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South African Retailers Eye Continental Expansion

         Date: 2012-08-22

           Tag: South African, South African Retailers

Summary: Sub-Saharan Africa is the new hub for long-term growth prospects in retail, with South African retailers eyeing opportunities as the country’s market becomes increasingly saturated.

Sub-Saharan Africa is the new hub for long-term growth prospects in retail, with South African retailers eyeing opportunities as the country’s market becomes increasingly saturated.

South African retailers are looking to expand northwards, given the high saturation in their own market and the opportunities for growth offered by the rest of the continent. With large, young and fast growing populations, Sub-Saharan Africa offers exactly this opportunity.

Seven of the ten fastest growing economies in the world are in Africa, offering real growth prospects to retailers looking to enter these growing markets. Doing so offers retailers the chance to create their own space within the country’s retail market.

Part of this expansion into the rest of Africa has been accomplished through franchising, particularly appropriate to foreign markets where operational costs are high and local regulation unfavourable to foreign ownership. It is the ideal way to quickly expand a retailer’s footprint at a low cost. Shoprite Holdings Ltd and Pick ‘n Pay Stores Ltd have employed this model at home as well as abroad, while also running corporate stores.

Pick ‘n Pay’s operations in Mauritius and Mozambique, where it started business in 2010 and 2011, respectively, are based on franchise agreements as the company needs local support from a business partner on the ground. The same goes for Shoprite, with a dedicated franchise arm named OK Franchise Division (OKFD) operating 226 shops in South Africa and 43 abroad.

South Africa’s market maturity has led to other retailers, including Woolworths Holdings, expanding out into the rest of Africa. They have been allowed to do this as global players have instead been focusing much more on Asia and Latin America where they feel short-term benefits are likely to be easier to come by.

Most South African retailers are looking to expand in the markets in which they are already present, but new markets are also on the agenda. Shoprite is entering the DRC, Apparel specialist retailers Truworths, Woolworths and Mr Price all plan to expand in Nigeria, Angola and Ghana.

Botswana has also become an attractive proposition to foreign firms, making it into the AT Kearney Global Retail Development Index for 2012. Smaller, untapped markets are providing new frontiers, according to the report, and global expansion is now a must for retailers.

According to the report, Botswana “stands as a precursor to steady development of sub-Saharan Africa”, which could emerge as a major player in the index in coming years.

A growing, stable economy with growing consumer spending and low saturation of international retailers make it an ideal place for expansion by South African retailers.


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