Botswana’s Choppies is showing their retail “chops” in Africa
A lot has been made of Shoprite and Walmart’s rivalry in Africa; or more specifically Shoprite’s success and Walmart’s failure to use their South Africa accusation of Massmart to expand in the rest of Africa. French retailers have also joined the African retail party, most notably in North and more recently in West Africa led by Casino and Carrefour. In East Africa, successful retailers such as Nakumatt have stayed close to their Swahili base.
Initially far from analyst’s attention, Botswana’s own Choppies supermarket chain (Choppies Enterprises), has been making inroads into the Africa retail market. However, with their recent listing on the Johannesburg Stock Exchange (JSE), competitors are paying attention. Choppies opened their first supermarket in 1986 in Lobatse, the small South-eastern border town in Botswana. Choppies currently has more than a 130 stores in Southern and East Africa, and is targeting 200 stores by the end of 2016.
The highly competitive South African market has also not been spared. In South Africa, Choppies has avoided a duel with Shoprite and focused on the lower tier cities (e.g. smaller cities) and towns. It is more common to see them in Parys (Free State) and Swartruggens in the North West Province (they operate a Distribution Centre in Rustenburg), than the larger metropolitan areas.
I recently overheard a man in their Parys branch say to his wife, that “Choppie” is a Free State farmer that decided he had enough of farming (and maybe the drought). Perceived local association never hurts, something that their Indian born founders and naturalised Botswana citizens would be happy about. Mpumalanga, Limpopo and more recently Kwazulu-Natal and the Eastern Cape provinces have also been targeted with the accusation of Jwayelani stores.
Choppies has also shown their ability to operate in the more challenging markets. In Zimbabwe with most international retail investors running scared, Choppies announced a US$60m expansion program in 2015, extending their retail footprint to 25 stores nationwide. In East Africa, Choppies acquired a 75 percent stake in the struggling Kenyan Ukwala Supermarkets and included Tanzania to their expansion list.
Choppies targets primarily lower- to middle-income target market. They are known for their clean, modern layout and design, often not visible in lower tier African cities, dominated by traditional traders and wholesalers. Choppies work with real estate investors and operate a stand-alone building, compared to the more common strategy of entering through retail malls. This allows them to enter cities much earlier than their competitors, whom often await modern retail developments. They also avoid high retail rents, often associated with an undersupply African retail markets and can locate closer to their customer base (e.g. taxi ranks).
In many markets, Choppies operates with a local partner that understands the market, regulations and local conditions. Choppies also targets local product sourcing and establish early relationships with suppliers. This allows them to reduce import and inventory costs and get on the right side of local government. The lack of local sourcing is something that Shoprite was heavily criticised for in Tanzania, and contributed to their exit from the Dar es Salaam market.
In Southern Africa, Choppies is targeting mining communities, which is currently suffering from one of the worse hangovers with the end of the 2000s commodity boom. In addition, in the highly competitive South African market, Choppies is facing stiff competition for a growing number of chains targeting the lower to middle income groups. These retailers include Pick n Pay’s Boxer outlets and Massmart’s Cambridge, all in expansion drive.
Africa’s supply chain challenges are well known, and Choppies’ strategy to target lower tier cities will increase cost and stretch their supply chain further. Furthermore, targeting lower income consumers deliver lower margins and increased risks. Choppies is also taking on the wholesalers, traders and small groceries (e.g. Spaza, Dukas) known for their credit lines and close contact with local consumers. Their Lobatse roots should come in handy for this.
However, with the allure of modern retail, low prices and reduced out of stocks (so common in these markets), Choppies find themselves on the right side of the growth trend. Modern or formalised retail is in the higher single or lower double digits in most Africa markets and ready for growth. The real losers are more likely the continents micro and small enterprises, and not the “Shoprites” or “Nakumatts.”