Nigeria Retail – The Exit Of A Giant
The Agonies of A Retail Giant
“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.”
Africa’s retail giant Shoprite has declared it is leaving Nigeria 15 years after it began operation in Africa’s most populous country. This is how the news was received in South Africa:
“Good riddance to Nigeria,” said independent investment analyst Christopher Gilmour. “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.”
A portfolio manager who did not want to be named said that 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
“The market welcomed the potential exit, pushing Shoprite’s shares to their highest in nearly two months. They were up 11.4% by 1214 GMT.”
Shoprite Holdings could become the latest South African retailer to retreat from the Nigeria retail market.
While presenting its operational and voluntary update for 52 weeeks ended June 28, 2020, Africa’s retail giant Shoprite has declared it is leaving Nigeria 15 years after it began operation in Africa’s most populous country.
In a statement on Monday, the Cape Town-based retailer said it has begun a formal process to consider the potential sale of all or a majority stake in its supermarkets in Nigeria.
The company said the results for the year do not reflect any of their operations in Nigeria as it will be classified as discontinued operation.
“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. As such, Retail Supermarkets Nigeria Limited may be classified a discontinued operation when Shoprite reports its result for the year,” the statement read.
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.
This is not all together surprising. In 2018, few months after opening its 25th Nigerian store Shoprite revealed that it will not be opening any more outlets in the country for the time being.
Speaking in 2018, Shoprite CEO Pieter Engelbrecht, “We had to impair four loss-making stores in Nigeria… we have slowed down in terms of our expansion until we get better clarity in terms of banned products and foreign exchange fluctuations.” He added that the chain’s Nigerian supermarkets were currently only carrying “half of our ranges because of the products banned.” The products affected by import bans include rice, flour and frozen meat.
In 2018, there were two main factors behind these restrictions on imports – a shortage of foreign currency and a desire to boost domestic food production. But with domestic production unable to meet demand, smuggling is flourishing and the prices of staple foods rising, it was only a matter of time. The Covid 19 Pandemic may have only added fuel to an already inflamed situation.
Nigeria, Ease of Doing Business and Foreign Investments
If this assessment is anything to go by, the question one would ask is: How have we fared with our ‘Ease of Doing Business’? This certainly is an ominious sign. How many foreign investments do we expect to leave the country, if Shoprite, a retail giant could be thinking of leaving? Nigeria remains the retail giant of Africa with the right indices to thrive and succeed and the future remains bright. A position no analyst has ever disputed. However, what may not be in dispute is that Nigeria is a difficult business terrain. – “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.”
Who will be Nigeria’s Next Retail Giant?
Answering this question, Ebata went thus: ‘Story, Story: Story! Once upon a time, there was a Shoprite!’
According to him, “Who would have imagined that you may never hear: ‘Daddy, please take us to Shoprite’ or ‘Mummy, I want to go to Shoprite’. Who would have imagined a Nigeria without a Shoprite! What will our malls now be called?”
“Well, as the saying goes: ‘One man’s meat, is another man’s ‘Kpomo’. For a start, our malls can now begin to bear the names their father gave to them at birth, at least for the time being, until a new retail giant will arise. Who will be Nigeria’s next retail Giant? The race has already begun. Would it be Amusan’s Persianas or would it be any of the other contenders? Who will be Nigeria’s next retail giant? May the best win.”