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SA products feature poorly in Shoprite’s African expansion

Shoprite is the African continent’s retail kingpin but, alas, it’s three top-performing countries outside South Africa are 80% stocked with non-SA products. The company is having a “hard time” with SA manufacturers, CEO Whitey Basson has said: “They don’t really appreciate the fact that its cheaper to trade into formal businesses, but that you have to build your brands.”

Consumer industries are expected to be the greatest beneficiaries of Africa’s middle-class boom — one third of its countries show gross domestic product growth of 6% or more.

Although underdeveloped retail markets, infrastructure and bureaucracy hurdles are prevalent on the continent, Shoprite has not been deterred. It started its African expansion about 17 years ago and, 169 stores later, it has learnt a thing or two.

“One of the reasons we have to put warehouses down is because a lot of the stuff comes from Argentina, Brazil, Angola and the Far East, bypassing the South African authorities,” Basson said.

When Shoprite opened in Angola 11 years ago, it had 6,400 stock-keeping units coming out of South Africa. “We are now down to a third of that. It worries me — their base problem is that the effort you have to put into it is just massive and the losses you could make and do make are substantial.

“The okes at Tiger (Brands) are trying — they probably know they are going to lose money. People are so scared of investors … that their share price is going to drop … We at Shoprite are fortunate in that we have a chairman who supports us and we do make mistakes … but for the rest of the guys they’re worried that they’ll lose money.”

While demand for modern goods is growing in African countries, brand awareness is key.

“South African manufacturers have come to the realisation that when they go into West Africa or even parts of East Africa nobody knows their brands, so they don’t want to bother. With the exception of Tiger Brands, they are not prepared to put up facilities and deep down they are not prepared to give Shoprite sufficient marketing allowance to allow it to develop their products,” independent analyst Syd Vianello said.

“They’re all scared of short-term performance being affected by putting a huge amount of money into West Africa, which is wrong because they’re stifling growth. Whitey’s answer is simple, if they want everything for free and they’re not prepared to commit money, he’ll go to Europe,” Vianello said.

Pioneer Foods CEO Phil Roux said Shoprite often preferred an import strategy as a consequence of the high landed costs of its products due to duty structures, lack of scale and cost competitiveness relative to global low-cost producers.

“We strategically align with Shoprite wherever feasible. We would dearly like to acquire manufacturing businesses on the continent in key geographies that make commercial sense. Assets explored to date are mostly overpriced, consequently difficult to justify from a shareholder returns perspective,” he said.

In SA, where growth has slowed due to indebted consumers facing living costs that are rising, Shoprite will invest almost R697m, less than the R1.5bn it will pour into new stores and distribution facilities on the rest of the continent. In the next year, 30 new stores will open and Basson said the retailer had identified a further 177 sites…..

BDLive: Read the full article

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