By Jeph Ajobaju, Chief Copy Editor
“Good riddance to Nigeria,” said independent investment analyst, Christopher Gilmour, in Johannesburg after SHOPRITE, a South African brand, announced plans to reduce or sell its outlets in Nigeria, where they have opened since 2005.
“Almost impossible for any foreign company to do business there. Companies never know where they stand with the authorities and there are constant disruptions and distractions,” Gilmour told Reuters.
And the market welcomed the potential exit, pushing SHOPRITE’s shares to their highest in nearly two months. They were up 11.4 per cent minutes after the announcement on Monday.
Its shares were also supported by a 6.4 per cent jump in total sales to 156.9 billion rand in the 52 weeks to June 28.
SHOPRITE said its annual headline earnings per share (HEPS) could rise despite the impact of 327.2 million rand in COVID-19 costs and impairments of 1.3 billion rand.
It operates about 25 outlets across Nigeria and employs over 2,000 employees, most of them Nigerians.
According to Reuters, the company has been reviewing its long-term options in Africa as currency devaluations, supply issues and low consumer spending in Angola, Nigeria, and Zambia have weighed on earnings.
SHOPRITE, which owns more than 2,800 outlets across Africa, said in a trading update that it was pursuing the sale after reviewing its operating model and receiving approaches from various investors.
In February, CEO Pieter Engelbrecht told analysts that SHOPRITE remained committed to the continent but not at any cost.
A portfolio manager who did not want to be named said Engelbrecht is delivering on his promises to deleverage the balance sheet and focus on the domestic market, where the retailer continues to trade best.
“Future profits will also improve, given the severance of the lethargic Nigerian arm,” he added.
SHOPRITE said its basic HEPS – the main profit measure in South Africa – from continuing operations are likely to be between 1.6 per cent below and 6.4 per cent above the restated 747.7 cents it reported a year earlier.
Its South African supermarkets division grew by 8.7 per cent while sales at its supermarkets outside South Africa, excluding Nigeria, fell 1.4 per cent.
Its South African supermarkets were boosted by panic-buying at the outset of the coronavirus lockdown and significant growth at its Checkers business.
Checkers has been repositioned as a more upmarket brand and now represents 39.6 per cent of the group’s domestic supermarket sales.
Operational challenges
In September 2019, SHOPRITE stores in Nigeria were vandalised and looted following xenophobic attacks in South Africa targeting Nigerians.
Several SHOPRITE stores across Lagos were sealed and guarded by police to forestall further attacks.
The Guardian (Nigeria) reports that in a report released in April, the parent company said the impact of the store closures and drop in customer count resulted in a difficult half-year for the company.
SHOPRITE said the subsequent reduction in customer numbers during and after the crisis implies that some shoppers in Nigeria boycotted the brand.
However, “their positioning has been confusing from the start,” Kazeem Shittu, a brand and marketing executive told The Guardian.
“They positioned as an upmarket brand that wanted to appeal to the bottom of the pyramid. They came in and the first location was the elitist part of town which didn’t send the right signal to the mass consumers.
“The segment of the market they also wanted to attract was not sold on their offerings as the supermarket never stocked the products they wanted. Value proposition and positioning were not clear from the outset,” Shittu added.
“The average Nigerian saw SHOPRITE as a place with too much barrier and meant for a certain class.
“They don’t have upmarket brands you’d find in Hartley’s, or even Ebeano sometimes, and they’re located in areas that were out of reach to the lower class until recently.”
E-commerce and competitions from indigenous brands such as Ebeano, Hubmart, Globus, Addide, and JustRite – most of which are located closer to consumers – may have also affected SHOPRITE.
However, SHOPRITE is not the only South African brand leaving Nigeria. In June, Mr. Price Group announced plans to close its Nigerian business to focus on its home market in South Africa.
The popular affordable clothing, sport, and home wear brand has closed four out of its five Nigerian stores and expects to close the last one in the coming months.
Nigeria is the third country where Mr. Price Group has exited, after leaving Australia and Poland in 2019.
It cited challenges like supply-chain disruptions and getting funds out of Nigeria as reasons why it has struggled to operate in Africa’s most populous country and largest economy.
