Shoprite starts offloading its real estate portfolio to free capital for other expansion activities

NIGERIA – Shoprite Holdings Limited has shifted its focus to selling some of its real estate properties and lease them back.

The move is aimed at enabling the supermarket chain free up cash to invest in technology.

It also aims to use part of the proceeding in growing online sales and upgrading supermarkets to offer more fresh food.

“These are the kinds of investments that give us very good returns,” Chief Executive Officer Pieter Engelbrecht, said after the grocer reported its first-half earnings report.

Global retailers are increasingly leasing rather than owning real estate because “the heavier your property portfolio gets in your total asset base, the lower your return on invested capital becomes,” the CEO said.

“So eventually we become more of a property company than a retail company.”

According to Bloomberg News, Shoprite launched online purchase with one-hour delivery last year and is converting about 80 Checkers stores to its produce-focused FreshX format.

So far, the retailer has upgraded almost 30 outlets already upgraded and has revealed plans to complete the within the next two years.

Shoprite has an almost 32% market share of all food sales in South Africa, but Checkers — the brand that offers the most high-end products — has about 10%.

According to the CEO, Shoprite was able to add 350 million rand (about US$23 million) to its revenue from the its Premium fresh foods market share.

“The customers that we’ve profiled as premium buyers in our fresh stores are growing 3 1/2 times faster than in the rest of our business, so we are certainly attracting a more affluent customer more often,” Engelbrecht said.

This according to Engelbrecht was a sign that the company had greater room for expansion.

He revealed that the company was taking the next three months to “learn a bit and make sure the platform is stable and then from July we will scale it.”

 “We will expand in urban areas and we are going to try and get as good at this as quick as possible,” he added.

Shoprite, during the release of its results, noted that it had responded to the virus outbreak by reducing supplies from China and transferring orders to countries such as Ukraine, Turkey, India and Bangladesh.

The company notes that it expects to lose about 100 million rand in sales from being inadequately stocked.

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