Shoprite Out, Pick ‘N Pay In – The Nigeria Strategy For S.A’s 2nd Largest Retailer

At the beginning of the month, the Shoprite Group announced the completion of their exit from Nigeria after a few rough years in Africa’s ‘largest’ economy. As this occurs, Pick ‘n Pay, South Africa’s 2nd largest retailer by market cap, has finally made its long-anticipated entry, following over 12 years of deliberation and research. Other South African retailers including Foschini, Mr. Price, Woolworths, and now Shoprite have now chosen to exit, yet Pick ‘n Pay decided that 2021 was the right time to make an entry.

What exactly are they doing differently? One standout point is their decision to partner with an existing local retail business with some track record, which is, interestingly enough, the same way Shoprite is exiting, through its disposal to a company wholly owned by a Nigerian retail investment group Persianas. Despite Pick ‘n Pay’s entry via partnership, we are curious about how they plan to tap into the ‘Nigeria opportunity’ differently and there appears to be a lot to unpack. We will, however, start the story from Shoprite’s exit.

Shoprite wants out

As we covered in our previous note, Shoprite announced that it was decided to call it quits in August 2020, despite an amazing growth of 10% annually for 13 straight years in its Non-South African country operations where Nigeria played a major role.

Nigeria’s retail market faced a myriad of challenges following the recession in 2016 provoking a loss of confidence in the market as investors suspended their large exciting retail projects and a handful of retailers exited the country. With a slowdown in retail developments, Shoprite, who serves as the go-to anchor tenant in Nigeria’s major malls, found it difficult to expand.

At the beginning of June 2021, the group announced the disposal of Shoprite Nigeria formally known as Retail Supermarkets Nigeria Limited (RSNL), to Ketron Investment Limited, a wholly-owned subsidiary of Persianas Investment Limited. Under the terms of the agreement:

A franchise agreement that secures RSNL’s right to continue to use the Shoprite brand. An administration and services agreement that provides RSNL with administration and technical support from the Shoprite Group for an initial period of five years.

All closing date deliverables for the transaction were met and it was successfully implemented with an effective date of 23 May 2021.

Enter Persianas, the investment group is led by Nigerian business tycoon, Tayo Amusan, popularly known as ‘Chairman’. Through the Persianas Investment subsidiary, the team has delivered over 80,000sqm of formal retail space in 6 Nigerian States, including Nigeria’s first formal mall, The Palms Lekki, which still stands as its most prominent asset to date. Persianas Retail is the franchise arm of the business that brought brands including Puma, Max, Hugo Boss, Lacoste, and more into Nigeria. This provided a steady pipeline of tenants for the Investment business and many other retail landlords.

Chairman’s deeper interest in the grocer retail segment can be seen through his association in Jara Mall. Jara is a hard discount retailer with stores in Ikeja, Lagos, and Benin, Edo; both of which opened during 2020. So it came as no surprise when Persianas expressed interest in purchasing the operations of their biggest tenant who operates in the grocer space. It will provide him with excellent infrastructure and distribution to explore and eventually establish a firm position within this space.

While this occurred, Pick ‘n Pay finally decided to open their first outlet. Here’s what we understand so far:

The decision was tactful, measured, and drawn out

The process that led to Pick ‘n Pay’s entry has lasted over 12 years and commenced during 2009. To summarise, despite their interest in a West African expansion, Pick ‘n Pay consistently stressed that they would continue to explore market entry ‘in a deliberate, planned, and unhurried way, without putting their business under undue risk’. Here’s a more detailed timeline:

• During an interview with South Africa’s Sunday Times in January 2009, Pick ‘n Pay’s former CEO Nick Badminton explained that ‘in the next year or two we will look to slowly creep into Africa,… there are good opportunities in Angola and Nigeria.’ At the time, it was the first public expression of Pick ‘n Pay’s interest in expanding deeper into the African continent. Later in the year, he added, “Everyone is saying Nigeria, Nigeria, Nigeria, but we need to make sure we can do this first. We don’t want to expend too fast and spread ourselves too thin.”
• Five years later in March 2014, they announced that they had installed a team on the ground in Nigeria to explore opportunities within the market. This occurred a month before Nigeria’s GDP rebase exercise was completed. Anticipated results of the exercise at the time already placed Nigeria as Africa’s largest economy. In the same period, the business took ‘clear and decisive action’ to close their Mauritius and Mozambique franchise operations because the businesses, as they were structured, did not offer the Pick ‘n Pay group a sound basis for sustainable growth.
• The update that followed in August 2014, placed an emphasis on their particular ‘measured’ approach when it came to exploring investment opportunities outside their SA home base. Pick ‘n Pay said no investment will be undertaken without a comprehensive understanding of a market and its supply chain capacities.
• A partnership with AG Leventis, a conglomerate with expertise in the FMCG, motor vehicle, supply chain logistics, and real estate sectors, and notable FMCG capabilities through Leventis Foods, was also announced in April 2016.
• In August 2016, the plan was to open their first store in Ghana towards the end of the 2017 calendar year, with the first store in Nigeria likely to open in 2018. Despite the conviction behind these date announcements, the Pick ‘n Pay team remained cautious by reporting that there was no capital expenditure in these new regions at the time, and administrative costs related to the development of local infrastructure and support systems had been well managed.
• In April 2017, the group opened 12 new supermarkets outside South Africa during the financial year, three in Namibia, six in Zambia, one in Zimbabwe, and two in Botswana. They reiterated their West Africa interest by stating that their plans to open its first stores in Ghana and Nigeria over the next two years were still present.
  A site on Akin Adesola Street, a major artery within Victoria Island, the commercial capital of Lagos, became available for lease shortly after. It was taken up by Pick n’ Pay and construction commenced.
• In 2020, Pick ‘n Pay’s first Nigeria outlet was completed and sealed with the logo firmly covered. It officially opened in March 2021.
  Shoprite out, Pick ‘n Pay In – The Nigeria Strategy for S.A’s 2nd largest retailer. Image Source: PM Nigeria
  Shoprite out, Pick ‘n Pay In – The Nigeria Strategy for S.A’s 2nd largest retailer. Image Source: PM Nigeria

