As the true extent of Choppies Enterprises financial mess unravels, the retailer’s Botswana based stores have buckled under pressure of supporting the costly expansion, resulting in the stores recording its first loss since the company listed seven years ago.
In the latest financials which have been delayed for over a year pending investigations of financial and operational irregularities, the Botswana stores registered a P35.6 million loss, fuelled by impairment losses, and without the local stores to prop up the group, Choppies ended up with a massive P455 million loss after tax.
The 83 Botswana stores’ significance to the Choppies brand cannot be over emphasised given that they started what Choppies is today – growing the company from a small brand in Lobatse to a multi-billion business. Since Choppies listed in 2012, the public got a glimpse of how the Botswana stores were the company’s main cash cow and would later prove resilient in supporting the company when other stores were declaring huge losses.
When Choppies began its aggressive expansion strategy, it was mostly funded and smoothed over by profits made in Botswana. In 2015, the Botswana stores delivered P200 million in profit after tax (PAT) while South Africa brought in a P12 million loss, and Zimbabwe could only manage an P8.3 million. In the end, the group was able to save face with a P197.2 million profit, thanks to Botswana’s performance.
It was also in 2015 that Choppies ramped up its expansion, and the following year, Botswana operations were starting to feel the pressure, only growing its profit up to P203 million on the back of P68 million loss coming from South Africa, while Zimbabwe’s losses came at P12.3 million, and the rest of the region which included Kenya and Zambia furthering losses by P17.8 million. This resulted in the whole group’s profit for 2016 falling by 48 percent to P106 million.
By 2017, the expansion strategy was already proving to be a challenge as Choppies had its first cumulative loss of P169.8 million, fuelled by poor performance across its operations except the Botswana subsidiaries. The Botswana operations could only manage to rake in P141.5 million in profits but this was wiped away by the P252 million loss from South Africa, in conjunction with a P7.3 million loss in Zimbabwe, and the rest of the region (Kenya, Zambia, Tanzania and Mozambique) lost about P52 million.
In the wake of last year’s P455 million loss which was mainly due from South Africa’s P273 million loss, and the rest of the region’s P148 million loss, Choppies board is exiting those markets. Only the Zimbabwe stores managed a paltry P12.9 million in profits, taking the crown from Botswana in what will feel like a betrayal for a country that sacrificed a lot for Choppies in the past two decades.
The budget retailer’s operations in Botswana had been a fodder of controversy, starting off with the company’s strategy to associate heavily with the country’s political leaders, which some say it gave the retailer an unfair advantage. Choppies appointed the former president Festus Mogae as its chairman when it listed on the Botswana Stock Exchange (BSE) in 2012, giving it clout and attractive to the country’s institutional investors, including the Botswana Public Officers Pension Fund (BPOPF), which bought a sizable stake in the company.
Furthermore, with its association to power, Choppies was able to expand rapidly in Botswana, and its trail left many of the country’s general dealers closed – a development that industry experts say could not have been possible had the country had strong anti-competitive laws. The absence of those laws at the time allowed Choppies to have a stronghold in the retail market thanks to its vertical integration model that blurred the lines between governance and conflict of interest from the company founders.
To rub salt in the wound, as money came in from the domestic expansion, it did not trickle down to its citizen employees. Instead Choppies management was accused of favouring foreigners in senior roles, while the majority citizens were underpaid. The disparity in employee welfare became apparent when Choppies paid its loss making South African operations employees more than what citizens got in Botswana, despite local operations being the cash cow of the group.
Choppies was suspended last year on the BSE and Johannesburg Stock Exchange after it failed to publish its audited financials. This caused a boardroom brawl which saw the Mogae led board trying to oust company chief executive officer and co-founder Ramachandran Ottapathu from company, accusing him of running the listed company as a one man show, which left the company in precarious financial position due to the costly expansion.
While Ottapathu eventually managed to wrestle the company and got rid of Mogae’s board to return as CEO, the company’s inner workings have exposed the sand castle the retailer was built on, and in the process many citizens stand to lose value of their investments in the company made through BPOPF. Moreover, with Botswana stores recording a loss since Choppies was listed, the underpaid employees who might have been looking forward to wage raise, now remain at risk of retrenchments as the company scales down.