Pick n Pay Stores Limited has announced plans to enter Nigeria through a partnership with a local company as the South African retailer extends its reach on the continent following a 26 percent rise in full-year earnings.
The supermarket and clothing chain has agreed to partner Lagos-based AG Leventis & Company to enter Africa’s largest economy, it said in a statement on Tuesday.
Leventis has experience dealing with on-the-ground challenges in Nigeria such as transportation, getting products into stores, and property, Pick n Pay said.
“We need to further extend our Africa business,” Bloomberg quoted the Chief Executive Officer, Richard Brasher, to have said in a presentation in Cape Town.
Pick n Pay will hold 51 per cent of the operation in Nigeria, which will tap the experience of its local partner, he said.
Pick n Pay’s planned entrance to Nigeria comes after two of its South African competitors decided that having operations in the country wasn’t worth the effort.
Truworths International Limited a clothing retailer, said in February it would close its two remaining Nigeria stores after struggling to get stock into the country and cash out. Food and apparel chain Woolworths Holdings Limited announced the closure of its three stores in the country in 2013.
“A lot of people rush into things and then maybe rush out of them,” Brasher said. “We needed to partner with an experienced local partner, which I believe we’ve found.”
Pick n Pay has already expanded into African markets such as Botswana and Zimbabwe and plans to open stores in Ghana next year.
Profit before tax outside of South Africa rose 20 per cent in 2016. The entry into Nigeria, which is “something that we thought long and hard about,” will be a measured process, Brasher said.
“Today we’re just announcing that we’re going, we haven’t packed our bags yet and we haven’t been down to the bank to get our travelers’ checks.”
Pick n Pay is working to reduce costs and operate more efficiently in its home market, where rising food inflation has presented a challenge to growth.
The company restricted selling-price rises to 3.1 per cent over the year, compared with seven per cent inflation in February, the last month of the reporting period.
Sales advanced 8.2 per cent to 72.4 billion rand ($5 billion) for the year, helped by 175 store openings, while the trading-profit margin improved to 2.1 percent, from 1.9 per cent in 2015.
The shares rose 0.1 per cent to 69.58 rand in Johannesburg, valuing the company at 34 billion rand.
South African retailers are facing headwinds including weak domestic consumer confidence, rising interest rates and a falling rand, which has declined 16 percent against the dollar over the past 12 months.
The central bank forecasts economic growth for South Africa this year of 0.8 percent, which would be the slowest pace since a 2009 recession.
Earnings per share, excluding one-time items, rose 26 percent to 2.24 rand in the year through February, Pick n Pay said. The median estimate of seven analyst estimates compiled by Bloomberg was for adjusted earnings per share of 2.18 rand.