Should Shoprite and Walmart be worried by Carrefour’s entry into sub-Saharan Africa?

  

French retailer Carrefour, the second largest in the world, at the end of last month announced that it will enter eight countries in sub-Saharan Africa.

A Carrefour outlet in Taiwan

A Carrefour outlet in Taiwan

Carrefour – which operates a mix of hypermarkets, supermarkets and convenience stores – said it will enter the West and Central African countries of Côte d’Ivoire, Senegal, Ghana, Nigeria, Cameroon, Congo, Gabon and the Democratic Republic of the Congo. The company already has a franchise partnership in North Africa.

Carrefour is, however, not entering sub-Saharan Africa by itself. The group has announced a joint venture with CFAO, a distributor of vehicles and pharmaceuticals in 32 African countries. CFAO is majority owned by Toyota Tsusho, the Toyota Group’s trading arm.

According to Pieter de Wet, head of research at Novare Equity Partners, Africa’s infrastructure constraints mean that getting products to the end user is often a greater challenge than getting end users to the product. CFAO’s established footprint and understanding of many of these African markets is therefore likely to be a significant benefit for Carrefour.

CFAO has also announced that it plans to establish “dozens” of shopping centres across Africa, with the first one expected to open in Cote d’Ivoire’s commercial hub Abidjan in 2015.

“Carrefour can anchor new shopping malls being built by CFAO to attract the growing number of wealthier Africans who can afford brands and modern retail/convenience stores,” commented Mike Dennis, a retail analyst at Cantor Fitzgerald.

A threat to existing players?

South African companies such as Shoprite and Massmart (owned by Walmart) have been major players in the growth of modern retail in sub-Saharan Africa. Some Kenyan supermarket chains – including Nakumatt and Uchumi – have also expanded outside their home market. So should these retailers be concerned by the entry of Carrefour?

According to De Wet, Shoprite already has a substantial footprint across 17 sub-Saharan African countries and is not likely to be too worried by Carrefour’s entry. Shoprite CEO, Whitey Basson, last year told Reuters that he sees potential for over 700 stores in Nigeria alone.

De Wet added that Massmart’s parent company Walmart is the world’s number one retailer and has even deeper pockets than Carrefour.

Shoprite, however, only has a presence in three of the countries that Carrefour will enter. Of the eight countries that Carrefour is targeting, only two (Nigeria and Ghana) are English-speaking. Neither Shoprite nor Massmart has a presence in French-speaking West Africa.

According to De Wet, language and legal issues generally make it more difficult for companies from English-speaking countries to do business in francophone Africa

He added that France still has a significant influence in many of the francophone African countries, and that Carrefour will find it easier to enter these markets. “It always helps if your national government is active and has good relations with the country that you are entering into.”

A problem that Carrefour might face is finding top retail locations. A number of South African retailers have indicated that their growth in the rest of the continent is being held back by a lack of suitable retail space. Although CFAO has ambitious plans to build malls, this is easier said than done.

“Getting the ideal spots is first prize,” said De Wet. His company, Novare, is also involved in the development of shopping malls in sub-Saharan Africa, having recently opened the Grand Towers shopping centre in Nigeria’s capital Abuja. “Location for a retailer is of utmost importance… We know how difficult it is to find the perfect premises. It will become even more difficult.”

Carrefour’s announcement comes at a time that an increasing number of multinationals are eyeing Africa’s fast growing economies. The most recent high profile deal in the retail sector was Walmart’s 2011 acquisition of South African group Massmart, which also has a footprint in many countries across the continent.

“In our view, the window is not closing fast in Africa but only slowly opening with some US retailers buying into Africa via South Africa and a lot of new retail management coming from Europe to run South African and African companies,” said Dennis. “As the per capita income grows so I suspect more retailers will look at joint ventures to enter Africa, and like Carrefour they will be via distribution companies.”

Dennis added that foreign retailers should consider whether hypermarkets are the right format going forward in Africa or if they should rather be opening smaller stores.

Although there are still a lot of details missing on Carrefour’s exact plans for the continent, African consumers are sure to benefit. “It is a brilliant thing for the African consumer who is the end user of all these retailers’ products. I think more competition is a good thing,” said De Wet.



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