Despite difficulties in the region, Choppies is planning to continue its expansion throughout Africa. The strategy is aimed at increasing long term profitability.
Plans for new stores
Choppies’ expansion encompasses many countries, the most recent of which was its first store in Mozambique. The Tete store was opened in January of this year. Two more stores are planned to be opened in 2017, as its supply chain extends across the country.
The retailers’ overall expansion has been extensive across the region. 19 new stores have been opened since December 2016, increasing its presence from 183 to 202.
South Africa saw the biggest expansion, with seven new stores opened in 2016. It has had the highest growth since June 2016 at +22%, compared to the whole group at +3%. Expansion is set to continue in the country in H2 2017, with plans for a further 10 stores.
This expansion, though, is limiting profit growth. In Choppies’ H1 2017 results it said its gross profit margin declined to 18.06% in H1 2017 from 20.36% in H1 2016. Despite this, and macroeconomic concerns impacting shoppers’ purchasing power and confidence, Choppies still believes South Africa is a good place to invest for the future.
Zimbabwe is the only country Choppies saw its gross profit margin increase compared to H1 2016. In the country its gross margin rose to 18.63% in H1 2017 from 16.63% in H1 2016. It also plans further expansion for Zimbabwe and is expecting to add a further four stores in its 2018 financial year.
More store openings are planned across eight countries in its 2018 financial year. The expansion will see it increase its total store count to 265 from 217. This will include the new market of Namibia, where Choppies hopes to open four new stores.
This expansion is funded by internal resources and debt/bonds.
How Choppies is catering to different shopper needs
Choppies is trying to meet as many shopper needs as possible, adding further services either in or near its supermarkets. These value-added services differ between country.
In Botswana clothing has been added to five hypermarkets. It has also sublet excess space to airtime providers and financial services like UAE Exchange.
In South Africa it is adding Choppies Fried Chicken, Net One pension ATMs, and Lotto. Choppies Money counters operate across the North-West region, Standard Bank money transfers at North West stores and Nedbank cash online in stores in KwaZulu-Natal province.
Despite Choppies’ positivity, the region is still experiencing challenges.
Zimbabwe is the market where the retailer is facing the most difficulties. These include limited cash availability due to excessive inflation, difficulties with import permits, in particular during the festive season. This lowers product availability and causes problems within the supply chain. This combined with physical logistical difficulties have led to an increase in inventory days from 44 in June 2016 to 46 in 2017.
Opportunities arising in the region
Choppies feels positive about overcoming these challenges and believe there is room for growth due to the medium to long term improvements it expects in the trading environment. These opportunities vary again between countries.
In Zambia, it is using direct imports from suppliers outside the country to improve margins. In Kenya, Choppies are streamlining operations by changing their supplier terms and delivery schedules. It also expects the local economy to grow by a further 6%, which will help underpin growth.
In Botswana, there has been investment in technology, aiming to make the receiving process more efficient. The distribution centre has also been moved from Lobaste to Francistown, which Choppies hopes will increase the operational efficiency of northern Botswana operations. It is also planning to increase its private label and to offer cheaper alternatives for consumers.
Tanzania’s trading environment is continually improving and there are hopes to expand on the already profitable single store in the country.