Retail giant, Choppies is looking to expand its presence in the South African market despite the company registering slower profit growth due to its aggressive expansion drive in the region.
Choppies currently has about 70 stores in South Africa, where the company has been making losses due to the slump in mining towns.
In a statement, Choppies said it has entered into negotiations with a third party in Africa’s economic powerhouse for acquisitions of a limited number of retail outlets.
“If successfully concluded, and subject to relevant regulatory approval, the negotiations will result in a transaction that might have an impact on the price of the company’s shares,” read the statement.
Choppies, which is currently in a closed period as it is about to release its results for the full year to June 2017, did not provide details on the seller or the number of stress involved.
But in an interview earlier this year, chief executive officer Ramachandran Ottapathu said they plan to open 36 stores in the 2017 calendar year, with 12 of them in South Africa where the retailer was very close to realising profits.
Choppies has posted perennial losses in South Africa with the company bearing the brunt of setting up shop in mining towns that were hit by the global commodity slump.
“We are now fully diversified in South Africa. From the 70 stores, only 18 are in mining towns. We see potential in South Africa and that’s why we are opening more stores there,” he said.
Choppies targeted to spend P120 million up to June this year to expand its footprint and a further P450 million in the full-year between July 2017 and June 2018.
Ottapathu said their primary target was expanding presence in
“We are not shaken by the drop in profit after tax in the six months to December 2016 as the company is in a growth phase. Despite the fall in earnings per share, our revenues, gross profit as well as operating space rose significantly reflecting the results of our growth strategy,” he said.
In the six months period to December 2016, Choppies’ revenue was up 34% to P4.7 billion, while the total number of stores jumped 37% to 202 outlets in seven countries.
Choppies, which opened its first store in Mozambique earlier this year, also plans to open new outlets in Zambia, Tanzania and Kenya this year.
However, Ottapathu said the Zambia, Tanzania and Kenya operations would remain loss making until a time they have scaled up operations.
“In Zambia, we have 11 stores and we target to break-even at 15 outlets. In Tanzania, we need 10 more stores to make profit whilst in Kenya we need to add about five more stores to the existing 10 to break-even,” he said.
For the full year to June 2017, the group’s consolidated net profit for the year-ended June 30, 2017 is expected to be lower than the comparative previous year.
“This is mainly due to the reported gain on sale of assets in the previous financial year, and losses incurred in new regions of Zambia, Kenya, Tanzania and Mozambique,” Choppies said in a statement released this week.