Choppies unfazed by losses in South Africa
Despite mounting losses in its South African operations, retail giant Choppies once again posted an impressive set of results for the financial year ended 30 June 2014 and revealed plans to further expand its footprint in the region. Choppies turnover crossed the P5 billion mark for the financial year while gross profit also shot past the P1billion mark, which spurred an increase in revenue of 24 percent, spike in gross profit of 31 percent a 17 percent increase in profits after tax from the previous year.
In accordance with its long term strategy to increase its retail footprint in the region, Choppies opened 13 new stores in Botswana, another 10 in South Africa and acquired 10 stores in Zimbabwe. Three more stores were opened in Zimbabwe post acquisition. This shot up Choppies’ presence and established it as a dominant player in the region, with a total 69 stores in Botswana, 27 in South Africa and 13 in Zimbabwe. With a new distribution center opened in Bulawayo, Zimbabwe Choppies’ warehouse space in the region crossed 41 000 sq m while its retail space increased 46 percent to 155,955 sq m. Despite an impressive set of financial results and a trailblazing foray into the region, Choppies suffered yet another loss in its South African operations. This does not come as a surprise given the disruption that was caused by the strike in the platinum mining sector. The results statement indicates that 16 of the total 26 Choppies operations in South Africa are in the strike affected area, which caused a plunge in revenue of up to 40 percent.
“Performance has improved since the end of the strike and we remain confident that continued investment in our infrastructure in South Africa will support our long term growth strategy,” read a statement from Choppies.
The 2014 political risk map drawn by AON describes South Africa as a medium risk country, placing it at third out of six risk levels. The risk levels range from low risk to high risk and finally very high risk. Choppies chief executive officer, Ramachandran Ottapathu believes they will be able to overcome the challenging political and business environment. In an interview with Gazette Business, Ottapathu revealed that Choppies has long term plans in South Africa and will open six more stores in the country by end of December.
“In comparison to Botswana, South Africa’s business environment stands out because it has better regulations and a bigger market. We have already recovered from the negative impact of the strike because customer traffic into our stores has increased after the salaries of those who were involved in the strike were restored,” he said.
He added that other retailers were as equally affected by the strike because they all face common macro issues that affect the nation. There are no Choppies specific issues or risks, said Ottapathu. He added that Choppies has preventative measures in place for losses incurred due to riots beacause it has a full comprehensive insurance policy forsuch situations . Asked about the stiff competition in South Africa’s retail sector, Ottapathu said Choppies will prevail because it has good market credibility.
“In any case, Choppies faces the same competition in Botswana because the same retailers that operate in South Africa also compete with us in Botswana,” he said.
In the results statement, Choppies said it was highly encouraged by performance at its Zimbabwean operations and revealed plans to open five more stores in the country. Botswana remains Choppies’ core market with stable and positive performance. The retail giant intends to open four more stores in Botswana by the end of the year.
“We continue to evaluate expansion opportunities in existing and new markets and we are in the advanced stages of entry into new markets in Southern and East Africa,” read results statement.