Shoprite expansion plans signal promising growth

The retailer‚ which reported its slowest growth in eight years for the six months to December‚ is embarking on an aggressive expansion plan to gain market share when local consumers are tightening their belts.

A look at Shoprite's Q ratio‚ which is the ratio of a publicly traded company's market capitalisation to the value of its tangible assets‚ shows the retailer's ratio as 2.62.

Frost & Sullivan consulting associate Kumbirai Gundani said part of Shoprite's Q ratio can be credited to its skilful execution of its African expansion. "If this ratio is greater than one‚ it means financial market participants believe part of a company's value stems from its nontangible assets such as brand equity‚ differentiation‚ innovation‚ customer experience‚ market dominance‚ customer loyalty and skillful execution‚" Mr Gundani said.

The search for higher yield has consumer-facing players turning their attention to Africa's resource-rich economies‚ despite challenges such as onerous laws‚ infrastructure constraints and poor supply chains.

Benefiting from first-mover advantage‚ Shoprite's non-South African operations include 163 stores in 16 countries‚ in which sales for the half-year rose 28.1% in rand terms‚ and by 14.9% in constant currencies. Revenue contribution by the non-South African operations to Shoprite's overall revenue has steadily increased‚ from 11% to 14% between 2010 and 2013.

"The countries it has selected to expand into are all showing high expected gross domestic product (GDP) growth rates‚" Mr Gundani said. "Angola‚ Nigeria and Ghana are all expected to have GDP growth rates upwards of 6% for the coming two years."

Shoprite's value proposition and target market were why it had been able to show gains in Nigeria‚ while higher-end Woolworths has struggled‚ Frost & Sullivan said.