Looking at the financial records (see here) of Shoprite, the company is not doing bad in Naira. Reported sales dropped 6.7% for H2 ended June 2020 for the Nigerian operation . If Naira had not lost value, the company would have recorded financial growth. Excluding South Africa (the home country and with the benchmark currency), Shoprite recorded financial growth decline (1.4%), even when discounting Nigeria, due to currency issues in Africa. If your sales dropped 6.7% while the influencing currency dropped close to 25%, the operating numbers are not bad.
If Shoprite had been listed in Lagos, it would have recorded “financial growth” during the period. This is my take: Shoprite came when Naira was around N127 to a dollar in Dec 2005. Today, that naira is now N380. Its home currency, Rand, has largely changed to the dollar. Simply, there is no magic how one could compensate for the naira deterioration and still deliver value to investors. It is a double whammy as the original dollars (yes Rand) came in at N127, and if you have to return them back, you need to have N380. Then, you need to create value on top to pay dividends.
The retail market in Nigeria has a promise: I do not see this as a pure competition-influenced decision. Shoprite will still be here but the reporting will be all Naira, and that is why it is looking for investors in Nigeria. Everyone wants to avoid touching Naira in the global market. Dangote Group has been selling more cements, collecting tons of Naira. But the Founder, Aliko Dangote, has experienced deterioration in its networth at the global level. With a currency in free fall, any business that has a global interface fades. That is why Shoprite is leaving Nigeria: Naira is hot to touch now. Any local investor who takes over would be fine since there would not be a need to ship Naira outside Nigeria. Or better, record financials in non-Naira figures.
Shoprite imports most of the things it sells. Except the fruits and veggies, most are imported. So, exporting from Nigeria is not an option because nothing is made in Nigeria. Also, when you model they can be paid in USD, you do not account that Nigeria has many substitutes like open markets. As I noted in the blog, while it collects taxes, open market competitors do not. Largely, it may not be easy to expect Nigerians to pay for produce at black market rate to enable Shoprite warehouse funds in London or New York. That is very theoretical to suggest in a retail sector.
Finally, if you look at the numbers from their financials, sales dropped 6.7% despite the Naira losing about 25% of its value. Largely, if currency has been flat, Shoprite was growing. In absolute terms, Shoprite was growing revenue in Naira but struggling in rand. Unlike other sectors, margins are right in retail. It cannot make enough margins to overcome our currency issues.
Personally, our grocery ecommerce is non-existent to affect brick and mortal yet. Out of $301 billion spent yearly in consumer domain, only 3% are electronic. Simply, atoms rule Nigeria. Shoprite experience is exacerbated as it is in retail where it cannot control price easily.