Shoprite may pull plug on some offshore stores
Underperforming outlets in the rest of Africa tip grocer into a hefty 20% drop in annual profit
Shoprite will consider pulling the plug on underperforming stores in the rest of Africa, two months after a weak showing in these supermarkets tipped the grocer into a hefty 20% drop in annual profit.
“If we have to close a country we will; we’ll take the decision no matter how hard it is,” CEO Pieter Engelbrecht told shareholders at an annual meeting on Monday.
The review is a sobering reality check of the risks SA companies have taken in chasing after more than 1-billion consumers elsewhere on the continent, where most countries’ fundamental economic frailties are exposed to swings in commodity prices.
Engelbrecht’s comments are also likely to turn the spotlight on his biggest headache, Angola, where Shoprite’s operations in the 2018 financial year were trashed by hyperinflation and a more than 60% depreciation in the kwanza currency in an economy battered by a decline in crude oil prices and output.
Shoprite’s chair and biggest shareholder, Christo Wiese, told shareholders attending the meeting that it was apparent from meetings with shareholders over the past few weeks that “everybody is concerned about what our plans are for the rest of Africa”.
He said the board was considering a number of alternatives including shrinking the number and size of stores or doing franchise deals.
“The very last resort is to shut down a country,” said Wiese, who has been chair of Shoprite since 1979 and is best known for helping turn it from six outlets in the 1970s into hundreds across SA and a presence in a further 14 countries.
He said given where the rest of Africa was in terms of growth prospects, it would be foolish to think it would generate the same returns on investment as SA.
Shoprite reported a 4.9% decline in quarterly sales on Monday from its outlets in the rest of Africa, while its SA business delivered a 10.3% sales increase in three months to end-September.
The weaker quarterly performance in the rest of Africa business — weighed down by xenophobic attacks in Nigeria and currency devaluations — is a continuation of a trend seen in the 2018 results, when the business suffered trading losses of R265m.
The swing was largely
behind Shoprite’s 20% drop in annual headline earnings per share in the year to end-June.
Equity analyst Bjorn Samuels said that Shoprite’s comments left room for interpretation.
“It could mean that Shoprite is more selective about allocating additional capital to the non-RSA business or that they would look to exit operations which have not generated reasonable returns.
“Either of these could be a positive catalyst, given how bearish investors have become on Africa.”
But Wayne McCurrie, portfolio manager at First National Wealth and Investments, did not see this as a sign Shoprite might try to exit its African investments.
“They are not going to exit. They are going to scale back.”