South African food and clothing retailer Woolworths Holdings Ltd. (WHL) expects to more than triple the proportion of sales it derives from other African countries within seven years as it taps a growing middle and upper class.
The rest of Africa isn’t currently “a huge part of our business,” Woolworths Chief Executive Officer Ian Moir said in an interview at the company’s Cape Town headquarters yesterday. “It’s about 3 percent now. It will get to 10 percent but not for five to seven years.”
Consumer spending in Africa rose at a compound rate of 16 percent between 2005 and 2008 and the continent has more families with an income exceeding $20,000 a year than India, New York-based McKinsey & Co. said a June 2010 report. Woolworths operated 57 stores in 12 African countries outside of its home market at the end of last year and plans to have between 80 and 104 within two years.
Woolworths’ net income surged to 1.03 billion rand ($125 million) in the six months ended December from 775 million rand a year earlier, as sales gained 11 percent to 14.2 billion rand. Conditions in South Africa were constrained and getting tougher, Moir said on Feb. 16 when the results were released.
The growth rate in Africa’s largest economy slowed to an annualized 2.7 percent in the first quarter of this year from 3.2 percent in the previous three months, according to government data. Expansion in the wholesale and retail industries eased to 3 percent from 5.2 percent.
“It hasn’t necessarily gotten any tougher for us,” Moir said yesterday. “The overall market is pretty much where it was in the first six months of the financial year. Our foods business continues to trade well,” while some problems in the clothing business have been resolved.
The company’s concerns about spiraling prices haven’t materialized, with food price inflation currently at around 8 percent and clothing inflation between 5 percent and 6 percent, he said.
In April, Woolworths opened its biggest store, a 2,440 square-meter (26,263 square feet) outlet on William Nicol Drive, a road linking northern and western Johannesburg to the economic hub of Sandton. The supermarket, which houses a butcher counter, bakery and coffee shop and sells an extended range of luxury food, kitchenware and baby products, targets a market dominated by Shoprite Holdings Ltd. (SHP) and Pick n Pay Stores Ltd., South Africa’s biggest grocery chains.
“We reached good levels of sales almost immediately,” Moir said. “We see the possibility for many more of these stores,” targeting three or four within 12 months and more than 10 in the next four to five years.
While Woolworths plans to expand its trading space by 6 percent to 7 percent annually over the next three to four years, expansion at its Australian unit, Country Road, will be limited, with a net six new stores planned by mid-2014. The unit boosted pretax profit by 7.7 percent in the fiscal first half by cutting costs, yet sales slipped 2.7 percent in Australian dollar terms.
“The Australian market is extremely tough at the moment,” Moir said. “It’s going to turn. Most economic commentators are saying it’s going to be the fastest-growing developed economy in the world in the next 10 years. We will be able to grow that business again, and materially, sooner rather than later.”
Moir succeeded Simon Susman as CEO in November 2010 after a decade as head of Country Road. The retailer’s share price has gained 82 percent since his appointment, while the 10-member FTSE/JSE Africa General Retailers Index has gained 35 percent.
The shares gained 90 cents, or 1.8 percent, to 50.90 rand at 2:45 p.m. in Johannesburg today, bringing the company’s market value to 42.5 billion rand.
The retailer isn’t related to London-based Woolworths Group Plc, which collapsed in 2008, or Woolworths Ltd., located in Sydney.
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