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  • Business - Companies
  • Updated: August 03, 2020

Two Methods Shoprite Will Use To Leave Nigeria As It Seeks To Reduce Risk Exposure

Two Methods Shoprite Will Use To Leave Nigeria As It Seeks T

South African retailer, Shoprite, is planning to leave Nigeria as it struggles to make sales. The superstore market has been more competitive in recent years, with more players entering the market. The increase in rivals has been splitting the revenue which Shoprite once held sway over.

Shoprite began operation in 2005, it had since established about 25 stores across Nigeria, but 15-years after it made an inroad into Nigeria, the superstore might eventually shutdown, and divert its investment into its South African branches. This will bring an end to the company that relaunched the revolution of supermarkets in Nigeria after years of mom and pop stores reign.

History Repeating Itself In Nigeria's Superstore Market

Prior to Shoprite, Nigeria was home to superstores like Leventis Stores and UTC Stores in the 1980s, but these supermarket brands couldn't survive the economic situation in the country. Their demise was caused by various reasons which included currency depreciation, inflation and high store maintenance costs.

These stores were independently importing and purchasing the products being sold to the customers, thereby, taking on as many risks as possible. But their business model couldn't survive the business environment in Nigeria, and they collapsed. Shoprite approached the market with same business model, but gradually changed course, adopting a different business strategy.

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Shoprite began to contract merchandise/goods to independent and local suppliers, absolving the company of procuring risk, and reducing their financial obligation. The risk in goods had now been placed on third party, while Shoprite focused on real estate, rental space management.

Shoprite initiated the Made-In-Nigeria programme, leading to 80 percent of its goods being sourced in Nigeria. The company seemed to have cracked the market code that its predecessors couldn't, but then, there are external factors that are not within the grip of the company but government.

Shoprite suffered from the devaluation of the naira against the US dollar, according to its filings. Also, the COVID-19 lockdown measures also pummeled its revenue, leading to Shoprite's sales declining by 6.3 percent in the 2020 fiscal year.

Note that Leventis Stores and Kingsway both collapsed under Muhammadu Buhari's military regime, and the same superstore market is heading towards the same direction with Buhari as President. At the time Leventies closed, Nigeria was battling recession, and now, Nigeria is facing another recession. Also, Naira was devalued at both period.

How Is Shoprite Planning To Exit Nigerian Market?

Although, part of its exit plan includes selling off its Nigerian assets. This was stated in a filing by Shoprite to the Johannesburg Stock Exchange (JSE). Shoprite, which is operated under its subsidiary name in Nigeria, Retail Supermarkets Nigeria Limited, said it is also weighing the option of selling its majority stake in the firm, thereby, reducing its exposure to the Nigerian market.

This means the company is willing to fully exit the Nigerian market if investors are willing to acquire 100% of Retail Supermarkets Nigeria Limited. And if investors are short on cash, then it will settle for a backseat; either way, by year end, Shoprite's lifespan is counting down in the superstore market in Nigeria.

"Retail Supermarkets Nigeria Limited may be classified as a discontinued operation when Shoprite reports its results for the year. Any further updates will be provided to the market at the appropriate time." Shoprite disclosed.

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Investors Are Lining Up To Acquire Shoprite

Shoprite is an household name, with about 25 stores to its credit - the highest by any superstore operating in Nigeria. The closest is Spar, which accounts for about 10 outlets since it began operation nine years ago. So Shoprite's brand is luring potential investors who are willing to takeover regardless the challenges that has forced Shoprite's hand to plan an exit from Nigeria.

AllNews believes Shoprite is being approached by high-net-worth investors, as the company, apart from its retail business, is also in the real estate business. While speaking on selling off its Nigerian asset, Shoprite stated that it has moved to process the offers being tendered.

“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,” the update read.

Shoprite's Problem Is Not Limited To Nigeria

Note that the impact of COVID-19 policy on Shoprite's earnings is not only limited to Nigeria, as the company recorded sluggish growth outside South Africa. Shoprite reported its sales, while it dropped in Nigeria, only grew by only 0.1 percent outside South Africa in the first half of the year under review.

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“In equally, if not more difficult circumstances resulting from COVID-19 lockdown regulations, Supermarkets Non-RSA’s second-half reported an increase in sales of 0.1%,” the company said, adding that, this led to “an overall decline in sales of 1.4% for the year but in constant currency increased by 6.6%.”

How Will Shoprite Exit Affect Employees?

Power will change hands, which means the new management taking over after the potential exit of Retail Supermarkets Nigeria Limited, will come in with their own business strategy which will be different from the current settings. Usually, new system often purge the existing plan in order to reflect their takeover.

Whenever an acquisition occur, employees are often affected as the existing workforce plan are often changed - the new management can change required certification to work at the retail outlet, so these affects workers, and new employees brought in to change the mentality of the old system.

This doesn't mean some jobs won't be saved, but the retrenchment will start from the top, then downward.

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