It’s unclear if potential buyers of the business will seek to maintain the chain’s current footprint of 25 stores across the country. As such, the company’s exit also represents a blow to retail real estate market with some malls facing the possibility of losing their biggest tenant. It comes after years of rapid investment which saw large American-style malls become a more regular feature in Nigeria’s largest cities. In fact, between 2009 and 2015, Nigeria’s retail industry grew rapidly at 40% per year with nearly 200,000 square meters added to the formal retail space.

Unease of doing business

Shoprite’s retreat from Nigeria comes in the wake of similar moves by other South Africa-owned retail outlets. Clothing retailer Mr Price disclosed plans to exit Nigeria last month citing “volatility” following a similar choice by TruWorths in 2016. Woolworths also closed its three Nigerian stores back in 2013.

Several South African companies operating in Nigeria have had huge success after the country started to open at end of military rule in 1999, but several have also faced long-running difficulties with unfavorable public sentiments and government regulation.

MTN, which became the continent’s largest telecoms operator thanks to Nigerian customers, has a checkered history of regulatory run-ins with the Nigerian government, culminating in its payment of a $1.7 billion fine over a sim card dispute in 2016. Meanwhile, pay TV giant MultiChoice has long been subject of the threat of price regulation by government.

For its part, Shoprite bore the brunt of reprisals over xenophobic attacks in South Africa last year as its Nigerian outlets were targeted, resulting in a clash between police and protesters at one of its Lagos outlets which left one person dead.

Shoprite outlets in Nigeria were targeted in reprisal protests following xenophobic attacks on Nigerians in South Africa
Shoprite outlets in Nigeria were targeted in reprisal protests following xenophobic attacks on Nigerians in South Africa
Image: Reuters/Afolabi Sotunde

But the grocery giant has also been caught in the crosshairs of Nigeria’s tough business climate in another way as it has taken foreign exchange hits with Nigeria’s weakening naira currency over the past five years. The uncertainty over the naira’s valuation which has multiple exchange rates and limits on the ability to repatriate dollar profits at the most favorable rates would not have helped.

The company’s potential exit may yet open up opportunities for local, emerging players in the grocery space. But it represents a significant challenge in rapidly expanding logistics and supply chain capabilities to match the scale of distribution and footprint Shoprite achieved in 15 years. The Cape Town-based retailer built local supply chains from scratch and was able to plug into its existing Africa-wide network.

Another possibility is for financial buyers, including private equity, to look at acquiring the Shoprite Nigeria stores. Such a move could involve rebranding, reducing the cost base and possibly renegotiating its highest expense: mall rent.

But while local retail players harbor hopes of filling the market gaps to be vacated by Shoprite, their choice of expansion mode—either through mall outlets or a standalone retail stores—will likely define their chances of survival.

“There is a large population and an under-supply of retail on a per capita basis but the major problem is that the malls that are built are large and relatively expensive,” Omidire says. “Construction costs are linked to the dollar so their income is also linked to dollar. And that puts a lot of pressure on tenants who are earning in local currency.”

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