Auchan swallows Citydia in Senegal as it looks to triple in size

Nov 9, 2017

Auchan in Senegal
Auchan has snapped up Citydia’s store network of 9 supermarkets in Dakar and is embarking on a major expansion plan in Senegal.

French supermarket retailer Auchan has acquired the Citydia network of 9 supermarkets in Dakar, Senegal. The acquisition was first reported with little fanfare in the Senegalese press, and details are still emerging about the structure of the deal.

Before the deal, which took place in mid-September, Auchan had 10 stores in Senegal. All of those 10 stores were in Dakar, and increasingly competing with Citydia stores. As we reported in August, Auchan and Citydia were already going head to head in the neighbourhood retailing sector. The Citydia franchise was first put up for sale in early 2017 and apparently offered to Mercure International. The exact price has not been disclosed. Trendtype has seen estimates of CFA9bn ($16m), or CFA1bn ($1.77m) per store. Auchan has its own products and distribution and were only really buying the stores themselves; Citydia’s owners were keen to exit and already under pressure from Auchan. We suspect this limited the premium on the sale price.

The Citydia acquisition brings 9 new supermarkets, and takes Auchan’s total store network in Senegal to 20.

Auchan’s growth plans

Auchan acquired the Supermarché du Rail in Thiès, 75km east of Dakar and converted it into Auchan’s 11th store. The store in Thiès,  Senegal’s third largest city, opened in October 2017.  Auchan is planning a second neighbour store to open shortly in the city, with a 10,000m² hypermarket complex also in the works. The company is also set to open a large supermarket in Mbour, which is 100km south of Dakar, and home to the tourist resort of Saly.

Its general manager has outlined that Auchan would like extend its footprint far more widely. Auchan aims to open stores in Kaolack, Saint Louis, Guédiawaye, Pikine and eventually every mid-size city in Senegal. By the end of 2017, Auchan will have more than 20 supermarkets and around 1,000 employees – almost all of which are Senegalese. Auchan’s general manager has said that he’d like the retailer to have 3,000 employees by 2021, which we indicates retail floorspace more than tripling.

Citydia struggling to break even

Citydia in Senegal was operated by Société Diagonal, owned by Lebanese businessman Adel Attyé. We understand that Société Diagonal struggled to run a profitable franchise: although, like Auchan, its stores are targeted at emerging middle class consumers, the reality is that those consumers remain highly price sensitive. The critical price point is CFA1,000 ($1.75).

For stores like those of Auchan and Citydia, that means that even imported budget private label products are treated like a premium purchase. Auchan has managed to keep prices more competitive than Citydia although still out of reach of most consumers. Citydia, meanwhile, did trial using more local products but found that prices still remained beyond the reach of many consumers. Ultimately, the trial was unsuccessful.

Pricing disagreements have also come between Société Diagonal and Total, the French forecourt retailer. Total has 166 service stations in Senegal and an agreement with Citydia that saw more than 50 Citydia Express stores opened on Total forecourts. It looks as if that relationship is now over.

Where does this leave Mercure?

Mercure runs the Casino supermarket franchise in Senegal (as well as holding the franchise in several other West African countries). Auchan’s purchase puts Mercure and Casino firmly on the back foot, even though Casino is targeted at the very wealthiest end of the consumer spectrum. In theory the two retailers do not compete directly against one another.

In practice, Auchan is not content to merely run 600m² neighbourhood stores with limited numbers of SKUs. With one eye on Carrefour’s impending entry, Auchan is already looking to build hypermarket complexes that will inevitably carry more products, and more premium products.

It is likely that we will see Mercure respond by importing the Casino Mandarine premium neighbourhood store format into Dakar. Casino Mandarin has already been successfully rolled out in four sites in Abidjan, Côte d’Ivoire. We’re still not clear that Dakar can support a substantial network of premium neighbourhood stores.

The future

The elephant in the room is Carrefour and its partner in West Africa, CFAO. Carrefour has already secured a large site in the Mermoz area of Dakar. It looks set to build a 20,000m² premium shopping mall, anchored by a 10,000m² hypermarket. Given the lead times involved, this indicates an opening in late 2019/early 2020.

As such, Auchan is racing ahead while it can. The company has limited exposure in West Africa to date, so Senegal is its flagship market in the region. To date, Mercure/Casino have been slow to respond and we see those problems only being exacerbated once Carrefour enters Senegal.

Auchan is also now experimenting with online retail: From November 6th 2017, Auchan has partnered with ecommerce start-up Afrimarket to allow customers order items online for home delivery. The exclusive distribution agreement give Afrimarket access to 1,500 SKUs. The Auchan/Afrimarket partnership is seeking to take on Jumia in Senegal, with 24 hour delivering in Dakar and less than four days in the rest of Senegal.

 

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