South Africa’s grocery retailer Shoprite is leaving Nigeria, Africa’s biggest market after 15 years of operation in the country.
This was revealed in the 12 months trading report released by the retail company on Monday. According to the report, Shoprite has started a formal process to consider the potential sale of all or a majority stake in its supermarkets in Nigeria.
The decision of Shoprite to pull out of Nigeria comes months after fellow South African company, Mr Price exited the market.
6.3% drop in growth
The report showed that Shoprite’s Nigerian operation dropped by 6.3% in the FY ending in June 2020. This is significantly higher than the 1.4% decline in sales in other international markets.
In general, international supermarkets (excluding Nigeria) contributed 11.6% to the company’s sales while the South African operations contributed 78% of overall sales and saw a 8.7% increase in growth for the year.
Following its bad year in Nigeria, Shoprite has announced a possibility of exiting after 15 years. The company also disclosed that it has been approached by potential investors willing to take over its Nigerian operations. It added that it is considering an outright sale of its operation or selling a majority stake in its Nigerian subsidiary.
As a result, Nigeria’s Shoprite operations was listed as discontinued in the released trading report.
“Retail Supermarkets Nigeria Limited may be classified as a discontinued operation,”Extract Shoprite Statement
Apart from the evident bad growth, here are some other issues that could have forced the retail company to pull out of the country and possible solutions they could have employed.
Over 82 million Nigerians are poor
Although Nigeria is the most populous country in Africa, a large amount of its population is poor. According to NBS, about 82.9 million people have been estimated to be living in poverty in the country.
Before Shoprite, big retail companies like Mr Price and Woolworths have pulled out of the country despite the prospect of Nigeria being the biggest market. The lack of growth of these retail companies indicates that the country has no considerable prospect if most of its population are poor.
A Nigerian Strategy expert, Ayò Bánkóle, reacting to Shoprite’s exit tweeted that disposable income of Nigerians is reducing. He added that grocery retail is a direct beneficiary of a prosperous citizenry, so the government needs to fix the poverty level.
Dropping sales due to eCommerce
The boom of e-commerce means fewer sales for physical supermarkets. With the current pandemic, things are even worse as the lockdown alone reduced customer visits by 7.4%.
A simple solution Shoprite could have used to rejuvinate sale would have been to leverage on its growing popuarity in the country to launch an e-commerce website like Jumia.
With the world increasingly going digital, sooner or later the company will have to significantly consider e-commerce to supplement their model.
Nigeria’s large population, GDP and market make the country a natural destination for investment. However, many companies that expand into the country often leave after feeling the negative effects of the bad economic situation.
The value of naira is such that it is very important to foreign companies. This is because at the end of the day when the books are tallied, its the Dollar equivalent to the Naira that truly counts.
In 2020, Naira valuation to dollar has dropped from 300 to more than 400
With the value of Naira being unstable since the beginning of the year, Shoprite’s revenue, come the end of the year, will be significantly affected.
In summary, Shoprite joining the list of companies that have pulled out of Nigeria is a bad indicator of how undesirable the country is as an investment destination. A lot urgently needs to be done to prevent more from following in its footsteps.