Shoprite Africa expansion hits Nigeria hitches
Group seeks clarity on banned products and foreign exchange
● Thirteen years after opening its first store in Nigeria, Shoprite Holdings has put its expansion in Africa’s largest economy on ice, for now.
With almost 28 years’ experience in the rest of Africa since 1990, it seems the group is still figuring out how to get its operations right.
Shoprite CEO Pieter Engelbrecht told Business Times that Shoprite has slowed down its expansion in Nigeria.
“We had to impair four loss-making stores in Nigeria … we have slowed down in terms of our expansion, until we get better clarity in terms of the banned products and foreign exchange fluctuations,” said Engelbrecht.
In Nigeria, Shoprite outlets were only able to “carry half of our ranges because of the products banned for forex and banned for imports”, Engelbrecht added.
Five years ago, at the height of the “Africa rising” story, the group planned to open 44 new stores in the country.
Shoprite currently has 24 supermarkets in Nigeria.
Yet Engelbrecht maintained that “we are not disinvesting from Nigeria. If you disinvest from the biggest economy on the continent, that would be a sign that we don’t believe in Africa”.
In the group’s results for the year to endJune, total rand sales from Nigeria declined by 1.9%, as trading was “throttled by limited ranges”, the group said.
The group operates 475 stores in the rest of Africa, compared to 2,843 in SA.
But while Shoprite tries to manage its risk in Nigeria, its story on “Africa’s sleeping giant”, Angola, is even more bleak.
The Shoprite group operates 32 stores in Angola, with a reported rand sales decline of 26.1% for the year ended July 1, given a 50.2% devaluation of the Angolan kwanza against the dollar in the second half of the year.
This, coupled with internal inflation, which declined from 14.4% in the previous year to only 1.1%, filtered into the rest of the non-SA sales that decreased by 7%.
“What happened in the last five years is the fact that Angola has become so big. Angola has become over 50% of total non-RSA contribution and we come off two years of 65.9% compounded growth and you just cannot carry on growing like that,” Engelbrecht said.
Last year, total revenue derived from Shoprite’s rest-of-Africa operations accounted for 20% of group revenue. This year, it declined to 16%, as Angola weighed heavily on the retail group.
Despite this, Engelbrecht remains adamant that it’s not a crisis.
“A crisis for me is if we were starting to make losses, and we are not making losses.
“But if we start making losses then maybe we can talk about us taking a different view in Africa,” he added.
“Pick n Pay is the same size as the Angolan business. “In a deflationary environment like this a 5.5% trading margin is double any other retailer,” Engelbrecht added.
Shoprite CFO Anton de Bruyn said: “We still have a billion rand profit [in the rest of Africa] if you add back the transfer pricing, so it’s still a significant part and segment of our business. It’s not a loss-making business.”
In the past year, the retailer also made a bid for 11 stores in Botswana, competitor Choppies’ home turf.
“We are also going into Kenya and Nigeria is the one at the moment that is not going anywhere,” said Engelbrecht.
The group also planned to open 30 stores on the continent in the 2019 financial year.
“If you think that is the biggest economy in Africa and they predict a 4% GDP growth for next year, then hopefully at some point we will see this kick-start,” he added.
The group will be exiting the Hungry Lion outlets in both Zambia and Angola, with De Bruyn describing it as a “small portion”.
“We’ve shown it as assets held for sale on our balance sheet, but we are also going to disinvest from those operations,” he said.
Including its SA outlets, Hungry Lion had 204 stores.
When asked why the group had disinvested, Engelbrecht said: “We want to focus on our core and it needed capital injection and we felt that it was better spent in a different direction. We have had to spend a lot of money on our IT and we have spent a lot of money on the new ERP [enterprise resource planning] systems.”
Shoprite’s share price closed 1.44% higher at R218.30 on the JSE on Friday.
Revenue from rest-ofAfrica operations declines to 16%