Huge growth po­ten­tial for am­bi­tious re­tailer

Finweek English Edition - - PRO PICK - BY STEIN­MAN DE BRUYN Direc­tor, Capilis As­set Man­agers

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.

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