanted takeover at­tempt by some nasty as­set strip­pers. Some years later — with KWV’s share price many times the level at which Wiese bought in — Stel­len­bosch-based in­vest­ment house PSG made its agri-busi­ness in­ten­tions known. Con­se­quently Wiese swapped his KWV hold­ing for a sig­nif­i­cant mi­nor­ity share­hold­ing in PSG, which then used KWV as one of the found­ing in­vest­ments in its agri-busi­ness fund, Zeder.

In 2012 Wiese un­ex­pect­edly swapped his PSG shares for shares in Stein­hoff as part of a trans­ac­tion that gave the fur­ni­ture gi­ant a strate­gic 20% stake in PSG.

At the time, mar­ket watch­ers were slightly per­plexed by Wiese’s de­ci­sion to exit an “ex­cit­ing PSG” and rush into a “dour Stein­hoff”.

But Stein­hoff has been good to Wiese, al­low­ing him not only to ex­ter­nalise one of his ma­jor in­vest­ments but also to rack up some im­pres­sive re­turns as Stein­hoff has been strongly rerated by the mar­ket.

Wiese’s ex­po­sure to Stein­hoff in­creased markedly af­ter un­listed fash­ion re­tail con­glom­er­ate Pep­kor — with Wiese and Brait as ma­jor­ity share­hold­ers — was sold to the fur­ni­ture gi­ant in a deal

set­tled in cash and scrip.

The com­bi­na­tion of re­tail as­sets owned by Pep­kor (which to­day op­er­ates on three con­ti­nents) and Stein­hoff (Con­forama and JD Group) of­fers a com­pelling mix off­shore as both com­pa­nies are test­ing promis­ing mar­kets in Eastern Europe, Aus­trala­sia and Africa. One pre­sumes there will be strong syn­er­gies in ware­hous­ing, lo­gis­tics and mar­ket­ing too.

Brait’s re­tail­ing prow­ess has only re­cently been high­lighted by the takeover of spe­cial­ist fash­ion chain First Look.

First Look, along with the Vir­gin Ac­tive deal, will cer­tainly move the nee­dle at Brait. The fash­ion re­tailer is a well es­tab­lished busi­ness with over 800 stores mainly in the UK, but also with a size­able pres­ence in China (listed as a pri­or­ity mar­ket), France, Poland, Ire­land and Bel­gium as well as con­ces­sion stores in Ger­many and the Nether­lands and 105 fran­chise stores in the Mid­dle East, North Africa, Europe and Asia.

Rev­enue and ebitda (earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion) for the 12 months to De­cem­ber 2014 were close to £1,4bn (R26bn) and £211m (R4bn) re­spec­tively.

First Look ticks all the boxes in Brait’s in­vest­ment cri­te­ria: the chain is dif­fi­cult to repli­cate, the brand oc­cu­pies a dom­i­nant niche in the fash­ion re­tail­ing sec­tor, there has been dou­ble-digit ebitda growth in re­cent years, the cash flow gen­er­a­tion is strong and ex­pan­sion pos­si­bil­i­ties are plen­ti­ful.

With Brait di­gest­ing the Vir­gin Ac­tive and First Look ac­qui­si­tions and Stein­hoff bed­ding down Pep­kor, one could ar­gue that there’s a fair bit of busi­ness to oc­cupy Wiese’s mind. But history will show that one can­not un­der­es­ti­mate the se­rial risk-taker’s ca­pac­ity for seek­ing out new deal flows.

Per­haps it might be a largely over­looked re­tail in­vest­ment where Wiese could ply his deal-mak­ing magic.

In this re­gard Brait has an ex­ist­ing re­tail in­vest­ment in gro­cery chain Ice­land, which some pun­ters feel could pro­vide a plat­form for fur­ther ex­pan­sion via ac­qui­si­tion in the fast-chang­ing UK su­per­mar­ket/gro­cery store sec­tor. Press re­ports from the UK have al­ready linked Wiese to pos­si­ble ad­vances on some of the bet­ter-known (but these days strug­gling) Bri­tish re­tail chains.

To date Brait has trig­gered cor­po­rate ac­tion in Pep­kor and con­sumer brands con­glom­er­ate Premier Group (which has been in­volved in a clutch of se­lected takeovers). But there has been no cor­po­rate ac­tiv­ity at Ice­land, per­haps be­cause the frozen food re­tailer needs to tread care­fully in a fast-chang­ing and com­pet­i­tive UK gro­cery mar­ket.

