Interview: Shoprite CEO talks retail in Africa

  

Shoprite is South Africa’s largest grocery retailer in terms of overall market share. As of 2010, it held about 34% of the overall market. It is also rapidly expanding its footprint in the rest of Africa, including the aim of establishing a major presence in Nigeria. In this interview with professional services firm PwC, Shoprite Holdings chief executive Whitey Basson discusses foreign investment in Africa’s retail sector as well as Shoprite’s expansion into the continent.

How has the Walmart acquisition of South Africa’s Massmart changed attitudes towards investment in your sector?

Despite the level of foreign investor interest in the South African retail sector having risen prior to the acquisition, there has been a marked increase in foreign investment interest since the announcement. Combined with South Africa’s inclusion in the BRICS group of countries, many investors are now fascinated by the African growth story and this can be seen in both the increase of foreign shareholding – as well as the elevated price/earnings ratios – of South African retail companies.

What is the primary growth strategy that your business is relying on within South Africa?

Our growth strategy has been acquisitive in nature in the past, but organic expansion is now our primary growth driver. We have three core supermarket brands each with a unique positioning in the market. The brands start with Usave, a limited assortment hard discounter, which is capturing share from informal traders, independent retailers and previously under-serviced areas. Shoprite is the group’s principal brand and is positioned on low price leadership targeting the price-conscious mass middle market. It is capitalising on the rising middle class as well as increased government spending on social grants. Finally, our Checkers brand has been repositioned and caters to more upmarket consumers, with market share being won from competitors in this segment.

A further key growth driver is the addition of complementary business services. This includes the development of pharmacies, liquor outlets, event ticketing services and basic financial services.

What is your overall outlook for the South African retail sector over the next 3-5 years?

The retail sector’s competitiveness is intensifying immensely with additional players entering the food segment competing for local food expenditure. Economic growth should remain positive but more muted. This is a result of unemployment rates and the inescapable impact of international factors such as the Eurozone crisis. Suitable growth opportunities in formal food retail still exist though, since an estimated 30% of the country’s food expenditure still goes through informal outlets. Formalised retail’s rapid increase in footprint is quickly capturing this spend.

How about growth in the rest of Africa?

Considering that the local market is approaching relative maturity, growth here will be closely linked to the ability to create sustainable employment for the masses of unemployed youth. The opportunity represented by the oil-rich West African countries that previously lacked strong formal retail representation is important to our business in the next 10 years. This will be a significant driver of sales and profitability growth.

What are the main barriers to further investment in the sector?

The sluggish pace of property development in Africa and the lack of suitable anchor tenant sites can create significant hurdles to any expansion plans. In South Africa, the over-regulation of consumer goods is creating unnecessary inefficiencies and costs. Examples are new foodstuffs labelling requirements, which make it difficult for even developed economies to export their products into the country. Furthermore, the Consumer Protection Act makes the South African consumer one of the most protected in the world.

In Africa the bureaucracy of intra-African trade is a major challenge. Tedious trade agreements and administration-heavy import/export requirements make cross-border trade a lengthy and complicated process. The inefficiency of various customs agencies and government departments make product distribution lead times untenably drawn out and inefficient, which has a negative impact on product availability and costs.



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