Shoprite confirms Exit from Kenya in otherwise impressive FY 2020 results

Shoprite has confirmed it will close its two remaining stores in Kenya, in an otherwise impressive set of annual results that have seen group sales increase by 6.4% to R156.9bn ($9.32bn) in the 52 weeks to 28th June 2020. There is a marked difference between sales growth in its South African supermarkets (+8.7%) compared to its non-SA supermarkets (-1.4% in rand terms). In constant currency terms, non-SA supermarkets have seen sales rise by 6.6%.

Another major highlight is that volume growth in South Africa was 2.3% – meaning that Shoprite had gained market share for 16 consecutive months to June 2020, the end of its financial year. Over the course of FY 2020, across all geographies, Shoprite has opened a total of 147 stores, comprising 101 corporate and 46 franchise stores.

The statement on the closure of store in Kenya is unequivocal: “Given the ensuing economic impact of COVID-19 and our experience to date, we expect to close or dispose of our remaining two stores in the region in the year ahead.” This has been a long time coming: Shoprite entered Kenya with a plan to quickly open 7 stores, benefitting from the collapse of the Nakumatt supermarket chain. In the end it only ever opened four stores and it was clear that the retailer was struggling to create the impact it wanted.

The closure of the Kenya stores is a minor issue on Shoprite’s balance sheet. It is a bigger issue strategically. It means that Shoprite will have entered and exited three of most important markets in Africa: Egypt, Nigeria and Kenya. It is also telling that Shoprite has not waited another 12 months to see how Tuskys’ financial troubles would play out – potentially opening the door for Kenyan consumers to seek out a strong, value-led chain like Shoprite. The decisiveness shown by CEO Pieter Engelbrecht is a sign that investors wanted to see more action to stem losses from its operations outside South Africa.

Is Shoprite finished in East Africa?

Does it mean Shoprite is finished with Kenya, a market it has sought to enter since the early 2000s? No, not decisively.

But the growth of the two leading chains, Naivas and Majid Al Futtaim’s Carrefour will make any re-entry much harder. Given that Shoprite has already exited Tanzania, it also leaves a question mark over Shoprite’s small network of stores in Uganda. There is no mention of Ghana or Uganda in Shoprite’s results presentation, although both of them have become less strategically important given the planned exits from Nigeria and Kenya.

The annual results have confirmed that Shoprite does not intend exiting Zambia, where sales grew by 15.7% in constant currency terms. In Angola, Shoprite’s sales have declined by 1.2% in constant currency and 29.1% in rand terms, as a result a 70.8% devaluation of the Angola kwanza against the US dollar. This has hit consumer spending power and driven costs up. However, Shoprite says that availability of foreign currency improved during the second half of the financial year, and we read this as a holding statement that Shoprite intends staying in Angola for at least the next 12 months.

What these exits do confirm for Trendtype is that Shoprite is having major problems adapting to international markets outside southern Africa. In South Africa, Shoprite excels at price leadership and operational efficiency. In markets like Nigeria, Angola and Kenya it has higher costs, challenges with fx availability and currency devaluation, limiting Shoprite’s ability to be a cost leader. This leaves it in no man’s land.

Growth of online and the COVID-19 pandemic

Shoprite’s Checkers launched its Sixty60 online shopping platform in November 2019 in 10 stores and had rolled it out to 87 stores by the end of June. The main Shoprite chain does not offer online shopping. Its Checkers Xtra Savings Rewards programme, launched at the same time, has 4.7m million members signed-up.  The Checkers Sixty60 online app has been downloaded by 620,000 people and Shoprite claims it is South Africa’s second most popular shopping app. The success of the Checkers app, which promises delivery within one hour, has been in no small part due to the severe lockdowns in place in South Africa since March.

The reverse is true for alcohol sales, which have been banned for much of the lockdown. Shoprite’s off-trade business (Shoprite LiquorShop and Checkers LiquorShop’s) was strong through to March and then closed for 66 days and restricted thereafter. In the first half of its financial year, sales grew by 20.5%. in the second half of the financial year, covering the pandemic period, sales fell by 29.5%, meaning a 3.3% sales decline across the financial year.