Thursday, December 5, 2019

Is there life for Choppies after Ram?

For most of the last two decades, dozens of shops bearing the red Choppies brand signs have been mushrooming all over Botswana, literally painting the country’s retail market red. And one word was arguably synonymous with the retail giant: Ram.

Ramachandran (Ram) Ottappathu was taking Southern Africa’s retail market by storm, building Choppies into the biggest supermarket chain outside South Africa and creating Botswana’s most remarkable success story.

A contender for the ultimate rags to riches story, Ram grew Choppies from a stump to a multi-billion Pula business and a darling of the stock market.

When Choppies first decided to list its shares on the Botswana Stock Exchange in 2012, it was hailed as an opportunity of a lifetime as most Batswana stock emptors climbed over each other to buy into Ram’s dream.

“If you call Choppies a great company, that greatness belong to us” Ram said in a recent CNBC Africa interview.

By “us” Ram is referring to himself and co founder of the Choppies Group Farouk Ismail. He told CNBC Africa that the Choppies “board was only constituted in 2012. By then Choppies was already a renowned successful retailer in the continent.”

The Choppies dream is however fizzling into a nightmare as shareholders watch their investment being depleted. The company which was feted as Botswana’s biggest success story has crumbled into a penny stock Choppies shares have been suspended on both the Botswana Stock exchange and Johannesburg Stock exchange since 1 November 2018 on account of the company’s auditors PwC’s inability to finalise the 2018 financial statements due to certain irregularities. 

After questions over the retail giant’s conducted its business began to intensify, the board decided it was time for Ram to go. He was suspended from the company as CEO and left to ponder how the business he had founded and nurtured had become so deeply embroiled in a governance scandal.

Ram who has been fingered as the fall guy now finds himself locked in a bitter power struggle with his board chaired by former President Festus Mogae.

So how did the Choppies poor governance persist for such a long time without warning flags being raised?

Tito Chengeta from Choppies Marketing Department offered a plausible explanation. In an interview with the South African media he said: “The Choppies structure grew with Ram as the nucleus … when you are running five stores, you can become the manager who can check on all five stores but once you reach a certain number of stores, that’s beyond your individual ability to supervise all these stores.

“And I think with the audit now, they’ve discovered a lot of things that Choppies still carried over that are mom and pop style, and should not be there.”

This was not helped by the fact that the board was almost moribund with chairperson former President Festus Mogae stretched very thin between attending to Choppies issue and putting out fires in Africa’s troubled spots as peace mediator.

The showdown between Ram and the Choppies board will come to a head at the Emergency General Meeting slated for early next month on 4 September. Fighting Ram’s corner is Choppies co-founder and current acting CEO Farouk Ismail. At the meeting, the shareholders will decide on whether to take their chances with a new man at the helm or continue with Ram.

In a recent interview with South Africa’s Mail & Guardian, Ram warned that Choppies may not be able to survive without him. “You know, leaving the man who built the company outside … the value destruction is going to be much more than whoever can anticipate or imagine”, he said.

The South African newspaper observed that, “given its business model — and the fact that he is a 20% shareholder — this is no idle threat.

Choppies is already battling to retain its market shares and recently announced plans to exit the South African market. The chain store is doing well in Durban but struggling in the North West Province where suppliers are reluctant to service it and banks will not give it loans. Ram and Ismail who are the company’s biggest individual shareholders have provided personal surety to banks to enable the South African operation to continue running. This is expected to count in their favour at the EGM.

The duo, however face an uphill battle. Before the EGM will be a forensic report which “other than establishing what appears to be a link between the accounting entries passed to capital work-in progress as part of the rebalancing of cash records, to obfuscate the non-receipt of cash in settlement of bulk sales transactions, the forensic report did not substantiate the money laundering allegations.” It is the shareholders’ perceptions that Ram will be up against and in this regard the dice is loaded against him.

Ram faced allegations of money laundering related to unsupported purchases of inventory from suppliers as well as unsupported payment purportedly for store refurbishments being made in Zimbabwe.

The suspended Choppies boss may however turn the tables against his detractors. He has recently been doing a string of international interviews with X-News, SENS and CNBC Africa where he revealed that he was preparing his response after Choppies gave him the right of reply to the legal and forensic reports.

Asked in an interview with CNBC Africa last week if he sees any future for Choppies post the EGM, he said, “You will see. We will bring back Choppies double the power of what it used to be.” 

An analyst tracking Choppies developments told Sunday Standard this week that he was almost certain that Ram will bounce back, dismissing the brouhaha against the Choppies boss as, “whims and fancies of the auditor to confuse the investors. Now there is nothing. Of course, there are governance issues and many of those are known to the board as well.” 

Allegations were raised against Choppies management in Zimbabwe that large amounts of monies were from time to time being brought into different shops as cash and then entered as sales when in fact the cash was not from sales. This cash would then be removed from the shops without being banked and “parked” in the accounting books as having being set aside for projects. Apparently this is a practice in Zimbabwe where there is a shortage of UD dollars, and the practice is still ongoing even after Ram’s suspension.

“The forensic report is non-conclusive, no evidence for material benefits, other than some lapses in governance”, he added.

In an interview with CNBC Africa, Ram said it was all “a storm in a tea cup.”  The analyst pointed out that the investigators failed to interview a number of crucial people, rather focusing on interviewing insignificant officials or employees. That is why the forensic report states that:  “a recurring theme in the interviews of current and former employees during the investigations was that they could not recall specific facts or that the matters of detail they were being questioned on were beyond their realm of responsibility.”

“If you ask wrong questions to wrong people, what else you can expect”, he asked.

But when all is said and done, the shareholders who will gather to decide Ram’s fate and the future of the retail giant will have to answer the question: Is there life for Choppies after Ram.

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