Shoprite had planned to exit in 2015

The exit for  Shoprite to exit from Uganda has been in the works for almost seven years. PHOTO | FILE

What you need to know:

  • Shoprite’s exit from Uganda had only been delayed on the hope that things could turn out for the better. However, a section of investors have been pushing for the closure of operations in markets considered to be a burden on the retail chain’s books. 

Make no mistake, Shoprite’s exit from Uganda did not start yesterday, it has been a plan in the works for about eight or more years .  

In 2013, Shoprite, one of Africa’s largest retail stores, had started interrogating some of its regional operations, including those in East Africa. 

In East Africa, Shoprite was then operating stores in Uganda and Tanzania. Each of the two countries had three outlets spread in Dar el Salaam and Kampala, respectively. 

The review subsequently resulted in the closure of operations in Tanzania in 2014 and a consideration for “a wait and see” gamble, in which Shoprite had hoped to improve its returns in Uganda assisted by prospects of assumed growth in the country’s middle class.

However, the wait, as already seen, could have resulted into more financial bleeding with the retail chain first slowing down amid increased market saturation, characterised by fast growth - in terms of retail outlets - against a static or slow-paced growth in the shopping culture.  

Therefore, it would be right to say that Shoprite has since 2013 limped into each year with the hope of better returns yet some shareholders, although unsuccessful,  had never given up on pushing for the closure of operations in markets that had appeared to burden its balance sheet such as Uganda. 

In 2014, Shoprite made a painful decision to close its first store outside Kampala in Naaly, Wakiso District. 

Perhaps, the closure could have been the first signal of a decision, which, while it has taken years, was about to come to the surface.   

While it was too early to call, Thomas Okot, a retail market analyst then, had told Daily Monitor that whereas the outlet at Metroplex Mall in Naalya was a bet that had not paid off, its closure might have ignited a “plan to quit East Africa to consolidate its footing in other countries and back home [in South Africa]”. 

The closure had come in the same year when Shoprite had closed its Mlimani City and Puga Road stores in Dar es Salaam and another in Arusha, which were subsequently sold to Nakumatt Holdings, which has since collapsed, for close to Shs30b.

The closure, in Tanzania had meant that Shoprite was now only operating in Uganda, before trying its hands in Kenya, where, between 2018 and 2019 it had opened three store.  

Whereas, Shoprite could have wanted to take advantage of the disarray in Kenya’s grocery market with the collapse of Uchumi and Nakumatt, its gamble soon hit a dead end, closing all its three stores with the last one just in April. 

Therefore, the exit from Uganda must have been a calculated move that has been in the works but only delayed on the hope that things would turn for the best. 

On Monday, Shoprite ended years of speculation, announcing its exit from Uganda, its last foothold in East Africa. 

The announcement ends 21 years of Shoprite in a market in which it had at some point operated as a semi monopoly.  

“In line with the group’s non-[South Africa] review process, our operations in Madagascar and Uganda have been classified as discontinued,” Shoprite, which currently operates five stores in Uganda, said in notice to shareholders. 

But beyond the announcement, analysts believe, Shoprite could nolonger absorb the heat brought about by its operations outside South Africa. 

Aly Khan Satchu, an equity markets analyst based in Nairobi, told Daily Monitor: “South African businesses have had a chequered history outside their home market. Some [have posted] outstanding success while other [have had] high profile retreats.”

Therefore, he says, Shoprite could have been a victim of the chequered history, taking a cautious decision to “cut its losses rather than dig in for the long haul”. 

Shoprite joins a list of other supermarkets such Uchumi, Tuskys and Nakumatt that have or are currently struggling to maintain operations in markets where they are still holding fort. 

The exit, other analysts believe, could have been made more apparent by the current volatilities, exacerbated by currency devaluations, lower commodity prices and high inflation. 

Dr Fred Muhumuza, an economist and a lecture at Makerere University, says Shoprite could on its part have responded to market trends that dictate that large supermarkets incur huge costs in terms of operation yet the world and particularly Uganda, is experiencing a drop in the middle-class, on which the supermarket economy depends, on account of job losses. 

Therefore, he says, Shoprite’s departure will also provide a proper examination of Uganda’s middle-class, which for years, government had said had increased but without providing proper data on the same. 

The exit from Uganda and Madagascar means that the retail giant will now operate in 11 countries in Africa, including South Africa, where it generates almost 80 per cent of its revenue.

Uganda has been contributing less than 2 per cent of Shoprite’s turnover.  

Performance since 2015   

By 2015, at a time when the supermarket sector was experiencing a lot of expansion, Shoprite had decided to exercise caution, operating three stores, one of which at Metroplex Mall, had for four years posted low sales before it was closed in 2014. 

During the period, Shoprite had reported a 7 per cent decline in sales, from Shs56.9b to Shs53b with losses worsening from Shs3.5b in 2014 to Shs11.4b in 2015. 

However, in the subsequent year - 2016 - sales had picked up by 3.4 per cent to Shs54.8b from Shs53b and as it could seem, the closure of the Metroplex store, had assisted the retail giant to return a profit of Shs4.6b.

Sales improved further in 2017, growing by 4.8 per cent to Shs57.3b, but the 2016, profit could not be sustained, falling to just Shs19.6m and closing the year with Shs24.5b in accumulated losses.

However, losses notwithstanding, Shoprite in 2018, expanded further, opening its third store on Acacia Mall in Kamwokya, Kampala, before opening another at Victoria Mall in Entebbe. It opened its fifth store in 2019 at Village Mall, Bugolobi. 

There has also been plans to open another store in Nsambay, Kampala at the soon to be completed Arena Mall.