Christo Wiese: been there done that
Liquor, agriculture, furniture, fashion, food — Christo Wiese has been there, writes Marc Hasenfuss
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
Christo Wiese — one could argue that there’s a fair bit of business to occupy his mind.