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South Africa's Pick n Pay ventures into difficult Nigerian market

South African supermarket chain Pick n Pay will soon open its first store in Nigeria through a partnership with A.G. Leventis (Nigeria) in an effort to tap the West African nation's "underserved" consumer market.

By Nqobile Dludla

JOHANNESBURG, Oct 20 (Reuters) - South African supermarket chain Pick n Pay PIKJ.J will soon open its first store in Nigeria through a partnership with A.G. Leventis (Nigeria) in an effort to tap the West African nation's "underserved" consumer market.

The push into Nigeria comes as retailers including grocery giant Shoprite Holdings SHPJ.J and Mr Price MRPJ.J are withdrawing because of currency devaluations, logistical challenges and difficulties repatriating profits.

But Pick n Pay still finds the risky market attractive and is confident of success, a company executive told Reuters on Tuesday after the company reported a 56.3% drop in first-half profit.

"The appeal is that it is a hugely underserved consumer market and is going to grow. You have to look through the short term and into the long-term potential," said David North, group executive for strategy and corporate affairs.

North said that Pick n Pay's expansion strategy in Nigeria will differ from other South African retailers that opened flagship stores in the large shopping centres.

Pick n Pay will instead focus on smaller neighbourhood stores, with partner A.G. Leventis providing "the local know-how, the understanding of the regulatory process and the local stakeholders", North said.

African markets outside South Africa contributed 2 billion rand ($120.9 million) to Pick n Pay's revenue in the 26 weeks to Aug. 30, down 10.3% on last year. Removing the impact of currency weakness, sales were down 7.3% in constant currency terms.

ONLINE GROWTH

The retailer, which competes with Shoprite and Spar Group SPPJ.J, said it had concluded an agreement to buy on-demand online grocery delivery business Bottles to strengthen its e-commerce operation.

Bottles was launched in 2016 as South Africa's first on-demand alcohol delivery app and partnered with Pick n Pay in 2018.

After a prohibition on alcohol sales was introduced in March to combat the spread of COVID-19, Bottles repurposed its app to deliver on-demand grocery essentials.

Since pivoting to groceries, the app has achieved more than 700,000 downloads with more than 350,000 registered users, bolstered by an unprecedented surge in online shopping during the pandemic.

Pick n Pay's own online sales doubled over the period.

Group sales, however, rose by only 2.6%. Sales from South African operations increased by 3.4%, constrained by restrictions on alcohol, tobacco and clothing sales during the COVID-19 lockdown.

Reduced trading hours, limits on the number of customers in stores and temporary store closures also contributed to an estimated 2.8 billion rand in lost sales.

Pick n Pay declared a full-year dividend of 173.06 cents, having deferred it in May, alongside an interim dividend of 18.74 cents.

Shares in the company were up 3.2% by 1132 GMT.

($1 = 16.5450 rand)

(Reporting by Nqobile Dludla Editing by Louise Heavens and David Goodman)

((nqobile.dludla@thomsonreuters.com; +27115952816; Reuters Messaging: nqobile.dludla.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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