Shoprite sees Eastern Europe as potential market
On the drive to Shoprite's new distribution centre at Cilmor in Brackenfell, Cape Town, two Shoprite trucks are seen heading for Langa and Nyanga townships, two of the many emerging-market communities that form part of the group's largest market.
But as the group's expansion in previously disadvantaged communities becomes saturated, industry pundits are asking; "Where can they go to from here?"
And it seems that the answer may be ... Eastern Europe.
Newly appointed Shoprite CEO Pieter Engelbrecht, who has been in the job for about seven months, said on Wednesday that the next phase of growth for the group might be acquisitions of small businesses in Eastern Europe.
They will buy an existing small chain that they believe they can do something with.Syd Vianello
"We will always test the depth of the water with both feet. So we are not going to do a major acquisition and then put all our eggs into that basket, because if it fails then the company fails," he said.
"But we get a lot of proposals all across the world from smaller, family-owned companies of about 20 or 30 stores and those are attractive and we will consider those."
Engelbrecht, who recently went to Poland to meet property developers, said that country was just one of many Eastern European countries that Shoprite would consider expanding into.
The Shoprite Group, which has more than 2689 stores in 15 countries across Africa, has managed to buck the trend that is hurting many of its industry peers. This week it reported an 11.6% rise in trading profit to R8-billion, with turnover up 8.4% to R141-billion, for the 53 weeks ended July 2.
And to add salt to the wounds of its competitors, the group also reported that 6027 new positions had been filled in the past year, bringing the number of people it employs to 143802 - the largest private sector employer in South Africa.
Syd Vianello, an independent retail analyst, commenting on the group's interest in Eastern Europe, said: "If they are going to go there, they are not going to go on their own. They are not going to do like they did in India or Egypt - open a store from scratch and see how it goes.
"They will buy an existing small chain that they believe they can do something with. One thing that I think Christo [Wiese, chairman and largest shareholder of Shoprite] does understand is that, 'We can allocate a certain amount of money to something and bet it on Eastern Europe ... if it works, fantastic. But if doesn't work we walk away and we write it off'."
Vianello said Steinhoff knew the ins and outs of Eastern Europe and to "offer Shoprite an opportunity to 'try your luck' [there], I don't see anything wrong with it. But the important thing is, how do they go about it?"
Although Vianello said the trend of retailers expanding into lower-income communtities was largely over, Shoprite's previous CEO and vice-chairman Whitey Basson said on the sidelines of the results presentation this week. "In the rest of Africa we've had a bad patch ..." but Basson remained adamant "Shoprite must focus in on Africa".
Vianello said: "I think we've seen the market shares of the informal sector and the formal sector largely settled. Probably there is still some growth that can come from migration, but I think the quantum of growth is going to be minimal."
Shoprite stores grew sales 6% to R52-billion while the group's other discount brand, Usave, grew sales 7.8%. In the same period, earnings before interest, tax, depreciation and amortisation increased 6.8% to R10-billion.
Engelbrecht said the discount model would remain an integral part of the Shoprite roll-out locally and in the rest of Africa.
"We've got slightly smaller store formats," he said. "We also have a container format that will allow us to go into areas that you previously can't go without the assistance of other line shops."
The Shoprite share fell 0.94% to R217.29 in Johannesburg by the close on Friday.