April 28, 2016

Pick n Pay to enter Nigerian market through a joint-venture with AG Leventis

Kayode Ola

Pick n Pay Stores Ltd recently announced plans to set up shop in Nigeria, on the back of its impressive 2015 results which saw double-digit profit increase in full-year (26%) profit after opening 175 stores.
The move will see Pick n Pay, the second largest supermarket chain store in South Africa, partner with Nigeria Stock Exchange-listed AG Leventis with Pick n Pay retaining a majority stake (51%) in the partnership.

According to the Group Executive Vice Chairman and CEO of AG Leventis, Michael Economakis, the deal intends to take advantage of the growing consumer market’s preference towards quality and affordable goods. Pick n Pay operates a multi-format and multi-channel business with flexible units, which includes large hypermarkets, supermarkets and convenience stores, specialized outlets (for clothing, liquor and pharmacy), as well as online shopping. With regards to its planned entry, the company has said it intends to roll out a combination of large and smaller format stores to meet consumer needs in Nigeria, offering ranges tailored to local communities.

South African retailers are facing multiple headwinds due to dwindling domestic consumer confidence, a weak rand, and a rising interest rate environment which have culminated in a 2016 economic growth forecasts of less than 1%. Other unfavourable macro-economic conditions affecting its retail sector include anticipated drought-induced price changes in food, increasing unemployment rates and a highly indebted consumer-base reduced discretionary income. All of these factors have driven SA retailers to look at other underserved retail markets in Sub Saharan Africa as second engines of growth.

This sentiment was buttressed by the company’s Chief Executive, Richard Brasher while speaking at the release of the company’s year-end results, stating that;

“Nigeria is a country and a market which Pick n Pay cannot ignore in its quest for long-term sustainable growth.”

He further stated that this move came as a result of three preconditions for success in the Nigerian market which had been met, namely: a need to understand the local consumer needs; entering a joint venture with a local partner, and achieving growth in a deliberate and planned way.

“Leventis is a family business with a similar operating ethos to that of Pick n Pay and I am confident that we have the right decision, the right partner and the right plan.”

Nigeria has also experienced an economic slowdown due to a fall in oil prices. Q1 2016 GDP growth rate fell to a 16-year low of 2.8 %, the lowest since the return of democracy in 1999. Market conditions has also been tough for a few South African firms in Nigeria, with Woolworths and Truworths cutting their losses and exiting prematurely.

However, investors in the country’s retail real estate market with a long-term view see strong fundamentals in demographics, urbanization rates in major & second-tier cities, and a rising middle class as the basis for investments. Despite the strong pipeline of malls coming in the next few years, Nigeria’s mall per capita ratio is still very low when compared to second and third largest economies on the continent, South Africa and Kenya.

Pick ‘n Pay is the second largest supermarket chain store in South Africa, established in 1967. The entity is a public company substantially owned and run by the family of legendary founder Raymond Ackerman. Listed on the Johannesburg Stock Exchange (JSE) in 1968, the group consists of corporate and franchise stores which can be found in other regions of southern Africa, such as Botswana, Mozambique, Zambia, Zimbabwe, Lesotho, Namibia, as well as Mauritius. Other supermarket chains that are part of the Pick n Pay group are Score Supermarkets and Boxer.

AG Leventis is a Nigeria Stock Exchange-listed company established in 1937. Originally focused on buying, importing and wholesaling of textile goods, the company has expanded into various sectors such as power and gas products, consumer foods & bakery products, real estate, commercial vehicle services, sales & after sales services, and Printer and ink supplies. The company operates through various subsidiaries and affiliated companies, including Leventis Foods Ltd., Leventis Motors, Abuja (Capital Motors) Ltd., Mainland Hotel, Leventis Real Estate, Druckfarben Nigeria Ltd, and Chrisstahl Nigeria Ltd.

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