Hard Times As COVID-19 Takes Toll On Supermarket Chains


The planned exit of Shoprite supermarket, the popular South African brand from the Nigerian market after a 15-year stint has been described as a bad omen for mostly foreign-owned retail businesses struggling to survive economic headwinds thrown up by coronavirus pandemic and other factors. Ibrahim Apekhade Yusuf and Charles Okonji in this report examine the issues.



At the best of times, most businesses were merely scraping by to survive; sometimes gaining a margin here and there, just as they cut their losses when it becomes inevitable while being optimistic about the future.

However, things may have gone from bad to terribly worse in the past eight months or so, especially since the outbreak of the coronavirus pandemic; a development which has rendered many businesses prostrate, with no hope of a brighter future.

This is particularly true for foreign-own retail businesses, many of which have been suffering different privations from regulatory headwinds, forex scarcity for those who have to import production inputs, multiple taxes, dearth of infrastructure and whatnots.

Shoprite no longer at ease

Is Nigeria worth investing in? That perhaps was the question that ran through the minds of management of Shoprite Group of Companies, Africa’s largest supermarket chain and retailer, which employs more than 147,000 people in more than 2,934 stores across 15 African countries, as they announced plan to exit Nigeria last Monday.

Specifically, Shoprite Holdings in its operational and voluntary trading update for the year ended June 28, 2020, said that it was considering reducing or selling its stake in its Nigerian subsidiary.

The multi-national retail group, which announced a 6.4 per cent increase (R156.9billion) in total sales of merchandise for the outgoing year despite the challenges posed by the COVID-19 pandemic, announced that it took the decision to discontinue its Nigeria operation “following approaches from various potential investors, and in line with our re-evaluation of the group’s operating model in Nigeria.”

“The Board has decided to initiate a formal process to consider the potential sale of all, or a majority stake, in Retail Supermarkets Nigeria Limited, a subsidiary of Shoprite International Limited. As such, Retail Supermarkets Nigeria Limited may be classified as a discontinued operation when Shoprite reports its results for the year. Any further updates will be provided to the market at the appropriate time,” the company stated.

Details of its financial statements showed that although the company’s total sales of merchandise may be on the rise, it is struggling outside South Africa.

The company blamed this decline on the lockdown announced in several African countries due to the coronavirus pandemic.

“Second half constant currency sales growth of 6.3% was significantly impacted by lockdown regulations across the 14 African countries in which we trade. Lockdown restrictions pertaining to store closures; social distancing; transport restrictions; the movement of people; trading hours; workforce limitations and trade in alcohol impacted various regions to differing degrees at different times.”

Shoprite Nigeria operates about 25 outlets across the country and employs over 2,000 employees. A substantial number of the employees are Nigerians.

In August 2019, Shoprite said a decline in local currencies against the dollar and rising inflation in Nigeria and other African countries impacted its full-year financial results. Although despite this, reported significantly improved growth in the second half of 2019, driven by South Africa operation with group sales rising 74.9 per cent.

Interestingly, Shoprite’s two biggest non-SA markets, Angola and Nigeria, are oil-dependent and under immense pressure.

There are also probable concerns over profit repatriation, closely linked to the exchange rate fluctuation challenge.

For example, in its unaudited results for the 26 weeks ended 30, December 2018, Shoprite said the main increase in cash at the reporting date is due to month-end cut-off for accounts payable as well as the increase in long-term borrowings.

“This was offset by the investment in capital expenditure and investment in USD Index-Linked Angola Government Bonds to hedge against the possible further devaluation of the Angola kwanza,” the company said.

Shoprite opened its first store in Nigeria in December 2005 and now has a total of 26 stores across eight states in the country including Federal Capital Territory, Abuja. The company also claims to have employed more than 2,000 people in Nigeria, of which 99 per cent of them are Nigerians.

The Group in its financial statement on Monday said it believes it is appropriate to highlight the COVID-19 costs incurred pertaining to compliance with national lockdown regulations together with managing and protecting its employees, customers, stores, inventory and distribution infrastructure.

