Shoprite Makes Inroads in Central Africa: First Supermarket Opens in Kinshasa

After years of preparation and a few missed deadlines, the first ever Shoprite supermarket opened in the Democratic Republic of Congo’s (DRC) capital city Kinshasa on 19 June 2012. Shoprite is the leading grocery retailer in South Africa, commanding a 19% share of value sales in 2011, and operates over 1,700 stores in Africa.

The DRC, Africa’s third largest country by population (68 million in 2011), has been on Shoprite’s target list since 2007, with the South African retailer continuing to focus its attention on fast growing emerging markets to boost its revenues.

In the past 20 years the company has entered 16 countries in Africa, often being the first to set up large-scale retail operations in places that others would consider too risky or unprofitable. However, as is often the case on the continent, opening new stores is anything but a routine task due to the insufficient legal framework, poor infrastructure and a shortage of suitable retail space. The DRC features all of the above but the fact that Shoprite has succeeded in opening a supermarket there is an encouraging sign. The next step will be to turn the operation into a profitable business.

Difficult business environment not a deterrent for Shoprite

Shoprite is used to operating in challenging countries thanks to over 15 years of experience in Africa. It was one of the first to open supermarkets in a ruined Angola at the end of the civil war in 2003 and maintained its presence in Zimbabwe despite a collapsed economy. In Nigeria, progress has been slow but the company has managed to establish itself as a trusted brand.

When looking at the ease of doing business rankings, the DRC is at the bottom of the list in 2012, placed 178th out of 183 countries. And the picture is not much better for most of the other markets where Shoprite is present.

Ease of Doing Business Ranking 2012 in countries where Shoprite operates

ScreenHunter_04 Aug. 02 14.43

Source: Euromonitor International from Countries & Consumers

One of the main issues affecting modern retailers is the lack of infrastructure needed to supply the stores. Power blackouts are also frequent in large cities due to a supply shortage. Furthermore, there is a very large informal economy which in some countries accounts for the majority of consumer sales. Formal grocery retailers have to combine competitive prices with a superior shopping environment so consumers move away from open markets and street sellers.

To overcome such challenges, Shoprite can rely on a solid position in its home market which allows it to focus on its international stores. The company also runs its own property development arm which is in charge of securing retail locations and deals with building permits and leases. This resulted in over 200 foreign stores in 2011 accounting for 10% of the company’s total revenue.

Issues that Shoprite will face in the DRC

Kinshasa is an African megacity with a total population estimated at 10 million and set to grow by 50% by 2020, according to UN projections. However, the city’s infrastructure has failed to keep up with its rising population and Shoprite will face many challenges over the short term, such as road traffic congestion, lack of a local supply chain and overwhelming bureaucracy.

Since the end of the civil war in 2003, the country’s economy has bounced back from recession, delivering real GDP growth of 6% per annum over the 2003-2011 period. As a result, Kinshasa has experienced a construction and real estate boom, fuelled by its oil and minerals industry and investment from Chinese contracting companies. This has led to skyrocketing property prices and a rise in the cost of living. The consumer price index has surged four-fold since 2003. This has led the informal economy to thrive and it will be a long time before consumers can do their daily shopping in Shoprite supermarkets.

Some positives despite the difficulties

The Shoprite supermarket in the DRC is located in the upmarket district of La Gombe, which faces the Congo River in the north of Kinshasa. It is one of the most popular areas for expatriates and the local elite so there is an existing base of high-income earners which can afford to buy from the retailer.

Despite widespread poverty, the DRC has come a long way and living standards have improved slowly. The country is one of the fastest growing in sub-Saharan Africa, with 20% growth in real gross national income (GNI) per capita between 2006 and 2011. This is likely to boost income levels and lead to the emergence of a middle-class which will switch to formal retailing.

Finally, the DRC is the first francophone country in continental Africa to house a Shoprite store. This will provide some useful insight on the cultural specificities of a French-speaking country and how it perceives the Anglophone South African brand. Furthermore, marketing material and in-store billboards will have to be written in French or Lingala (the native language in the region). The DRC could thus provide a stepping stone to the neighbouring Republic of the Congo, Gabon and Cameroon as well as other markets in Central Africa.

Shoprite’s Footprint in Africa

ScreenHunter_05 Aug. 02 14.43

Source: Euromonitor International

Learning from the Nigerian example

Some similarities can be drawn between Nigeria and the DRC in terms of living standards, population and also the infrastructure bottleneck. Shoprite opened its first store in Lagos back in 2005 and then branched out into Abuja, the country’s capital city, at the end of June 2012. In Nigeria, the company is starting to roll out its strategy of penetrating the major cities of the hinterland. The Abuja opening is a sign that it has managed to establish the right distribution network to channel its products further inland. Shoprite has a joint venture in the country with a Zambian meat producer, Zambeef, which supplies the company’s fresh meat counters.

The same strategy may work in the DRC. Shoprite will first establish itself in Kinshasa and try to develop a local supply chain. Then, it can start looking at other cities and build a network. Lubumbashi, the capital of the copper-rich Katanga province, is the next step. The border with Zambia is only a few miles south and Shoprite runs nearly 30 stores there so the Congolese operations could lean on Zambia’s logistics.

However, as always with emerging markets, Shoprite and other retailers will be tested on their commitment and there will be hurdles along the way. It took almost 10 years for Shoprite to generate 10% of its total revenue from its African operations and it will take another decade at least to double that. However, the company seems well prepared for the challenge. In March 2012, it raised US$1 billion worth of new capital to fund acquisitions and store expansion in South Africa and abroad. This cash injection will be much needed to make the DRC division profitable.