Business, Business Management, Financial strategy, Investments

Shoprite – Shopping Right Out of Nigeria – Who is Next?

The Board of Shoprite, South Africa’s supermarket retailer, has announced it’s plans to sell “all or a majority stake” of its business in Nigeria after 15 years of operating in the country.

In a recent announcement, the Company said “following approaches from various potential investors, and in line with our re-evaluation of the group’s operating model, in Nigeria, the Board has decided to initiate a formal process to consider the potential sale of all, or a majority stake, in Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited”.

Shoprite is reported to have attributed the poor performance in 14 African countries other than South Africa to the impact of lockdown restrictions because of coronavirus had affected its operations in 14 African countries. It would appear, however, that the challenges with the Nigerian business are not just that of the impact of the pandemic.

Nigeria touts its more than 150 million population as a key market driver. However, a large portion of that population is very poor, unemployed or under-employed. For example, it is not uncommon to see job adverts for graduate lawyers with advertised monthly salaries of N25,000 (about $60). So, the lower middle class professionals are unable to patronize stores like Shoprite as their disposable income is abysmally low. The few existing upper middle class citizens who could afford to patronize Shoprite were also partly affected by the impact of the COVID19 pandemic.

Shoprite has also based its store expansion plans in Nigeria using the mall strategy. This strategy has come under intense competition from mid-sized stores such as Ebeano, Hubmart and Blenco, whose stores are in closer proximity to residential areas where Nigeria’s middle class population resides. Shoprite outlets and the escalators located at those malls therefore became more popular for taking selfies and as casual “meeting points” for Nigeria’s “wannabe” generation than for actual shopping.

Shoprite is also battling the impact of the consistent currency devaluations in Nigeria. The ability to meet its foreign currency denominated obligations, including dividend payments, is impaired by the currency devaluation in Nigeria. The business performance is also worsened as the devaluation would mean that the Nigerian business would be reporting a lower performance in US$ or Rands’ terms, although it could have grown in Naira terms. This is one of the consequences of the policy and regulatory inconsistencies of the President Buhari’s administration.

As also mentioned by CNN, “the company has faced a number of challenges in Nigeria’s tough business climate, including the looting of its stores in response to xenophobic attacks against other African nationals in South Africa”. During this reported incident, the National Association of Nigerian Students (NANS) had called for the exit of South African businesses in Nigeria, such as MTN, DSTV and Shoprite.

The above exit announcement by Shoprite tends to validate the exit decisions of other South African businesses such as Mr Price from Nigeria in June 2020 and Woolworths in 2013. There is, however, a difference in the planned exit strategy for Shoprite. Unlike Mr Price and Woolworths that closed down their operations in Nigeria, Shoprite is considering selling off “all or a majority stake” to local investors. So, the business would continue to operate in Nigeria and may even operate using the Shoprite brand name under a franchise arrangement. Although not yet confirmed, Tayo Amusan, the Chairman of Persianas and owner of the Palms Mall in Lagos, Ibadan, Ota, Ilorin and Enugu has been mentioned as a possible new owner of the Shoprite business in Nigeria. MBO Capital whose Board includes Tomi Davies, one of the popular angel investors in Nigeria, has also been linked to the deal.

For me, the big question is – who is leaving next? 

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