The supermarket arm of Shoprite Holdings in Nigeria lost 8.1% of its sales in constant currency terms at the end of the second half (H2) of 2019 due to the September Xenophobic attacks.
This was disclosed in the H2 financial result issued by the company and seen by Nairametrics. In the report, the parent company stated that the impact of the store closures and drop in customer count resulted in a difficult half for the company
What it means: store closures, the subsequent reduction in customer count during and after The drop was as a result of store closures and subsequent reduction in customer count during and after the attacks. This implies that some customers of the supermarkets in Nigeria stopped patronizing the brand, probably due to patriotism on the part of the Nigerians.
But the difficult half development is not limited to Nigeria alone, as activities in some African nations also created holes in the revenue of Shoprite Holdings, especially the supermarkets out of the shores of South Africa (Non-RSA).
The supermarkets Non-RSA segment experienced on-going currency devaluations in certain key markets, as challenging trading conditions persisted across the markets.
For instance, in Angola, the nation’s currency devaluations of 40.6% in H2’ 2019 hampered the growth of the company. But the management insisted that it is optimistic that the improved in-stock position due to improved foreign currency availability would yield a better result.
Also, the challenging trading conditions, store closures, load shedding and currency devaluations in these regions resulted in the company’s furniture division, which includes its Non-RSA business. Due to this, Shoprite’s sale of merchandise dropped by 2.7%, while credit participation increased to 13.7% (2018: 12.5%) of the business’ R3.3 billion sales for the interim period.
In 2019 alone, the division closed 31 stores in RSA (26 OK Furniture and 5 House & Home) and 1 OK Furniture in Non-RSA. The division ended December 2019 with 364 stores in RSA and 88 stores in Non-RSA.
Impact on Group’s profit
This development pulled the Group’s trading margin from 5.5% in the corresponding period to 5.0%. While the supermarkets RSA’s R3.7 billion trading profit grew 9.5% to report a 6.1% trading margin (2018: 6.1%), their counterparts outside South Africa recorded R58 million trading profit, a decline of 62.3% on the back of an R68 million reduction in interest income earned on government bonds and bills, The development, the company claimed was due to the Angola Treasury Bills that reached maturity during the reporting period.
What Shoprite believes future holds?
It has assured the stakeholders that it is currently managing the risks associated with the Coronavirus and does not foresee a material impact on the business.
The report added that the Supermarkets Non-RSA’s operating environment is expected to remain challenging until such time as currencies stabilise and consumer affordability catches up.
In terms of future strategy, Chief Executive Officer, Shoprite, Pieter Engelbrecht, said “we remain committed to operating on the continent but are limiting future expansion whilst we review our options with regards to alternate operating models. Notwithstanding this, we have taken a number of immediate operational actions, all of which are ongoing and include rent reductions, store closures, productivity improvements and de-dollarising costs.
“We are confident in the absence of further currency devaluations and any unforeseen circumstances that these operational measures will positively impact profitability. Looking ahead, the Group enters the second half with ongoing determination. Our investment in technology affords us greater visibility and results in better decision making across the business. This, together with the launch of our Xtra Savings Rewards Programme, is significant for the Group and bodes well for a future-fit Shoprite.”