Pick n Pay to step cautiously into Nigerian market

Image credit: The Times

AG Leventis, which is listed on the Nigerian Stock Exchange, has nearly 90 years of trading experience in that market.

Pick n Pay CE Richard Brasher said at the company’s full-year results presentation on Tuesday that there was a dearth of formal players in that country, which represented an opportunity for Pick n Pay.

"Nigeria is a country and a market which Pick n Pay cannot ignore in its quest for long-term sustainable growth. The challenge, of course, is how to succeed in Nigeria. We can all point to examples which have not worked."

With the largest population on the African continent, Nigeria has for a while been touted as the holy grail within the Africa Rising narrative. However, penetrating the market has proved to be tough for South African entrants, with some cutting their losses and exiting the market. These include Woolworths, Tiger Brands and Telkom.

Woolworths entered the Nigerian market in 2012, opening up three stores. In 2013 Woolworths announced a decision to close all three stores. Woolworths CEO Ian Moir said at the time: "We made a mistake going into Nigeria. We were never going to make money in the next five to 10 years in Nigeria."

Brasher said he had set three preconditions for success in the Nigerian market, namely: a need to understand the local consumer needs; entering a joint venture with a local partner; and achieving growth in a deliberate, planned and unhurried way.

Pick n Pay will hold 51% of the joint venture.

The group’s full-year results reflected double-digit growth in profit, driven partly by cost-cutting measures.

Profit before tax rose 26.1% to R1.5bn in the year to end February 2016, with the margin increasing to 2.1%, from 1.8% in the year-earlier period. Turnover climbed 8.2% to R72.4bn.

Headline earnings per share (HEPS) rose 26.4% to 224.04c and the group declared a final dividend of 125.20c per share, bringing the total dividend to 149.40c.

Pick n Pay’s results came amid tough conditions in the retail sector, not least due to anticipated drought-induced price increases in food. SA is expected to grow less than 1% while consumers are highly indebted and unemployment is at record highs.

"They’ve shown some very good growth. The rise in turnover shows that they are taking market share from somewhere, and that somewhere is probably Shoprite," said Absa Investments retail analyst Chris Gilmour.

Apart from SA, Pick n Pay currently operates in Namibia, Botswana, Zambia, Mozambique, Mauritius, Swaziland and Lesotho. The group also Pay owns a 49% share of a Zimbabwean supermarket business, TM Supermarkets.