Shoprite tightens focus on SA

• The group has been rethinking its African presence and is already leaving Nigeria and Kenya

Africa’s largest grocer, Shoprite, has signalled its exit from Uganda and Madagascar, adding to a list that already includes Nigeria and Kenya, as the group focuses on its better-performing SA business. Shoprite has been trading in the rest of Africa since 1990, but has battled currency volatility and struggled in some markets.

Africa’s largest grocer, Shoprite, has signalled its exit from Uganda and Madagascar, adding to a list that already includes Nigeria and Kenya, as the group focuses on its better performing SA business.

Shoprite has been trading in the rest of Africa since 1990, but has battled currency volatility and struggled in some markets, with the latest announcement concerning 10 stores in Madagascar, and five in Uganda.

The group completed the sale of its Nigeria operation in June without putting a price on it, and closed its last stores in Kenya earlier this year. In a trading update on Monday, the group said Uganda and Madagascar are being treated as discontinued operations, meaning they are not expected to feature in future reporting.

With the latest announcement, Shoprite will be left operating in 11 countries in Africa, including SA, where it generates almost 80% of its revenue from continuing operations.

The announcement follows news on Friday that the group had agreed to buy Massmart’s food unit for as much as R1.36bn. Shoprite is to take ownership of 56 Cambridge Food and Rhino stores, including 43 adjacent liquor stores, as well as 12 Masscash Cash & Carry stores, and the Massfresh business.

Still subject to approvals, the transaction is expected to be completed in early 2022, and would add about R11bn in annual revenue to a group that generates more than R160bn.

In its trading update for the 53 weeks to July 4, Shoprite said it continued to be hit by currency volatility, including a stronger rand. The parts of the nonSupermarkets SA business it is looking to keep grew sales 6.8% in constant-currency terms, but in rand terms they fell 7.5%, or R1.25bn. In the group’s halfyear to end-December, Shoprite reported that sales fell 8.4%, or by R784m in constant-currency terms, with Kenya, Uganda and Madagascar contributing about R46m to that fall.

All Weather Capital portfolio manager Chris Reddy said Shoprite’s strategic shift from areas that are a drag on revenue growth is positive for shareholders, adding it will allow management additional room to focus on turning around the new acquisitions from Massmart.

Africa has been a tough environment to operate in generally, he said, while SA retailers have struggled in the Covid-19 environment to get products into stores in the rest of Africa. SA’s port problems have only amplified that problem. “It comes down to where they will be getting the best returns for their investment,” Reddy said.

FURNITURE

Shoprite’s SA operations have fared better, with the group saying furniture did particularly well in its second half, though those stores were disproportionately hit by looting and violence that gripped KwaZuluNatal and Gauteng in July.

In the update, Shoprite said sales in its furniture business, made up of OK Furniture and House & Home, rose almost a quarter to R6.8bn, including growth of 38.6% in the second half of the period.

Total sales of merchandise from continuing operations rose 8.1% to R168bn, with its core Supermarkets SA business growing 9.3%. A number of other JSE-listed firms, including Cashbuild and KAP Industrial, have also indicated robust demand so far this year.

Shoprite has reported that of the 1,189 supermarkets trading under the Shoprite, Usave, Checkers and Checkers Hyper banners, 119 stores were severely affected due to looting and fire damage in July. This also affected 35 of its 340 SA furniture stores, and 54 of its 537store SA LiquorShop business.

LiquorShop sales increased 4.4%, including a 21.8% decline in the first half, and sales growth of 53.6% in the second.

Growth was hampered by the mandated liquor trade closures forming part of Covid-19 lockdown regulations, Shoprite said, and the LiquorShop business was closed for 144 days, 79 days in the first half and 65 days during the second.

In afternoon trade on Monday, Shoprite’s shares were trading 2.09% higher at R173.24, having risen almost a quarter so far in 2021.