Woolworths adopts new business model for African expansion
South Africa-based clothing and general merchandise retailer Woolworths will replace its franchise business model with joint venture partnerships as it expands into the rest of the continent.
“We decided in terms of our expansion into Africa that it was actually better to move away from the existing franchise or wholesale model, into a partnership model,” said John Fraser, Woolworths’ executive for international business.
Historically, Woolworths traded in the rest of the continent under a franchise model, where the company would sell products to franchisees with limited other involvement in the business.
“By moving into a partnership model, we are going to be getting more involved in the retail side of the operations, which means we will be working a lot closer with our partners in terms of ensuring we’ve got . . . the right product ranges in each of those environments and trying to ensure that the in-store experience you get in [the rest of] Africa is the same as if you were in South Africa,” Fraser explained.
Woolworths last week signed a joint venture agreement for Tanzania and Uganda with Tanzanian businessman and former franchisee Ali Mufuruki. There is currently one Woolworths store in Uganda and three in Tanzania. Woolworths will add another store in Uganda and another two in Tanzania by the end of the year. “We reached an agreement with Ali where we acquired 51% of his existing business, and we are now going to be focusing on growing Woolworths’ presence in both of those countries,” Fraser noted.
Fraser told How we made it in Africa that Woolworths will also open outlets under a joint venture model in Nigeria and Angola within the next twelve months.
“We still do have some countries that are trading under a franchise arrangement, but we are in ongoing discussions with those franchisees as to how do we transition the model, which are ultimately in the best interests of the customers.”
Outside South Africa, Woolworths currently has 46 stores in ten African countries, namely Botswana, Namibia, Lesotho, Swaziland, Ghana, Kenya, Tanzania, Uganda, Zambia and Mozambique.
Improving the supply chain
Woolworths currently exports all stock for its stores on the continent from South Africa. Fraser explained that in the past the company had to pay duties for imports into South Africa as well as when it exported the same goods to the rest of the continent. “You can imagine that had quite a significant impact on the retail selling price.”
As part of the new focus on Africa, the company will make use of duty drawbacks – a refund of customs duties and fees paid on imported merchandise that is re-exported – to bring down prices and expose more customers to the Woolworths brand.
“We are going to be working a lot closer with our partners to make sure that we’ve got a cost effective supply chain up into Africa. To make sure that we can get goods to each location at the right price, and to ensure that we can get the right selling price for our consumers in those markets,” Fraser added.
Targeting the middle class
Woolworths, which currently targets higher-income customers in South Africa, will continue to be an “aspirational brand” in the rest of the continent. “Our offering will be aimed at the emerging middle class within those African countries,” said Fraser.
“What we are seeing in Africa is a significant growth in population. We are seeing the emergence of a middle class. There is an increasing amount of urbanisation . . . There is an ongoing sustainable increase in GDP and disposable income in those countries . . . We are experiencing very good growth in Africa.”