Entry into South Africa by the local mass retailer Sefalana expected to begin on May 1, 2017 may possibly nudge up competition with other retail giants.
Sefalana is confident that the move will significantly enhance its profitability.
In November last year Sefalana announced its plans to raise capital through a Rights Issue programme which was completed in December. According to the retailer, the shares were “significantly oversubscribed” raising proceeds of P351 million.
Part of the funds were used to fund the acquisition of TFS Wholesalers in Lesotho which, according to the Group Managing Director Chandra Chauhan, was followed through after its previous owners approached Sefalana to buy it.
The take-over included the purchase of the building in which the wholesaler operates in at P30 million. Chauhan shared with his audience at the Group’s financial results briefing held last week Friday that the acquisition was expected to bolster the Group’s turn-over by P150 million in the first six months of trading and contribute about P7 million to profit by the end of the year.
The wholesaler was opened on November 1, 2016 and Chauhan expects two additional store openings should the potential sites prove to be viable. The bigger share of the raised capital was used to support the expansion of Sefalana into South Africa.
Chauhan did not divulge extensive details on the South African entry but he, however, expressed confidence in its anticipated presence by citing the daily turn-over of the targeted stores which record over a P1 billion worth of transactions.
In Lesotho, Chauhan said that its main competitor was Mass Mart and to a lesser extent a chain of Chinese-owned small shops.
In South Africa, however, competition wears an entirely different mask and comes much fiercer than the smaller market in Lesotho. From the experience of its biggest local competitor Choppies, a presence in the SA market needs a carefully thought through strategy to survive the cut-throat market.
In the case of Choppies such a game plan is seen by its choice of locations which seems to depict a semblance with the local market in terms of the target market which then allows it to build strengths and eventually become a staying power.
It would appear that it chose locations such as North West, Limpopo and Mpumalanga, with less urban influence, to be able to continue its model of attracting the low to middle income groups. The main cities would most likely swallow Choppies.
Sefalana too will have to amble into the market with a strategy that will not undermine the great force it has come to be known to be.
From a financial performance perspective Sefalana did not fare very well for the year ended October 31, 2016 which Chauhan attributed to the challenging economic environment which was characterised by lower consumer spending.
The Group’s profit in its main business line in Botswana of trading consumer goods when compared to the same period in the previous year declined by 16 percent.
With other operations in Zambia and Namibia, Botswana contributed the largest to Group revenue and profit before tax at 60 percent and 48 percent respectively. Namibia, on the other hand, contributed 32 percent and 22 percent to Group revenue and profit before tax respectively. With a current total of 14 stores in Namibia, Chauhan expressed the medium target to increase the number to 20 with a higher concentration on wholesale instead of retail.
The market in Namibia, he said, is flat but however doing extremely well.
The entry into South Africa, whose outcome is subject to due diligence review could possibly strengthen Sefalana’s hand in the game which would make it an interesting observation to watch in terms of upper edge in the local market.