“In this regard,” it said, “the Group has incurred a net total of R327.2 million spent across the areas of health and safety, security, mobile clinics, personal protective equipment, temperature scanners, store and distribution centre sanitation, employee meals, communication costs and remote network access for employees. The most significant spend pertained to R116.9 million paid to our employees, inclusive of an appreciation bonus to assist them with the difficulties we anticipated would accompany the nationwide lockdown.”

Like Shoprite, like Mr. Price

Like Shoprite, Mr. Price, a retail business with South African origin, two months ago also announced plans to exit Nigeria. The popular affordable clothing, sport, and home wear brand reportedly closed four out of its five Nigerian stores and expects to close the last onei n the coming months. This was disclosed by its Chief Executive Officer, Mark Blair

The company said it is not willing to invest in Nigeria again due to its economic volatility and would prefer to focus on its parent company’s hometown in South Africa.

The decision of Mr Price to shut down its operation in Nigeria comes nine years after the company first made its intention to come to Nigeria.

local goods in Nigeria

Why foreign retail businesses are exiting

In the view of Dr. John Isemede, former Consultant to UNIDO and an international trade expert, the plausible explanation as to what may have led Shoprite to plan their exit from Nigeria’s shores is a combination of factors from the trivial to the complex.

local goods in Nigeria

Speaking in an interview with The Nation, Isemede said, “In terms of fears of xenophobic attack on their investment in Nigeria, there is nothing like xenophobic attack here, because even when countries are under fire, investors still troop to invest in such economy as long as there is good returns on investment. The truth is that ShopRite is getting the expected value for its investment, which is why it is talking about leaving. By the time they are taking the money outside, it doesn’t have value, which is the real issue. My conclusion is that ShopRite is not sure of the future of its investment.”

Echoing similar sentiments, Mr. Tunde Oyediran, Stockbroker and economic analyst said, “It is actually quite difficult to run business in Nigeria because of high cost involved. You spend money to provide your own power, logistics and so on. You cannot compare the cost of doing business in Nigeria with the cost of doing business in other developed countries. It is not the same. Even the cost of startup is enormous and also the cost of maintenance and running the business with all forms of double taxation and uncertainties in policies. We must not deceive ourselves, the cost of doing business is very high.”

Pressed further, Oyediran said, “Nobody ever imagined in 2019 that by 2020, such challenge would face the world economy when we were busy forecasting and expecting double digit growth. So nobody ever thought that such a situation would come up. So there were no alternative plans and policies put in place to absorb the shock. This pandemic took everyone by surprise because there were no such past experience, so, the government and organisations were not prepared. Also other players in the sector are already experiencing such problems because all of them are facing the same situation.”

For Dr. Ndubuisi Ekekwe, Chairman of FASMICRO Group and Lead Faculty in Tekedia Mini-MBA, the reason why retail businesses like Shoprite are experiencing difficulties is due to their inability to weather the economic storms over the years.

Local retail revving up despite hiccups

On the other hand a few other retail businesses like Spar, Jendol, Justrite, Prince Ebeano Supermarket, Addide, DePrince supermarket, with pockets of outlets across the country are thriving in spite of the challenges of operating in a place like Nigeria.

When The Nation visited the Ilupeju outlet of Spar, in Lagos, the popular chain store owned by the Artee Group, was bustling with activities as customers milled around the place to make purchases.

Although no staff of the outlet was willing to come on record, speaking with a cross section of shoppers, they were upbeat that Spar understands the business environment of Nigeria far better than their counterparts judging by the quantum of investment they have made thus far.

Light at the end of the tunnel

Though it is the contention of analysts that formal retail industry in Nigeria has not grown or scaled as quickly as some global brands, but there is certainly room for improvement.

Wale Oni, a tech entrepreneur shares these sentiments. but then, he adds a caveat: there must a conscious policy by government to deliberately grow retail sector by supporting made in Nigeria.

[The Nation]

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