What Shoprite’s exit means for Nigeria’s retail business and foreign direct investment-Experts
By Kasim Bakare
Following the recent announcement of sale of its Nigerian outlets and a planned franchise agreement with new investors, Shoprite Holdings Limited, owners of Shoprite super stores in Nigeria, may have finally put a seal on a decision which set many tongues wagging few months ago.
Recall that on Monday, August 3, 2020, Shoprite International Limited, had mulled exiting from its Nigerian operations due to the effect of the Covid-19 on its business. The decision was greeted with much displeasure from patrons and staff of the leading superstore in Nigeria. Shoprite joined other South African retailers, Mr. Price and Woolworths, who had earlier announced exits from Nigeria due to a harsh operating environment.
The South African retailer has been struggling in Nigeria in recent years owing largely to increased competition and government policies such as border closures and local production of consumables. In the period that the company debuted in Nigeria, the nation has witnessed a surge in online shopping platforms, many of which have done well in swaying customers’ buying habits away from the big malls like Shoprite. The Covid-19 only made a bad situation worse.
It would be recalled that the covid-19-imposed lockdowns restricted physical presence and offline transactions, which was primarily the brick-and-mortar retail operating model of Shoprite. Regrettably, the company recorded a huge loss during the pandemic. Many analysts believed this could have been avoided if it had digitalized its operations.
In a bid to stay afloat, the company decided to divest its equity and invite interested buyers. After successful talks with investors, and in line with its re-evaluation of the Group’s operating model in Nigeria, Shoprite announced the sale of Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited through a disclosure in its recently released December 2020 Financial report.
Speaking on the development, Chief Executive Officer, Peter Engelbrecht said: “We are at the approval stage in terms of the sale of our Nigeria supermarket operation. Statement of comprehensive income reflects profit discontinued operations separately; assets and liabilities relating to the Nigeria operations disclosed as held for sale. We have lodged the transaction with the Federal Competition and Consumer Protection. We are just awaiting approval from them”
When the news of Shoprite planned exit and proposed sale broke in August, 2020, Shoprite staff and concerned Nigerians had expressed fears on the fate of its workforce. Many Nigerians pointed out the imminent loss of jobs from the divestment as Shoprite is a leading employer of labour with over 2,000 workers in its employ, 99% of who are Nigerians. To confirm these fears, the staff embarked on a nationwide industrial strike action on 2, March, 2021, shutting down 25 outlets of the leading retail brand in Nigeria. Among other things, they were demanding proper information on staff benefits as well as terms of sale to interested investors of the South African retail outlet.
Experts react to exit
Against the backdrop of the impending exit of Shoprite, Africa’s leading grocery retailer, experts have expressed their views on the implications of this move for the country’s already struggling $105 billion retail industry. They also expressed their concerns on how the planned exit would affect its supply chain, several thousands of staff on its payroll and the retail business in Nigeria.
Commenting on the issue, Dolapo Otegbayi, Specialized Nutrition Director, FrieslandCampina, noted that the planned exit of the foremost retail brand has wide implications for foreign direct investment(FDI) and the retail business in Nigeria. While expressing her optimism on the growth and potentials in the retail business despite the challenges facing the retail market, she noted that innovation, driven by the marketing mix holds the ace in the burgeoning retail business in Nigeria.
Hear her: Nigeria is a VUCA (Volatile Uncertain Complex and Ambigious) market where no two days are same. The retail landscape is very big. The Nigerian consumer market is still very traditional. Open air market and Proximity (Neighbourhood) outlets contribute more than 90% to retail. Supermarkets and Hypermarkets contribute less than 10%.
She added:”Convenience, Accessibility and Experience are trends that will continue to drive the growth of supermarkets and hypermarkets. Any retailer that continues to woo consumers distinctively with the 7Ps of Marketing (Product, Price, Place, Promotion, People, Process and Physical evidence) will remain top of mind for consumers”.
Commenting on the reasons for Shoprite’s planned exit, Dolapo noted that the Nigerian Market seems unfavourable for FDI at the moment.
According to her, the market is driven by volatile macroeconomic factors, which partially explains Shoprite exit. She noted that many brands, irrespective of type – products or services will exit the market, not necessarily because consumers have shifted away, but the cost of operating and doing business is very high putting significant pressure on the company in the short term as well as resulting into concerns and agitation on the part of shareholders.
