Shoprite’s Africa safari runs into quicksand

● Africa’s largest grocery retailer, Shoprite, is considering store closures and spending cuts in response to a disappointing performance in its operations outside SA.

In its results presentation this week for the interim period to end-December 2019, the retailer said while things were going well in SA, the picture was less rosy in the rest of Africa, particularly in Angola, Nigeria and Zambia.

Shoprite says negative factors include unstable currencies, import restrictions and limited local supplies, and in response it has negotiated rent reductions for 17 of its supermarkets and is trying to do the same for 16 others. It is also assessing the continued viability of unprofitable stores and will spend less on opening new ones. It has cut the number of new supermarkets planned for the 12 months ending June 2020 from 17 to 13.

The company says it will continue operating in countries beyond SA’s borders, but will limit future expansion while considering its options “with regards to alternative operating models”.

“We are looking at a possible joint venture, a franchise model, different formats,” says CEO Pieter Engelbrecht.

Shoprite has experienced the most trouble in Angola, which used to account for 60% of revenue outside SA, he says.

Angola’s currency has devalued by almost 190% over 24 months. To compound the retailer’s woes, the Angolan parliament introduced VAT of 14% in October last year, turning the screws tighter on consumers who were already under financial strain.

“In terms of operating [in Angola], what has improved on our side is the liquidity,” Engelbrecht says. “We are able to buy stock again and the country has become self-sufficient in terms of its liquidity, so much so that we could even repatriate $34m [about

R520m] over the past six months.”

Charles Allen, a senior consumer analyst at Bloomberg Intelligence, says Checkers is paying the price of “opening stores in Africa in quite a capital-intensive way”.

He says the group is clear that it will not leave countries in which it has invested. “It sort of makes sense that you don’t throw away the extra seeds you’ve developed over 20 years.” Allen says the low-cost Usave brand would be more appropriate for Angola and some other countries where consumers have limited spending power.

In Nigeria, sales at Shoprite stores were affected by xenophobic attacks in SA in September last year. In response, Nigerian consumers boycotted South African brands, and Shoprite is still feeling the effects.

But in SA, Shoprite’s Checkers chain is gaining ground in the premium segment. Allen says Checkers is outperforming the market and making inroads in the fresh food sector, but he notes that Woolworths’ food division is also gaining ground. “I would imagine, in some cases, Checkers is probably taking market share from Woolworths because Checkers has become good enough; that people would choose to go there rather than drive further to the Woolworths they used to go to.”

But he says Woolworths is trying to make its pricing more competitive and “aggressive”, which should help retain customers.

Engelbrecht says: “We can clearly see we’re attracting a more affluent customer with our products and the value we offer. We believe there’s a lot of runway still in [Checkers] to penetrate markets where we’re under-represented.”

The new FreshX format launched by Checkers stocks items such as artisanal chocolate and features wine cellars and coffee shops.

The number of FreshX outlets is due to grow from 28 to 80 in two years.

We’re attracting a more affluent customer with the value we offer