CHOPPIES’ FORCEFUL HASSLE FOR THE SA MARKET

CHOPPIES’ FORCEFUL HASSLE FOR THE SA MARKET

There is a general consensus by pundits that investors of the dual-retailer Choppies Holding Limited are at liberty to fuss over return on investments in neighboring South Africa (SA).

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GABORONE, October 20,2011

With staggering growth in South Africa at the height of towering competition and economic headwinds, one can only say, ‘the struggle continues’ for Choppies Enterprises Limited. Staff Writer KITSO DICKSON reports.

 

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There is a general consensus by pundits that investors of the dual-retailer Choppies Holding Limited are at liberty to fuss over return on investments in neighboring South Africa (SA). They say it’s a common concern, more so when the fast moving consumer goods outlet has been digging its teeth in the overly competitive market of Africa’s superpower.

 
The company’s presence in South Africa dates back 2008 after breaking through in Zeerust in the North West province. Almost a decade down the line, the P3.2 billion value retailer operates 68 stores (as at December 31) nestled across Southern Africa’s landscape. Choppies, had never made profits in SA until the latter part of 2016 when the business achieved an Earnings before interest, tax, depreciation and amortization (EBITDA) profit, as outlined in the group financial results for the six months ended 31 December 2016, however profits after tax (PAT) are in the negative, which means that eventually, the company made a loss in SA.

 
The achievement in EBITDA is perhaps as a consequence of sales which the result statement says grew strongly in last quarter of calendar year 2016, thanks to “change in senior management and executive team”.

 
Now the retailer expects the continuation of this trend will result in South Africa breaking even, a point at which cost or expenses and revenue are equal.  An upturn from the year ended June 2016 in which South Africa had over 64 stores that suffered P68 million in losses.

 
The Business Weekly and Review this week asked Chief Executive officer (CEO) and largest single shareholder Ramachandran Ottapathu when he expected significant profits after penetrating through the Africa’s second biggest economy. He responded “In SA market, our investment is long term and we were waiting to achieve scale and once we got the scale it will be profitable straight away”. Seeking to allay fears of competition by investors, Ottapathu says ‘SA got big 4 players” when responding to media questions from this publication.

 
Compared with the rest of Africa, South Africa’s retail market is already considered a juggernaut with Johannesburg Stock Exchange (JSE) listed Pick n Pay Holdings, Spar, Shoprite, Massmart almost at par with international retail brands.

 
Choppies is substantially smaller than the comparable SA companies, inevitably generating less cash, Andrew Cuff head of Fundamental Research at Consilium Capital South Africa (Pty) Ltd said in an engagement with this publication, “In food retail, scale is generally a benefit and the SA companies benefit from their scale to show a better return on assets, return on equity and, on average, a better net profit margin than Choppies.”
Pick n Pay Holdings Ltd, with Mass Grocery Retail (MGR) companies in Africa enjoy in excess 30 percent of the market pie on SA soil, according to SA researches. The group operates more than 794 outlets made up of hypermarkets, supermarkets and family stores. Shoprite Holdings Ltd also one of Africa’s largest food retailers, also occupying market share of 30 percent in MGR.

 

 

 

Some of its store formats and retail brands include Shoprite supermarkets, Checkers supermarkets, Usave stores, MediRite pharmacy, House & Home and the OK Franchise division. Spar Group Ltd, is the third largest MGR by market share, owning market turf of approximately 26 percent. It operates six distribution centers, supplies goods and services to approximately 800 stores in the country. 9 Stores that are under the Spar group include; Build It, Pharmacy at Spar, Tops, Kwikspar and Superspar. Woolworths Holdings Ltd is the fourth largest MGR, with 11 percent market share. Woolworths owns 295 stores and has 145 franchised stores and offers its own product brand of clothing, food, home and beauty. Massmart consists of nine wholesale & retail chains with 265 stores in South Africa and 13 in other countries, has about 1 percent market share of the MGR. Brands under the Massmart umbrella include, amongst others Game, Dion, Makro, Builders Warehouse, Dion Wired, Builders Express, Builders Trade Depot, Jumbo Cash and Carry and Cambridge Food.

 
Moemedi Mosele an analyst at Motswedi Securities intimates that big players undercut to protect their market share. Competition would obviously be much higher than locally, where Choppies have bragging rights, he argues, “In SA they started in a small town and as they expand to urban areas there will be huge competition.”

 
Choppies introduced its footprint in South Africa by opening a store in Zeerust, North West provence. Last year significant expansion saw the acquisition of the 21 profitable Jwayelani stores in KwaZulu-Natal and Eastern Cape supported by a Durban-based distribution centre. As in all industries, Tshegofatso Tlhong, an Investment Analyst at Afena Capital says, competition is something that all businesses must contend with and Choppies is no exception, “How they compete to ensure that they remain competitive is what will make the difference going forward.” “Previously, Choppies was also concentrated in mining areas of South Africa hence the pull back in performance that we saw, when the mining sector experienced challenges.”

 

 

The stores are located in once hard hit ‘mining towns’, which have seen significant declines in footfall due to falling levels of employment. She also points to the previous strikes in the platinum belt in South Africa which coupled with downturn in commodity prices had an impact on disposable income of residents within that area, thus impacting Choppies performance. “It is common knowledge that globally, regionally and within Botswana, economic growth has been anaemic and that has impacted the performance of businesses.”

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