The partnership with a local player in the retail space will provide a soft landing

As we explained, AG Leventis is a large conglomerate with its most relevant business in this context being Leventis Foods. The group has been present in Nigeria for close to a century and was once a national giant for supermarket retail. The plan is for Pick ‘n Pay to hold 51% of this new operation, as they roll out stores with product ranges tailored to local customer needs. This partnership will help them tap into existing supply and distribution chains, softening their landing into the harsh business environment that is Nigeria

They’re adopting a neighborhood center style

When the partnership between AG Leventis and Pick ‘n Pay was announced in 2016, the intention was to ‘roll out a combination of large and smaller format stores’. Press releases following the launch of the first Pick ‘n Pay in Lagos in March, however, show that this has been rightly revised to focus on smaller neighborhood-type centers. It is, however, still possible that the occupancy of malls is part of the plan. Our biggest question though is how much will these smaller centers vary across the locations they decide to open because as the next point explains, their flagship center is rather prime.

The flagship store is prime

My first personal thoughts when their flagship center opened in Victoria Island, were ‘this is not a low-cost operation and their customer is not the average Nigerian.’ There is some implicit signaling for the type of customer they are after because of the location and choice of internal tenant/kiosks: I’ll explain:

Akin Adesola Street, in the first major street, when entering Victoria Island, from Ikoyi. Even though it is a standalone, land prices and rental prices for properties on this street are not cheap. The property is also located right beside Deli’s Grocery Store, an upmarket supermarket known to stock global brands and fresh imports for the affluent residents of Victoria Island and Ikoyi.

Super and Hypermarkets within Lagos often adopt an approach that involves including spaces for other retailers to sell products within their outlets. These may include fragrance stores, quick-service restaurants, pharmacies, or even travel agencies. Pick ‘n Pay has adopted this approach, however, with a notably prime selection of retailers withstands/kiosks in their store including:

• Flowershop Cafe: A bistro-style restaurant within Victoria Island that is popular for selling plants and flowers but also for its high-end restaurant. They are selling mini and gift plant sets within Pick ‘n Pay. The average price point for an item is c. N15,000 or $30.
• Hans & Rene: A popular ice cream store within Lagos, with existing outlets in The Palms Lekki, Lennox Mall, Radisson Blu Anchorage Hotel, and more.
• oh SO Nutrition: A healthy meal and drink company that serves smoothies, juices, and drinks with vegan options.
• My Coffee Cafe: A Nigerian cafe chain with outlets in The Wings Towers and Mega Plaza among others.
• Danfo Bistro Express: A restaurant located within Ikoyi known for selling Nigerian food with an urban twist. They have a lunchroom style set up, where meals from their ‘bistro menu are being sold. For context, the average meal here should be around N3,000. In Shoprite, the average meal would be around N1,000.

The Strategy – Can it scale?

While it is possible that Pick ‘n Pay’s strategy or rollout may change or evolve with time, using their first outlet as the blueprint could mean some slow growth. Akin to Freshforte in Lekki Phase 1, their implicit positioning as a premium or high-end grocer as a result of their location choice and internal tenant mix among others, may mean that they might struggle to replicate and grow their footprint at scale because the larger percentage of Nigerian grocer consumers are looking for value and low prices. While there is a notable affluent corporate and residential market in areas within Lagos like Victoria Island, Ikoyi, Ikeja GRA, maybe Lekki Phase 1 most of the populace within the city are value-seeking and extremely price sensitive.

On the other hand, it is possible that the group may choose to vary each store to adapt to the individual purchasing power of that location as they have seemingly done in their first outlet. This will, however, come with a lot more administrative costs that may slow down the scaling process.

Should their strategy involve positioning in these prime areas alone, and maintaining measured growth, then it could also work, but is that the type of growth they’d be seeking in the high stakes high-risk Nigerian market? Even with this approach, competition from the likes of Deli’s Grocery Store, La Pointe, L’Epicerie, and others who have been serving the upmarket populace for years is still present. What Pick ‘n Pay has, however, is a much larger war chest and the strategic advantage of distribution that AG Leventis provides.

What is your perspective on Pick ‘n Pay’s entry into Nigeria? Join us on LinkedIn to discuss.