CHOPPIES CEO WARNS OVERHEAD PRESSURES WILL DRIVE UP PRODUCT PRICES

Chief Executive Officer of Choppies Enterprises , Ram Ottapathu, has warned that with inflation, higher operating costs, and the depreciation of the Pula putti ng pressure on retailer margins, the increased cost of overheads that needs to be borne by the retail er will ultimately be passed on to the product.

Consumer spending in Botswana currently has changed, Ottapathu said, with consumers resorting to shop basi cs and smaller pack sizes. Combos and bundled offers are also increasing significantly in volume, whi ch he noted clearly shows that the spending power is under pressure.

"They are becoming part of everyday retail," he recently told The Business Weekly & R eview adding that these, however, put additional heavy pressure on already-tight retail margins.

A ccording to Choppies’ audited group financial results for the year ended June 2026, revenue momentum remains strong, but profitability was temporarily impa cted by macroeconomic pressures. Management noted that the demand contraction is cyclical, while food retail fundamentals remain intact, and the group is actively building scale now to capture operating leverage.

Botswana, which remains Choppies’ largest market by revenue, specifically affected group profitability due to a series of compounding domestic and external headwinds. Group profitability was impacted by reduced consumer liquidity driven by the Botswana diamond market slump, the devaluation of the Pula, constrained spending due to the Botswana Government’s austerity measures, the oil price shock a nd increase in fuel prices and transport costs, an inflationary cost base, new stores not yet reaching the maturity curve, the implementation of a living w age in Botswana, and elevated promotional intensity in a constrained consumer market.

Sales from Bot swana decreased by 0.7 percent, with like-for-like sales declining 1.2 percent due to the weaker domestic economy. Sales decreased marginally to P 5 .6 1 b i llion from P 5 . 65 b illion in 2025, underpinned by a volume decline of 5.5 percent, price inflation o f 5.1 percent, and the opening of seven new stores. Earnings Before Interest, Taxes, Depreciation, and Amorti s ation (EBITDA) and adjusted EBITDA for the Bo tswana operation decreased by 15.6 percent and 16.1 percent respectively, as gross profit increased s lower than expenses.

The gross profit rate in Botswana declined by 0.3 percent. New store rollouts and inflation drove expenses higher, as the new stores opened over the last 12 months will need time to reach their full operational potential. Overall, des pite the lower profitability, management expressed satisfaction with the operational performance resulting from good in-store execution, improved customer engagement, and enhanced availability due to inventory optimisation, while continuing to manage prici ng aligned to competitive price gaps and elevated inflation.

In the Choppies Botswana Liquorama segment, sales decreased 11.7 percent, driven by the weak economy and offset by 10 new stores. Like-for-like sales declined by 12.0 percent. However, the gross profit rate for Liquorama increased from 12.4 percent in the prior year to 13.1 percent this year due to better control over promotions. EBITDA increased to P 17 million from P 14 million, while EBIT declined to a loss of P 24 million compared to a loss o f P 18 million in 2025, attributable to incremental depreciation on new stores.

At the group level, retail sales increased by 7.9 percent to P 9 . 82 b illi on from P 9 . 10 b illion in 2025, driven by 27 new stores and inflation. Choppies segments achieved no overall volume growth and price growth of 9.9 percent, while sales for like-for-like stores decreased by 1.2 percent group-wide.

The group gross profit m argin declined by 0.3 percent to 20.5 percent from 20.8 percent in 2025, due to lower margins across all operating segments except Liquorama. In Pula terms, gross profit increased by 6.5 percent to P 2 . 01 b illion from P 1 . 89 b illion in 2025, despite the competitive and challenging economic backdrop.

Total expenses increased by 12.1 percent due to new s tore additions and inflation. The total expense comparison reflects a loss of P 14 million last year relating to the sale of the Zimbabwe segment, while th e current year included a gain from the derecognition of payables resulting from discontinued operati ons in Kenya, Tanzania, and Mozambique, which were discontinued in the 2019 financial year. Excluding the derecognition and the prior-year loss on the sale of businesses, total expenses increased by 14.4 percent.

Operating profit (EBIT) decreased by 23.6 percent from P 318 million to P 243 million. Adjusted EBIT fell by 37.6 percent from P 351 million to P 219 million. The earnings contraction was primarily driven by costs growing at a significantly faster rate than Pula gross profit. Net finance costs inc reased 11.9 percent due to lower debt offset by higher interest on leases because of new store expansion.

The group increased non-IFRS 16 debt by P 61 mil lion to fund new stores, logistics, and IT capital expenditure. Working capital generated an inflow of P 44 million, which was lower than the previous year's inflow of P 151 million due to lower purchases as economic activity further weakened in the second half of the fiscal year. During January 2026, the group fully settled the consortium debt originally raised in 2021. Working capital efficiencies improved as inventory days reduced from 33 to 30 days, receiv able days reduced from five to four days, and pa yable days decreased slightly from 35 to 33 days.

Outside Botswana, regional performance was mixed. Choppies Namibia grew sales by 23.2 percent, with like-for-like sales up 14.9 percent. However, from July t o November 2025, government subsidies on maize, pilchards, soya, rice, and oil—all major contributors to Choppies Namibia’s top line—supported food security but squeezed overall sales value and pushed down margins and profitability. EBITDA in Namibia decli ned 25.0 percent, while EBIT moved from a loss o f P 9 million in the prior year to a loss of P 20 million. The segment requires additional store rollouts to achieve scale and realise the brand’s full potential in the country.

Choppies Zambia experienced s trong sales growth of 42.6 percent in Pula value , equating to an increase of 15.1 percent in Kwacha terms, with like-for-like sales growing 42.5 percent in Pula value and 15.9 percent in Kwacha value. Five new stores were opened in Zambia during the year. In Pula terms, adjusted EBITDA declined 11.9 per cent and adjusted EBIT dropped 78.9 percent. Kwacha currency appreciation caused wholesale and retail deflation in the market, resulting in an estimated ZMW 29 million (P 18 million) loss for the segment.