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SA food chain spreads its wings globally

Shoprite is steadily advancing its presence on the continent, with plans for the Democratic Republic of Congo and Nigeria.

Food retailer Shoprite is steadily expanding into Africa, with two supermarkets planned for the Democratic Republic of Congo (DRC) and an initiative in place to find suitable sites in oil-rich Nigeria.

Shoprite, which already has a strong presence in Africa and a foothold in India, has secured sites for the development of two supermarkets in the DRC, as well as land in Lagos for a second supermarket. The company also aims to further extend its presence in Nigeria.

Shoprite is already Africa's largest food retailer, with 1220 outlets in 17 countries across the continent, the Indian Ocean Islands and southern Asia. It is listed on the JSE, with secondary listings on the Namibian and Zambian stock exchanges. The group has 99 stores outside SA, of which four were opened last year.

Its stores outside SA represent about 12% of both sales and trading profit in rand terms. In the six months to December, the group reported turnover up 21,7% from R19,1bn to R23,3bn, while trading profit grew 42,2% to R1bn. Shoprite's operations outside SA improved turnover 32,4%, with profit growth of more than 100%.

Widespread network

CEO Whitey Basson says the group's South African operations are well supplemented by its businesses outside the country's borders. “We trade in 16 other countries, and virtually all of them posted excellent results. It is particularly our present focus on the oil rich West-African countries that is reaping benefit.”

Evan Walker, a retail analyst at RMB Asset Management, says Shoprite's African operations seem to be firing on all cylinders, adding valuable profit. India, which is unprofitable at present, is the only dark horse in its stable, and Walker believes the company might pull out of the country.

Basson says the company's African operations are mostly profitable, with only two stores reporting small losses, and these are expected to be eliminated shortly. In India, however, the company is still trying to get an indication of the best way forward after suffering “large” losses.

Shoprite has experienced constraints in the Indian markets and is finding the environment volatile. Basson says one of the options is to find a local partner.

In the six months to December, the company finally opened its first supermarket in Ghana, which had been delayed by a fire in the previous financial period. The store, in a modern retail mall in Accra, is exceeding expectations.

A first for the DRC

The group has also said it will invest $80m in the DRC to develop two supermarkets in the major cities of Lubumbashi and Kinshasa. First soil was turned in Lubumbashi in December for a 14,000²m shopping centre that will be one of two constructions taking place simultaneously.

The centres are the first commercial developments of such scale in the DRC. A Shoprite supermarket of about 5,500m ² will anchor the Lubumbashi store. A total investment of about $30m is envisaged for the development. Construction will start in the second quarter of this year and is expected to be complete in mid-2009.

The Kinshasa development is a retail shopping centre of about 24,000m² and will be constructed by the Shoprite Group's locally registered company as part of a mixed-use development comprising residential, office and hotel components. In the first phase, a Shoprite supermarket of 6,600m² as well as a centre of about 11,000m will be built to provide about 18,000m² of lettable space.

The Kinshasa shopping centre will represent a total investment of about $50m and will initially have 400 parking bays that can be extended to a final capacity of 1100 bays in future phases. After rolling out the two flagship stores, the company will start with a rollout program.

Each Shoprite supermarket is expected to employ about 150 permanent staff with at least 50 indirect opportunities for additional positions. Shoprite will also provide technical expertise and planting programmes for local small-scale farmers. The retailer will provide the technical input to help the local manufacturers produce goods that meet international standards.

Long-term view on India

In August, Basson said Shoprite was focusing on its stores outside SA in the year ahead. It had planned to open five more of these next year and was not “scared” to take risks. However, it would pull out of countries that did not meet expectations.

Of its 190 stores in 16 non-South African countries, only stores in Mauritius, Madagascar and Tanzania were not profitable in the year to June last year. However, these losses were not significant, whereas Basson said India would take at least two-and-a-half years to become profitable in a difficult regulatory environment.

Absa Asset Management Private Clients analyst Christopher Gilmour said there was potential for good margins on the African continent as Shoprite was targeting resource-rich countries where rapid growth has been forecast.

Source: Business Day

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