Huge growth potential for ambitious retailer
Choppies Enterprises Limited, an established retailer in Africa, listed on the JSE on 27 May. This is the fourth listed African company to have an inward listing on the JSE.
Founded in 1986 by the Chopdat family, Choppies primarily targets the lower- to middle-income consumer and is looking to capitalise on Africa’s transition from informal to formal retail. It has grown to the largest and fastest-growing retailer in Africa outside of South Africa. Choppies currently operates 125 grocery stores, with a footprint in Botswana (72), SA (35) and Zimbabwe (18).
The company brings with it an ambitious growth plan and is pursuing a number of opportunities to expand into Southern and East Africa. According to the Group CEO, Ramachandran Ottapathu, the company is well on its way to reach its target of 200 stores by the end of 2016.
In mid-2015, it will start operating stores in Zambia and Tanzania and is well advanced in its plans to enter the Kenyan and Namibian markets (Choppies announced on 1 June that it had made an offer to buy Ukwala profit. According to our estimates, we believe the company’s revenue will grow between 20%-30% for the year to end June 2015, in line with its historical performance.
A d i f f e r ent i ate d approach of partnering and sourcing with local operators and suppliers seem to help maintain its high gross margins. In order to further expand its sales, Choppies is targeting its margins by increasing its private label offering from 50 to 200 products in the medium term. If it can produce its private label products in a cost-effective manner, it should be able to deliver higher growth margins than branded products. This also has the effect of diminishing the bargaining power of suppliers and gives it more weight to throw around when it comes to price negotiations in the future.
Although it has achieved massive success i n Botswana, where it has knocked Checkers and Pick n Pay into second and third place respectively, Choppies faces continued pressure to continue penetrating SA and the rest of Africa as aggressively as it has been.
One must thus ask the question: will a non-South African company be the one who can take on Africa and tap into the opportunities that Africa possesses? We believe Choppies can achieve at least 85% of its targets and we’re a buyer around current levels.