Pick n Pay moving into Nigeria – 51% of joint venture with experienced local player
We can only imagine the weeks of board deliberations that went into South African retailer Pick n Pay's decision to take the plunge into Nigeria. With competitor Woolworths and major supplier Tiger Brands recently having beaten speedy retreats – and MTN trying to understand why it has been levied with a punitive fine – the knee-jerk response would be why now? Especially as the Nigerian economy is contracting on a lower oil price and the war against extremists Boko Haram is intensifying, sparking multinational divestment. Overlay the fact that those calling the shots at the Ackerman-controlled business well remember the last time Pick n Pay entered a major new geography in its ill-fated Australian adventure. But there are sound reasons why this time could be different. Instead of parachuting its own troops, Pick n Pay has formed a joint venture with a local player with almost a century of Nigerian trading experience. The business due diligence, therefore, would have been on the integrity and competence of AG Leventis – not trickier assumptions around distribution, pricing and demand which outsiders always struggle to answer with any competence. Timing wise, you also have to like a company entering after the hype has evaporated. Nigeria's potential is well documented, but as MTN will attest, risks for investors remain high. Pick n Pay seems to have found the right business approach. Its shareholders will be hoping an equal amount of homework has been conducted in the socio-political arena. – Alec Hogg
From Pick n Pay:
Following extensive market and consumer research, Pick n Pay will partner with Nigeria Stock Exchange-listed AG Leventis to enter the Nigerian market. Pick n Pay would hold 51% of the joint venture.
AG Leventis has nearly 90 years' trading experience in Nigeria, with a history of investing in long-term quality assets. The company said it intended rolling out a combination of large and smaller formats to meet consumer needs in Nigeria, offering ranges tailored to local communities.
Speaking today at the release of the company's year-end results, CE Richard Brasher said:
"The opportunity presented by Nigeria is well-known: a population of 180m, an economy worth US$500 billion, and GDP growth of around 5% a year. Some analysts forecast that by 2030 Nigeria could have 160m households with sufficient incomes for discretionary spending, and a consumer goods market worth more than US$1 trillion.
"The development of modern shopping malls since 2005 in a few major cities reflects rising incomes and changing lifestyle options enjoyed by middle class Nigerians. Existing formal players in this market have relatively little scale.
"Nigeria is a country and a market which Pick n Pay cannot ignore in its quest for long-term sustainable growth. The challenge of course is how to succeed in Nigeria. We can all point to examples which have not worked.
"I set three pre-conditions for success in the Nigerian market:
- first, we need to understand local consumer needs and how these are evolving in the country. We have done an enormous amount of research on-the-ground over the past two years to get this right.
- secondly, given the complexities of the Nigerian market, we believe a joint venture with an experienced local partner is the right approach. I am delighted with our decision to enter Nigeria with AG Leventis, which has nearly 90 years' trading experience in the country. AG Leventis has huge expertise in supply chain logistics from their activities in the FMCG, motor vehicle, logistics and real estate sectors, and notable FMCG capabilities through Leventis Foods.
- thirdly, as elsewhere in Africa, our growth must take place in a deliberate, planned, and unhurried way, without putting the business under undue risk.
"Leventis is a family business with a similar operating ethos to that of Pick n Pay and I am confident that we have the right decision, the right partner and the right plan."
AG Leventis Group Executive Vice Chairman and CEO Michael Economakis said:
"Pick n Pay as an African brand is among the largest supermarket chain stores in South Africa. Pick n Pay is known for their brand values, quality and excellent service. We are delighted about this partnership with a highly recognized and trusted brand whose values, operational ethics and dynamism fully align with those of AG Leventis Group. The consumer market in Nigeria is growing with a preference towards quality and affordable goods. Our partnership with Pick n Pay will deliver unparalleled service delivery in Nigeria. Furthermore, this partnership is set to create jobs and youth empowerment."