“In the case of Shoprite, the exit of the Brand is another regrettable loss to Nigeria; the brand took retailing to the next level, providing shopping and leisure experience to consumers” She said.
On the implication of the decision on investment, Dolapo noted that the implication for investment can be short, middle or long term. According to her, the objective for investment should be mid-long term as there are many brands in Nigeria with long heritage that have withstood many business shocks, yet survived. The quintessential marketer noted that business vision, mission and goal should be very clear, to survive the difficult situation. She reiterated that Nigeria will always remain a haven for investors due to its growing population and the size of its middle class.
“The size of opportunity the country offers with its 200 million people, presently with annual population growth of 2.25%, is phenomenal. The size of the floating middle class is huge, likewise as we say, “there’s wealth at the BOP” as long as the offering is right – affordable and accessible.
Continuing, she said:”So, implication of the exit of Shoprite on future foreign (& local) investment is low. The business policies impacting the business environment is what needs to be addressed to ensure that other companies and brand don’t exit. In addition, if the new Management can deliver similar and or higher experience to consumers, the impact will be relatively lower”.
Corroborating Dolapo’s position, Sola Fakanle, an investment analyst, opined that though the exit of Shoprite may open up opportunities for local investors in that sector, it is a bad pointer to what Nigeria has become as an investment destination.
Hear him: “The exit of Shoprite might be an opportunity for the Nigerian investors and other competitors in the retail market business but it also speaks volume of how difficult our business terrain is. If a big brand like Shoprite, doing well in other countries can decide to exit the Nigerian market, it will be sending a bad signal to other potential investors. Government should try to address the concerns posed by the impending exit of Shoprite.”
Some analysts have also expressed shock noting that the decision of Shoprite portends a big danger to an already alarming unemployment situation in Nigeria while reiterating that the future of Shoprite and its employees might now depend on the new owners. They also argued that the news of Shoprite’s exit portends a bleak and uncertain future for their hordes of suppliers in Nigeria. Shoprite is reputed to have built relationships with over 300 Nigeria suppliers, small businesses and farmers.
A supply chain expert, Nnamdi Obiora, bemoans the fate of local suppliers likely to suffer from the stores closing and said, “Let’s be honest with ourselves. A lot of local suppliers will most likely be put out of business. The new owners might want to do business with a different set of suppliers and this might even affect the supply chain process as it might take time to understand the terrain.
However, some pundits believe that the move would create more avenue for growth for Nigerian businesses. They noted that Nigerian entrepreneurs can take advantage of the exit to grow their brands to the heights attained by Shoprite.
Commenting on the issue, Toyin Oluwadare, a financial expert said:“With the emergence of new players like Hubmart, SPAR, GrandSquare, etc. It is only natural for market share to reduce. Shoprite exit will also give Nigerian entrepreneurs to play big in that space. For instance, Just Rite, an indigenous retail store has invested heavily on the digital side of its business to avert what happened to Shoprite. They are also opening new stores in a massive expansion project”.
Meanwhile, shoppers have lamented the eventual loss of shopping convenience that might happen if the outlets are closed down. A regular shopper at Shoprite, Deborah Abdullahi, still finds it difficult to believe the retail giant is leaving Nigeria.
“So Shoprite is leaving Nigeria? Thousands of people may have to lose their jobs now. Some other thousands are depending on those people’s incomes. My new neighbor works with Shoprite in Ikeja and he has three kids.“His wife is a private school teacher and hasn’t worked in a while. There are so many people like that,” he said.
Another shopper, Aduke Johnson, noted that Nigeria will miss the top class service delivery and trust it has built with Nigerians.
Her words:”Shoprite is one of the few places where you are likely to get 99 per cent of the items on your grocery list without having to hop to two or three different places. They are also contributing to reducing unemployment in Nigeria. Have you seen the sheer number of Nigerians employed in each store? Imagine the massive job losses that would come with the exit”.
Shoprite opened its first store in Nigeria in December 2005 and has a total of 26 stores across eight states in the country including Federal Capital Territory, Abuja. The company revolutionized the retail industry in Nigeria with its effective service delivery, providing solutions to the shopping needs of Nigerians across different economic class in the country.
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