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Shoprite on the Market for Nigerian Investors

Shoprite Nigeria looks into Divestment
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Earlier in the week, news broke out in Nigeria that the South African supermarket chain Shoprite is leaving the country. However, the Shoprite management debunked these rumours.

Yesterday, Shoprite Holdings announced via its parent company that it has begun shopping for Nigerian investors. The plan simply for the supermarket chain is to divest its stake in the local branch.

In a follow-up statement, the group explained that its divestment plan from its Nigerian subsidiary will not lead to the closure of its business in the country.

However, the group, in a memo to its Nigerian employees through the General Manager, Shoprite Group of Companies, Carl Erickson said: “We have identified interested Nigerian investors that share in this vision and we will now explore various possibilities of making it a reality. The expansion of the food retail business in Nigeria to a greater consumer market should remain everybody’s shared vision. It has, however, become apparent that the best way to do this is by engaging Nigerian investors who share in this vision. In so doing, we will be creating a truly Nigerian business run and owned by Nigerians for the Nigerian market”.

However, as the news of the divestment plan broke yesterday, the share price of Shoprite Holdings rose by over 11 per cent.

More details on the Shoprite Divestment Plan

The company had unveiled plans to divest its majority stake from its Nigerian subsidiary, Retail Supermarkets Nigeria Limited, 15 years after it entered the country, in a statement titled: “Operational and Voluntary Trading Update (52 Weeks Ended June 28, 2020). The company owns more than 2,800 outlets across Africa.

“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 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 said.

Related: 20 Profitable Business Ideas for Introverts In 2020

It added that its international supermarkets (excluding Nigeria) contributed 11.6 per cent to the group’s sales. It also reported a 1.4 per cent decline in sales from 2018. But the South African operations contributed 78 per cent of overall sales and saw 8.7 per cent rise for the year.

It stated that despite difficult circumstances occasioned by the Covid-19 lockdown and accompanying regulations governing trade, transport and operations, the group increased total sale of merchandise for the 52-week to June 28, 2020 (including the impact of hyperinflation in the prior year), by 6.4 per cent to approximately R156.9 billion.

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“The Shoprite group remained committed to meeting the demands of our customers, whilst focusing on value and remaining solution-oriented. This is evidenced, inter alia, by our digital voucher innovation, ongoing private label development and the conversation of our Checkers Food Services (CFS) business to include a consumer-facing offering.”

Reactions to the Divestment plans

Shoprite launched its business in Nigeria in December 2005. Since then, it has expanded its stores across the country, employing more than 2,000 people, many of whom are Nigerian. It operates about 20 outlets in no fewer than 14 states and the Federal Capital Territory (FCT) in Nigeria.

The Organised Private Sector (OPS) has described the plan by Shoprite to divest from the country as a reflection of the Nigerian business environment.

The Nigeria Employers’ Consultative Association (NECA) and the Lagos Chamber of Commerce and Industry (LCCI) said the decision by the multinational retail outfit reflected the state of the business environment in the country.

The Director-General of NECA, Mr. Timothy Olawale reacted to the announcements.  According to Olawale, if the operating environment were right, the company would not think of divestment.

The Director-General of the LCCI, Dr. Muda Yusuf also said: “This should be of concern because of the signalling effect on investors.

“We need to interrogate this development in more details in order to gain deeper insights into the factors that led to the decision to divest.”

An official of the Manufacturers Association of Nigeria (MAN), who did not want his name in the print said: “It could not really be because of harsh business environment, but because of the influx of shopping malls with cheaper and better products.

“Shoprite has been in the country since 2005 and you recall there was a time that its malls were experiencing long queues. It is no longer so today,” he stated.

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