With the recent divestment that led to the change of ownership at Jumia, Africa’s largest online retailer, the exit of South African retailer, Mr Price from Nigeria and the announcement of popular supermarket chain, Shoprite exiting from Nigeria, many analysts and members of the public, are wondering how and why big companies trying to be successful at retail in Africa are failing.
One man seems to have figured it out, founder of Banker X, Koshiek Karan, @iamkoshiek in a thread of tweets broke the problem down in a way that we find ourselves agreeing with for the most part (excluding the expletives):
Having advised on cross border African M&A deals, there's very little emphasis at a senior exec level to really understand local cultures, consumer preferences & ways of doing business.
It's never as simple as just setting up shop & expecting profits to roll in.
— Koshiek Karan (@iamkoshiek) August 3, 2020
A few years ago I was in a basement warehouse in Dar es Salaam in 40 degree heat watching informal traders shout product prices in Swahili as they were leaving & dynamically pricing items.
It's a fucking machine.
Western business don't understand it. There's no SAP/ ERP systems
— Koshiek Karan (@iamkoshiek) August 3, 2020
Many people, especially global multi-nationals, completely underestimate how large & efficient the informal retail trade is.
These businesses operate through word of mouth, relationships, verbal contracts & timing. There's no sophisticated inventory management system – it works.
— Koshiek Karan (@iamkoshiek) August 3, 2020
Shoprite is pulling out of Nigeria & is launching a formal process to sell their stake
SA listed companies have found it challenging to do business in Nigeria. MTN, Tiger Brands & now Shoprite
Sharp reminder the sheer arrogance of thinking Africa is "all the same" will burn you
— Koshiek Karan (@iamkoshiek) August 3, 2020
Shoprite stock price up 10% so far on the Nigeria exit news.
— Koshiek Karan (@iamkoshiek) August 3, 2020
SA listed companies doing terrible deals extends beyond African cross-border M&A. By chasing a ZAR hedge they have repeatedly eroded shareholder value.
SASOL// Lake Charles
Woolworths// David Jones
Famous Brands// GBK
Mediclinic// everything they touchedhttps://t.co/HWtDw1YZy1— Koshiek Karan (@iamkoshiek) August 3, 2020
If you operate in another country – you operate within the country's regulations.
Exchange control is a massive issue for corporates. Hedging out & repatriation/ getting money out isn't easy at all.
Sometimes you're funding in ZAR, earning in local currency & reporting in USD.
— Koshiek Karan (@iamkoshiek) August 3, 2020
There you have it folks. If you want to make it big in retail in Africa in general and Nigeria in particular, you need to effectively master the informal market to work for not against you.
