October 8, 2004

By Roy Cokayne

Johannesburg - South African retailers would have to increasingly look for growth outside South Africa if they did not want their margins eroded in an ever more competitive environment where "dog eats dog", Christo Wiese, the chairman of listed retail group Pepkor, said yesterday.

The logical answer on where to go was elsewhere in Africa, he told an SA Council of Shopping Centres congress.

Wiese said low and negative inflation posed a massive challenge to retailers, who had perhaps cynically always considered inflation "something of a friend" because it made it easy to show strong turnover growth and at the same time conceal whatever shortcomings lurked in the business.

He said the potential to increase the number of up-market regional shopping centres beyond the present figure in South Africa was limited, adding that the country did not have sufficient growth in the number of higher-income consumers to sustain many more of them.

"In saying this, I am fully aware that there is a growing black middle class with considerable disposable income increasingly shopping in these centres, also that developers themselves are turning these centres into destination facilities offering an increasing entertainment component to the shopping experience," Wiese said.

Wiese said the superstores had also come fairly close to the end of the line in terms of rapid growth in store numbers.

However, the fact that the growth potential of these large formats was diminishing did not mean retailing itself, particularly conventional food retailing, was headed for a massive slowdown.

Wiese said retail was simply growing in other areas, which required different formats, and the strongest growth at present was in neighbourhood convenience stores in urban areas.

"At the other end of the new growth spectrum, there is enormous potential still in so-called township areas, where consumers have thus far been largely dependent on spaza shops.

"This market is increasingly being penetrated by the large retailers, who are developing formats ideally suited to this market, such as Shoprite's limited range USave stores," he said.

However, Wiese said all these new areas had limited potential in the long run, while Africa, particularly south of the Sahara, had vast potential crying out to be developed.

Wiese said the negative perceptions of Africa were behind the unwillingness of foreign investors to put their money into Africa, except in the few instances where essential commodities were at stake.

"This creates a unique opportunity for us to move in and utilise the investment opportunities that others are passing up.

"We have to accept that if we go there, we don't go as neo-colonists intent on exploiting its potential, but as partners whose presence is beneficial to all," Wiese said.

He stressed that it was not easy and risks were involved, but Africa's average gross domestic product growth was higher last year than the world average.

In addition, South African retailers had virtually no competition at the level at which they traded in Africa.