Sunday, December 5, 2021

The story behind Choppies’ story

What has become apparent in the past years is that Choppies is not by any measure an ephemeral success story, it appears rather to be a winding feat. Its relentless gulp of the national food retail market identifies it as a frontrunner, a position which makes it a rather obvious main act. Speaking in numbers, Choppies operates 121 stores in three countries, as the top dog in its core market Botswana with 72 outlets, and as a new entrant in both South Africa and Zimbabwe with 31 and 18 outlets respectively.

It started first as a family business with a single store in 1986 but it is today a high value publicly listed company in the Botswana stock exchange. The retail giant recently announced that it will cross list in the South African stock exchange JSE, which according to its chief executive officer Ramachandran “Ram” Ottapathu is intended to give it access to more money, strengthen its financial position and enhance its image.

The secondary listing is anticipated to charter Choppies into new geographic markets in Southern and East Africa as well propel it to achieve over 200 stores across at least six countries by December 2016. By mere observation Choppies easily comes off as a tale of ‘’beyond belief” growth that has commanded both a positive high opinion and an undecorated disapproval.

This summarizes the story of Choppies as it has been continually told and re-told but there might perhaps be layers of this widely known story that remain untold especially concerning how Choppies manoeuvred through old retail challenges particularly in its core market Botswana. Its growth path is also a subject worth looking at particularly under Botswana’s economic landscape.

Strength in numbers

If there is a game that Choppies played with both agility and intelligence is the numbers game. The retail giant amassed 36 percent market share of the overall food retail market by shamelessly and repetitively multiplying its stores. A few stores in the largest and capital city Gaborone is what its existing competitors settled for but Choppies swooped the country’s economic hub by establishing more than 29 stores in it. Choppies certainly did not penetrate a virgin market (no pun intended), it found regional retailers from neighbouring South Africa whose brands had become widely known. Brand familiarity is according to retail market reports a strong factor in pushing sales, which by virtue of it means that Choppies had a mammoth task of acquainting consumers with its own brand, a challenge it gained the upper hand on by making addition and multiplication an important tactic of its numbers game. The wide spread of its stores established a lingering memory of its brand.

Rural penetration

Traditionally rural settlements, characterised by a small number of people living in them, were served by general dealers. Formal and regional retailers’ presence in such an environment was not considered a possibility especially because poverty affliction made it uninviting, so general dealers grew comfortable as they knew that they held this untapped market in their firm grasp. The comfort came from the fact that bigger retailers were often difficult to reach because many people could not easily travel between their homes and those stores, the general dealers were therefore the link. Lo and behold, the entrance of Choppies into such settlements struck the general dealers with a hard death blow, reducing them to ghost buildings. Despite the measly buying power of people in rural settlements, Choppies understood that in a consumption basket food ranked number one. Choppies simply cut through consumers’ heavy costs such as that of transport by taking its store to where they are. Additionally, its establishment generated economic activity through the creation of jobs, which also means that it influences demand given that the families of those that are working increase their consumption.

Ease of distribution

“The Group’s regional distribution and logistics infrastructure provides greater flexibility and a competitive advantage, enabling the company to meet most of its needs internally without having to outsource. This allows management to keep costs as low as possible” read a statement relating to Choppies’ secondary listing in JSE bourse. This move by Choppies has been widely criticized because of its direct approach to supporting sales, which nipped businesses that previously supplied it from the value chain. This simply means that Choppies relies on itself and therefore keeps the flow of cash within its web. Cutting out the middle man translates into reduced costs which in turn boosts sales.

Various retail market reports identify distribution as a major challenge to reaping the benefits of the sector, particularly that it inhibits reaching consumers. Choppies however identified an opportunity to set up three distribution centres in Botswana which shorten the distance at which goods are delivered to stores and as a result slashes the cost of transport and thereby increases revenue. The distribution centres also allow it to increase the capacity of goods that can be kept in store, which likewise lowers the cost.

Seeing as the competitive advantages of Choppies have been unpacked, future and further growth in the Botswana market makes an interesting follow up. In an interview with Sunday Standard, Ottapathu revealed that Botswana carries better prospects for growth compared to many other markets. This makes a thought provoking piece of information given the stages of growth that the Botswana market has followed at the backdrop of its small population. The expansion of Choppies stores was initially induced by organic growth, which means that it was growing from itself through its generated cash. However in 2013 Choppies bought MegaSave and SupaSave, a purchase that grew the size of its business, termed as acquisitive growth. Acquisitive is usually considered the fastest way of growing a business given its likelihood of increasing turnover and is much riskier than organic growth due its incorporation process.

Choppies appears to be balancing both growth pathways and even though more stores are expected to be opened in Botswana the expansion is anticipated to be done at a slowing pace. The move to fast track growth in new markets appears to be signalling that there is no further growth that can be achieved in Botswana. While acknowledging that there is basis for that observation Ottapathu however maintained that Choppies is still achieving like for like growth. Like for like growth is a method of valuation that attempts to exclude any effects of expansion, acquisition or any other event that artificially enlarge a company’s sales, this means holding other things constant and only taking only into consideration activities common in both periods.

“On average, each month the Botswana stores complete 6 million transactions (i.e. three times the population of Botswana),“ read the listing statement. Trading Economics, a … site, indicates consumer spending in Botswana between 1999 and 2014. The site discloses that spending has been on a rising tide since 2006 reaching an all-time high in 2014, it is however expected to remain unchanged from 2016 to 2020. The surge in spending was happening at the backdrop of stagnant incomes, which means that consumers paid for their purchases with borrowed funds.

Retailers such as Choppies are directly affected by consumer purchasing power, which as it seems the million transactions were funded by borrowed power, which begs the question of what will happen to Choppies’ sales once consumers wake up to the reality that their real buying power affords them much less than what they can presently buy.

“As part of our expansion plans, we expect to open more stores in Botswana, South Africa and Zimbabwe, although the rate of expansion in Botswana is expected to slow. In accordance with our long term strategy, we are also well advanced in our plans to open stores in a number of new markets this year,” added the statement.


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