Retail giant Shoprite toys around with ideas for franchise outlets

Shoprite Holdings has announced that it was toying with an idea of franchising its outlets.
Shoprite Holdings has announced that it was toying with an idea of franchising its outlets.
Image: Jeremy Glyn

Africa's top supermarket Shoprite Holdings is reviewing its long-term options in the continent, including an "alternate operating model", group chief executive Pieter Engelbrecht told analysts at the retailer's half-year results.

"What we mean by that is yes we're looking at a possible joint venture, a franchise model, different formats. We are reviewing all of the options," he said.

Immediate steps Shoprite has taken include rent reductions in 17 supermarkets, with negotiations of 16 more underway. It has also switched some of the rent and borrowings from US dollars to local currency.

It is also assessing the viability of unprofitable stores and curbing capital allocation for new stores and developments, Engelbrecht added.

Shoprite will therefore only have opened 13 supermarkets for the full year ended June compared to a target of 17.

"We're still committed to the continent but not at all cost. We're fairly confident that these immediate operational actions will lead to an improved financial performance in this segment (non-South Africa)," Engelbrecht said.

Shoprite disappointed the market in early 2019 when it announced its first drop in first-half earnings in a decade due to currency devaluations, supply issues and low consumer spending in Angola, Nigeria and Zambia.

Those devaluations continued in the 26 weeks ended Dec. 29, hitting diluted headline earnings per share, which fell by 2.6% to 372.4 cents in the period from 382.4 cents a year earlier.

Sales in rand terms in the group's international operations, comprising 14 African countries, fell by 3.1%. In constant currency terms, sales rose 4.8%.The retailer's core business, Supermarkets South Africa, saw an acceleration in sales, with overall growth of 9.8% versus 7.4% in the second half.

Meanwhile, the company also announce it will transfer its distribution centres and undeveloped land valued at R2 billion to a new joint venture (JV) it is creating with Equities Property Fund, the supermarket chain said on Tuesday.

Shoprite, which has more than 2,800 stores across Africa, has said it wants to divest some real estate to help its balance sheet.

Shoprite Checkers will contribute a portfolio of distribution centres and associated undeveloped land in Brackenfell in the Western Cape and Centurion in Gauteng into the joint venture.

Equities Property will inject cash of R2.1-billion in exchange for a 50.1% equity stake in the joint venture, the retailer said. Thereafter, the joint venture will acquire Shoprite's Cilmor distribution centre in Cape Town and associated undeveloped land for a cash amount of R1.2-billion.

"The joint venture company will manage the portfolio and it will serve as a platform for the future development of the undeveloped land situated at Cilmor and Centurion and for possible future property acquisition and development opportunities," Shoprite said.