HIGH GROWTH SECTOR
Supermarkets key players in local African economies, says UN report
Supermarkets are potential partners in regional industrial development and should be considered in policymaking, says UN think-tank
Who would have thought that supermarkets would be big enough to have a significant effect on the local economies in which they operate?
The UN University World Institute for Development says supermarkets are potential partners in regional industrial development and should be considered in policymaking. It says supermarkets in southern Africa have undergone significant growth in recent years. This has improved competitive pricing and access to a broader range of products and services.
Damon Buss, equity analyst at Electus Fund Managers, said the sector would continue to experience high growth due to urbanisation and shifting shopping patterns.
"Shoprite is the best placed of the South African food retailers, having about 34% of their food retail stores in the rest of Africa — ex-SA," he said.
African economies have suffered setbacks as a result of a weakened global economy. However, South African grocery, clothing and general retailers already have a combined footprint of more than 1,400 stores on the continent.
The UN report said as their reach expanded, supermarkets were moving away from serving only affluent consumers in urban areas and were accessing lower-income communities.
Southern African Development Community countries and those further north offer large retail supply opportunities to South African food producers and packaging manufacturers.
Buss said Shoprite was focused on gaining first-mover advantage in sub-Saharan African countries such as Angola and Nigeria. Pick n Pay had stated the rest of Africa was its "second engine of growth", he said.
But Pick n Pay had only about 10% of its store base outside SA and this was not likely to grow substantially in the short term given management’s focus on fixing the South African business, he said.
While Spar had "decent exposure" elsewhere in Africa, the group was more focused on growing its UK, Irish and Swiss operations, Buss said.
The UN research did not mention risk. The entry and subsequent exit of Tiger Brands from Nigerian flour and pasta markets left shareholders billions of rand out of pocket after the group misjudged its investment into that country. But new Tiger Brands CEO Lawrence MacDougall has said the Nigerian market still holds promise.
Meanwhile, Massmart says it is seeking new opportunities in Africa next year. It already has 405 stores across 13 countries in sub-Saharan Africa.
Massmart gets only 9% of sales from outside SA, much less than Shoprite’s 17% of turnover from the rest of the continent.