Shoprite confirms “exit” from Nigeria. Nigerian chain Jara may buy it out

In news that will shock few people in Nigeria, Shoprite has confirmed its exit from the country. For the financial year ended June 2020, the Nigerian stores registered a sales decline of -6.3% year on year, in Rand terms. In Nigeria there are rumours that Nigerian supermarket chain Jara may take over its network, one of a handful of companies being approached.

Shoprite opened its first store in Nigeria in 2005. It has since built a network of 26 stores in the country, and is the clear market leader in the supermarket sector. You can read its official investor release here.

As Trendtype noted in June, Shoprite looked set to exit via the sale of all or some of its shareholding in the Nigerian network. In fact, CEO Pieter Engelbrecht has already warned that the retailer is looking to exit underperforming countries. By contrast to its underperforming non-SA operations, its South African stores saw sales increase

Shoprite’s operations in Nigeria have struggled since 2016, hit hard by currency devaluations that make it lossmaking in Rand terms. Even as far back as 2016, Shoprite was having to go on record denying it would exit because of challenging conditions caused by soft oil prices hitting the Nigerian economy.

In March 2020 Shoprite revealed it had lost 8.1% of its sales in constant currency terms at the end of the second half (H2) of 2019. CEO Pieter Engelbrecht has already warned that the retailer is looking to exit underperforming countries.

Sales in Nigeria were also hit by a wave of reprisal attacks against Shoprite, a visibly South African brand, because of xenophobic attacks on Nigerians in South Africa. In Onitsha, Lagos, Ibadan and Kano attacks on Shoprite stores included arson attempts and threats of violence. A meeting at the time between President Muhammadu Buhari’s Senior Special Assistant on Foreign Affairs and Diaspora, and the National Association of Nigerian Students (NANS) ended with a resolution that MTN Nigeria, MultiChoice, Shoprite and other South African companies in Nigeria should cease operations in Nigeria. It is hard to overstate how strongly the feeling was received in South Africa that Shoprite would be vulnerable to political interference as well as its existing financial challenges.

That sentiment was confirmed in May 2020 when a Lagos appeal court affirmed the judgment of a Lagos High Court that awarded $10m damages against Shoprite in a suit filed by AIC Ltd that Shoprite had breached an agreement to set up its Nigerian arm. The court also directed Shoprite to pay 10% per annum on the damages with effect from the date of judgment until final liquidation of the entire sum.

Shoprite has also, we understand, been intensely targeted by Nigerian regulators over minor trading issues that smaller Nigerian retailers are not picked up on, effectively creating an uneven playing field.

When Trendtype has previously spoken to Shoprite about international expansion, the company has talked about how its investment positioning is driven by economic forecasts. The record lows for oil prices in 2020 will hit Nigeria savagely. For the government to be able to achieve fiscal breakeven, oil prices need to be $133 a barrel. At the time of writing oil prices are $42.94 a barrel.

A total exit? Or a minority stake?

Officially, Shoprite is classifying Nigeria as “discontinued operations” and has decided to initiate a formal process to consider the potential sale of all, or a majority stake in its Nigerian business. Trendtype understands it has had advanced conversations with a new chain, Jara, to take over its business. Jara (officially EDLP Nigeria Ltd) calls itself Nigeria’s first discount supermarket and retail chain.

Although Nigerian owned, it is currently headed by Dutchman Willem Snollaerts, who previously ran discount supermarkets in Russia and ran the Aldi discounter chain in the Netherlands for more than a decade. Jara has two stores at the moment – one in Ikeja (Lagos) and another in Benin City. If it acquired the Shoprite network it would become the largest supermarket chain in Nigeria.

Several other companies are also understood to be in negotiations with Shoprite too.

A partial exit, by retaining a minority stake in a Nigerian business like EDLP Nigeria, would cure several problems for Shoprite. It would get rid of two of Shoprite’s biggest headaches – being targeted as a South African business and trying to repatriate Nigerian earnings as Rand. It would also improve its trading statements, because losses in Nigeria have contrasted with buoyant performance in South Africa for some time. And, of course, it would pave the way for Shoprite to return to what is Nigeria’s biggest economy.

Trendtype understands that although the change is being positioned as an exit to investors, Shoprite is looking to retain a significant minority stake in the company that acquires its operations. Shoprite’s subsidiary in Nigeria, Retail Supermarkets Nigeria Ltd, is being sold as a going concern. Retail Supermarkets Nigeria LtdIndeed, Nigerian media has published a July 31st memo from Retail Supermarkets Nigeria Ltd General Manager Carl Erikson that explicitly refers to expansion with new investors.

More exits and non-openings to follow

Notably Pick n Pay, which has staff in Nigeria and has been in advanced planning to open a store there, has not done so. Pick n Pay has also planned to open stores in Ghana since 2014, and has had a GM for Ghana since 2015. It has also acquired sites in Accra from Palace Hypermarkets.

Woolworths exited Nigeria in 2013. South African clothing and sporting goods retailer Mr Price revealed in June it would exit. Clothing retailer TFG has announced it would leave Kenya and Ghana. The company still has two stores in Lagos, Nigeria but we believe it too may exit.

The other big South African player in Nigeria is Massmart’s Game. Massmart entered Nigeria in 2014 and planned to open 10 stores. It has five stores in Nigeria with no plans to open more. It is possible that Massmart may elect to keep its Nigerian stores open and try and mop up customers from Shoprite. It would be a bold play. CEO Mitchell Slape needs to turn around the lossmaking discounter and is closing stores in South Africa. Nigeria, with a vulnerable economy for the forseeable future, is a prime candidate for an exit.