Choppies, Hurt by Metals Slump in Mining Towns, Adds Storesby and
African Grocer plans almost 25% more shops over two years
Shares extend decline this year after halving in 2016
Choppies Enterprises Ltd., hurt by a commodity-price slump that’s led to customers in mining towns being fired, plans to expand its number of stores in southern Africa by almost 25 percent over the next two years as it seeks to lure business in different locations.
Botswana’s biggest supermarket chain is planning to increase outlets to 250 from 203 at the end of last year, according to Chief Executive Officer Ram Ottapathu.
“We are trying to move away from that reliance” on mining towns, Ottapathu said in an interview this week at the company’s head office in Gaborone, the capital of Botswana. “As the footprint grows, it will not be an issue.”
The price of platinum, which is mainly mined in South Africa, slumped 28 percent in 2015 before only a slight gain, hurting Choppies’ business in towns such as Rustenburg. That’s been compounded by soaring food prices following the worst drought since at least 1904. In Botswana, state-owned mining company BCL Ltd. closed its unprofitable copper and nickel operation in Selebi Phikwe last year, reducing the settlement of 50,000 to a virtual ghost town. Choppies has two stores in the area.
The grocer plans to open 26 supermarkets this year at a cost of about 300 million rand ($22.6 million), Ottapathu said. This will include growth in the South African province of KwaZulu-Natal, which is not mining focused. Ten of the new stores will be in Zambia and one or two stores are planned for Zimbabwe.
Funding will come from its own cash reserves and a potential extension of the date of maturity on its short-term debt. With almost 500 million pula ($47.9 million) in existing borrowings, any additional debt taken will be negligible, the CEO said. In 2018, Choppies will aim to reach the 250-supermarket target before pausing the growth initiative, he said.
Choppies shares have dropped 53 percent in Johannesburg since the beginning of last year, the second worst performer on 162-member FTSE/JSE Africa All Shares Index. Net income in the year through June 30 declined 52 percent to 88.5 million pula.
With outlets also in Zimbabwe, Zambia, Tanzania, Kenya and Mozambique, it has no plans to enter more countries this year, Ottapathu said. The company is also investing in its distribution system, he said, while declining to specify the amount set aside for that project.