South African grocer Pick n Pay is making a strategic entry into Nigeria in a partnership with Nigeria Stock Exchange-listed AG Leventis. Pick n Pay would hold 51 percent of the joint venture and leverage on AG Leventis’ nearly 80 years’ trading experience in Nigeria to excel in the Nigerian market where some South African companies have struggled.
“The opportunity presented by Nigeria is well-known: a population of 180m, an economy worth US$500 billion, and GDP growth of around 5% a year. Some analysts forecast that by 2030 Nigeria could have 160m households with sufficient incomes for discretionary spending, and a consumer goods market worth more than US$1 trillion,” said Richard Brasher chief executive of Pick n Pay Stores Limited at the release of the company’s year-end results on Tuesday.
He adds: “Nigeria is a country and a market which Pick n Pay cannot ignore in its quest for long-term sustainable growth.”
As Brasher rightly said, Nigeria is the largest consumer market in Africa and the best place for any organisation focused on consumer goods to be. This opportunity for growth is evident in the expansion of competitors Spar and Shoprite which have embarked on massive expansion in recent months. They have succeeded in the country because they understand how to.
Brasher sets three pre-conditions for success in the Nigerian market: understanding local consumer needs and how these are evolving in the country, joint venture with an experienced local partner, as well as growth in a deliberate, planned, and unhurried way, without putting the business under undue risk.
AG Leventis Group Executive Vice Chairman and CEO Michael Economakis expressed confidence that his company has made the right decision by partnering with Pick n Pay. More so, “Leventis is a family business with a similar operating ethos to that of Pick n Pay”.
The financial details of the deal were not disclosed.
Pick n Pay posted a 26.4 percent rise in full-year profit on Tuesday, helped partly by cost cuts under a turnaround plan aimed at winning back market share. The plan put in place by Brasher who was formerly UK head of Tesco, is widely expected to help the company better compete. His impact is already being felt, with shares gaining nearly 50 percent since he became chief executive in February 2013.
The company declared a final dividend of 125.20 cents per share, bringing the year’s total payout to 149.40 cents, 26.5 percent higher than the previous year.
Pick n Pay said headline earnings per share — the profit figure most widely used in South Africa — came in at 224.04 cents in the year to end February compared with 177.26 cents a year earlier. Sales also grew 8.2 percent, the strongest since 2010, according to the company
Pick n Pay was once a favourite of customers in South Africa but it lost ground to Shoprite and other rivals in the last few years after it failed to invest in new stores and supply chains. With Shoprite and Spar investing in new stores in Nigeria, Pick n Pay knows better than to repeat the mistake it made in South Africa when it begins operation in Africa’s largest economy. It is also lucky to have gotten the right man at the helm of affairs, who says he knows how to succeed in the difficult Nigerian market.
Another thing that will work in Pick n Pay’s favour is the company it picked as partner. AG Leventis has been relevant for close to a century because it understands how the local market works and the need to adapt to the consumer trends and needs. This knowledge combined with Pick n Pay’s “brand credibility, quality and excellent service” will shake up the retail market in Nigeria. Shoprite, Spar and the others better not sleep.