Shoprite has found a buyer for its store network of 26 supermarkets in Nigeria. Nigerian shopping mall owner Persianas will buy Shoprite’s Nigerian subsidiary, Retail Supermarkets Nigeria Limited. The acquisition, which is subject to regulatory approval, will see it take over the largest supermarket chain in Nigeria.
Shoprite entered Nigeria in 2005. It has a market share in the modern trade of 13.7%, according to Trendtype’s newly released Retail Profiler interactive tool. The tool, which tracks tens of thousands of supermarkets across Africa, provides granular estimates at a city and retailer level for grocery retail sales.
Persianas is the owner of the upmarket Palms shopping malls, which also have Shoprite as anchor tenants. It will acquire a store network that has supermarkets in Lagos, Abuja, Ibadan and 10 other Nigerian cities. With the exception of Spar, the #2 player, no other supermarket chain has anything approaching multi-city reach.
Shoprite’s store network has reportedly been valued at N30bn ($73m) – an extraordinarily low price in the context of the expense and management resource Shoprite has devoted to building its Nigerian operations. It works out to just $2.8m per store. It is possible that Persianas may even pay less.
Shoprite is not the first South African chain to exit Nigeria: Woolworths exited in 2013, while Truworths and Mr Price have exited more recently. There is a strong likelihood that Massmart’s Game, with just five stores in Nigeria, may follow suit – CEO Mitchell Slape has initiated a strategic review of its expansion markets.
In Nigeria Shoprite has been beset by problems: a weak supply chain forcing it to import much of its product range from South Africa, the depreciation of the Naira, xenophobic violence, weak consumer spending and high rates of inflation. It has also been targeted by regulators (and believes it was specifically targeted as a high profile foreign retailer).
The end of Shoprite in Nigeria? Not quite.
It was clear from the outset that Shoprite was tired of battling conditions in Nigeria. But it recognised that, nonetheless, Nigeria was not going to stop being an important strategic markets. Initially, it looked as if Shoprite might sell a majority stake in operations. Now it looks like Persianas will operate Shoprite stores under a franchise agreement.
In practice this means Shoprite the brand will actually stay in Nigeria. A franchise agreement solves three big problems:
- Ends the drain on Shoprite’s management resource
- Takes the loss-making Nigerian stores off Shoprite’s balance sheet
- Puts a connected, Nigerian-owned business in charge
This maybe helps explain a low valuation. We also think there may be an agreement behind the scenes to give Shoprite the option to buy back its store network at a later date. Although analysts are comparing the exit of Shoprite from Kenya and Nigeria, the two markets are not alike.
Shoprite has properly exited Kenya. It long sought to be present in what was considered one of Africa’s flagship markets. When it did enter, it was slow to open stores and found sales were sluggish. Shoprite’s exit from Kenya feels more like an itch scratched. It may never return, just as it hasn’t sought to return to Egypt. In Nigeria, Shoprite will probably return.