South Africa’s Massmart joins others in scaling back East Africa branches

By Morris Kiruga
Posted on Wednesday, 8 September 2021 18:34

Massmart's chief executive Mitch Slape speaks at a function in Johannesburg, South Africa, February 19, 2020. REUTERS/Nqobile Dludla//File Photo

South African retailer Massmart has said it has put up 14 of its stores in both East and West Africa so it can focus on its core strengths, as it tries to recoup losses from the half year that ended in June 2021.

On a call with investors, the Johannesburg Stock Exchange (JSE) listed company’s CEO said the company would be divesting from its Game Stores branches in:

  • Nigeria, five branches;
  • Ghana, four branches;
  • Kenya, two branches;
  • Tanzania, one branch;
  • Uganda, one branch.

The announcement follows a domestic scale back announced earlier in the year, as part of the retailer’s turnaround plan. At the time, CEO Mitch Slape said the company would shut down underperforming stores and exit the fresh food business. The company now plans to sell off its Rhino and Cambridge Food businesses in its home market to rival Shoprite, while seeking a buyer for its branches in the five other markets.

It will retain some presence in Kenya, in the form of a branch of Builders, a home improvement and building materials store it opened in Nairobi a year ago.

“We’ve commenced a formal sales process,” Slape said during the investor call, “we’re currently in discussions with potential purchasers to take on those stores.”

First Shoprite, then Massmart

Massmart’s planned exit from East Africa came just a week after Shoprite also announced it would be selling its five branches in Uganda and ten in Madagascar.

The exit from Uganda, where it has had a presence since 2000,  means that the South African retailer will not have any presence in East Africa. It sold off its assets in Tanzania in 2014 to Nakumatt, and exited the Kenyan market in early 2021.

Among other reasons, both retail giants cite currency devaluations, high inflation and lower commodity prices for their exits.

Getting a foothold in Kenya

Their exits from the Kenyan market have followed a long string of South African businesses that have struggled to gain a foothold in the East African market, even before the Covid-19 pandemic. While some South African enterprises such as Multichoice and Absa have had a long presence in the country, others have often exited after just a few years.

Before the Shoprite and Game Stores exits, Botswana-based retailer Choppies had also exited the market after a short run. Fashion retailer Deacons also exited Kenya after a 60 year presence, after falling into a debt trap that has become all too familiar among retailers. Among other reasons for the cascade of failures in other markets is the fact that South African firms tend to be “very distant” from their would-be clientele, Ken Gichinga, chief economist at Mentoria Economics, told The Africa Report in October 2020.

The Kenyan retail market has also been struggling, with the collapse of the regional giants Nakumatt and Uchumi, and the slow, public death of Tuskys. The exit of the South African retailers now leaves the Al Futtaim franchise of Carrefour as the only recent foreign entrant still in the market, with other foreign investors instead buying stakes in homegrown retailers such as Naivas and Quickmart.

Mauritius-based PE fund Adenia Partners bought a controlling stake in Quickmart in 2019, merged it with an earlier acquisition, and then set off on an expansion spree. With the collapse of former market leader Tuskys, Quickmart is now Kenya’s second largest retailer, with 44 branches to Naivas’ 74. A consortium of private equity and sovereign wealth funds bought a 30% stake in Naivas in August 2020 for KSh6bn, valuing what is now Kenya’s leading retailer at KSh20bn.

Other recent foreign entrants are niche players such as Spanish fashion retailer Tendam Group and Turkish home furnish retailer Istikbal.

‘Exit while they can’

For South African retailers, many of which began expansion plans into Kenya and other markets in the 2000s and early 2010s, the Covid-19 pandemic’s effects on economies and spending habits are likely just a good enough reason to exit while they can.

Facing economic pressures at home that have either put them in the black or reduced profits, as well as jitters among investors, the retailers are now focused on turnaround plans that prioritise their primary business and home market. Their exits may not cause any signficant shake ups because their presence in East Africa markets was still too small to cause any significant changes in market share, especially as private equity funded-retailers race for dominance.

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