With su­per­mar­ket/gro­cery store prices be­ing driven down by the Euro­pean dis­coun­ters (mainly Aldi and Lidl), which seem de­ter­mined to snatch mar­ket share from the ma­jor UK chains, there could con­ceiv­ably be dis­tressed price op­por­tu­ni­ties that might ap­peal to Wiese.

In the in­terim, though, the most ob­vi­ous ques­tion might be whether cash-flush Brait in­tends us­ing cur­rent mar­ket con­di­tions to push up its stake in the busi­ness (remembering that Ice­land man­age­ment still holds a chunky 43% of the busi­ness).

There ap­pears am­ple scope for Ice­land to grow in its cur­rent form, with the busi­ness hold­ing less than 2% of the UK gro­cery mar­ket (and nearly 14% of the UK frozen mar­ket). But then again Ice­land may en­joy its niche sta­tus, which en­sures it is not in di­rect com­pe­ti­tion to the UK’s “big four” re­tail­ers.

Ice­land’s chain is sur­pris­ingly big. At last count there were 854 stores in most main cen­tres in the UK. More im­por­tantly, Brait has re­ported that 99% of the stores are prof­itable and that the Ice­land busi­ness model is highly cash gen­er­a­tive.

But per­haps a bet­ter gauge of Ice­land’s scale and po­ten­tial can be found in its bonus card ini­tia­tive, which is ranked the largest re­ward-based loy­alty scheme in the UK gro­cery mar­ket. This data­base holds over 4m cus­tomers, of which 2,5m are deemed ac­tive.

Brait CEO John Gn­odde ac­knowl­edged in the com­pany’s last in­vest­ment pre­sen­ta­tion that cur­rent changes in the UK re­tail mar­ket did of­fer op­por­tu­ni­ties for Ice­land. But he stressed that the re­tailer’s short-term per­for­mance re­flected the ef­fects of in­ten­si­fied com­pe­ti­tion and the need to main­tain its mar­ket share.

If cor­po­rate ac­tion is off the ta­ble for the fore­see­able fu­ture then Ice­land looks at least set to make most of ex­pan­sion op­por­tu­ni­ties in a frac­tious Bri­tish re­tail mar­ket. Hav­ing taken Shoprite from a niche su­per­mar­ket chain to a mar­ket leader (tak­ing in com­peti­tors Check­ers and OK Bazaars on the way), Wiese knows the value of es­tab­lish­ing, main­tain­ing and steadily ex­pand­ing a sound op­er­at­ing plat­form in times of stress in re­tail mar­kets. Like Shoprite, Ice­land is aimed at the cash con­sumer and its “good value” pitch tar­gets cus­tomers that would fall into the mar­ket seg­ment known as low liv­ing stan­dards mea­sure equiv­a­lent.

Clearly Wiese and Brait be­lieve Ice­land can tap into a sweet spot, and re­cent com­ments sug­gest up to 40 new stores are ex­pected to open in the UK this fi­nan­cial year, in­clud­ing a vari­a­tion on the stan­dard store for­mat as well as two new con­cept ware­house stores.

What will be worth watch­ing is how suc­cess­fully Ice­land’s UK busi­ness model can be repli­cated in other coun­tries. Brait has re­it­er­ated con­tin­ued ge­o­graphic di­ver­sity through se­lect in­ter­na­tional ex­pan­sion. Ice­land al­ready has fran­chise oper­a­tions as well as “own” stores in Czech Re­pub­lic, Ice­land (fancy that!) and Ire­land, which re­port­edly are “trad­ing well”.

Gn­odde has in­di­cated that man­age­ment is “tac­ti­cally as­sess­ing ex­pan­sion op­por­tu­ni­ties in these re­gions”.

That prob­a­bly means Wiese might be spend­ing less time tucked away be­hind trad­ing screens in his Parow East of­fice, and much more time scout­ing around for deal leads in far-flung ju­ris­dic­tions.

Per­haps it might be a largely over­looked re­tail in­vest­ment where Wiese could ply his deal-mak­ing magic

Pic­tures: THINKSTOCK

Pic­ture: HETTY ZANTMAN

Christo Wiese — one could ar­gue that there’s a fair bit of busi­ness to oc­cupy his mind.

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