A Wellness Warehouse outlet in Cape Town, South Africa.

The pan-African private equity firm EXEO Capital recently invested in the South Africa-based Maia Group, through its food and agribusiness fund, the Agri-Vie II Fund. Maia Group is a holding company focused on consumer health businesses and includes Wellness Warehouse and True Health Holdings. Wellness Warehouse is a retailer of health, food, beauty and home care, while True Health Holdings is a manufacturer, wholesaler and distributor in the broader natural healthcare market.

How we got it to Africa spoke with Avril Stassen, senior partner at EXEO Capital, about transaction motivation, growth opportunities in the welfare market and the impact of Covid-19 on the retail sale of bricks and mortar in South Africa.

Explain the motivation for EXEO Capital to invest in the South African health and natural health industry.

The focus of our Agri-Vie II Fund is on food and agriculture in the broadest sense of the word; health and well-being has always been a major investment theme for the fund.

Despite South Africa’s challenging macroeconomic outlook, the consumer health sector continues to grow at a much higher rate than GDP – perhaps eight to 10 times faster over the past five years. It is also a sector that has good margins and potential for a good return on investment.

In our search for investment prospects in the health and wellness space, we were given the opportunity to collaborate with the management team of the Maia Group to acquire another private equity fund that reached the bottom of its investment horizon.

What are your growth plans for the two Maia Group businesses: Wellness Warehouse and True Health Holdings?

Wellness Magazine is a well-known retail store with a footprint of around 40 stores in South Africa. Offers a range of products in natural health, natural foods and natural beauty segments. Hassht has grown quite strongly over the last 10 years. We aim to open more stores and build online sales, currently a relatively small business component.

True Health Holdings is a manufacturer, wholesaler and distributor of a wide range of natural foods and natural health products. Some of these are collected in Wellness Warehouse stores, but they are also sold in other independent health stores, as well as some of the largest chains of national pharmacies. We plan to use True Health as a platform for a purchasing and construction strategy to expand the productive side and increase wholesale and distribution divisions.

Natural health and wellness products are usually sold at premium prices. Should South Africa’s weak economy and rising unemployment certainly limit the addressable market?

The overall consumer health market in South Africa was about $ 1.1 billion (about $ 91 million) in 2019 and has probably grown by about 10% since then. The perception that consumer health is only for those with high incomes is not justified. People are spending more on vitamin supplements and are sharing a larger portion of their budget for preventative health care, with a focus on natural products. Due to Covid-19, preventive healthcare has become an even higher priority for consumers.

In the case of Wellness Warehouse, it is true that it aims for a more premium end of the market with products slightly more expensive than the brands you find in general retailers. However, given how the business has expanded in recent years, we believe there is plenty of room for growth.

How has Covid-19 affected the retail sale of bricks and mortar in South Africa?

Footsteps in major regional malls have dropped as visits to smaller convenience stores and striptease malls have increased. Instead of going to the big malls, consumers rather shop at local strip malls and lifestyle malls. We are seeing evidence of this in the way the various Wellness Warehouse stores are marketed.

Brick and mortar stores will always be important to us because there is an element of discovery that our customer base wants to have in terms of physical shopping experience. While some consumers order the same products month after month, they also want to discover new things and the best way to do this is in a physical environment. For now, however, our focus is on comfort centers and strip centers to increase footprint.

For now, it is a buyer market which means there is a lot of empty space in the malls and it is a good time to sign the lease and provide retail space.

Describe potential barriers that may affect EXEO’s growth ambitions for the Maia Group.

What is clear is that this category has attracted attention from big chains like Dis-Chem and Clicks, who continue to share more shelf space for natural health. Competition from the largest retail groups will remain strong.

We also face risk in relation to our acquisition and construction strategy for True Health Holdings. Its successful execution depends on us finding good investment opportunities. Bolt-on purchases have a fair degree of risk. We may face competition from other potential buyers who may slow down the process or increase the price we pay for those purchases.

Another risk is related to foreign exchange. Wellness Magazine imports many of its products. An unfavorable move in the South African rand / US dollar exchange rate could negatively affect profitability.

What would be a possible exit for the business?

Wellness Magazine has a unique offer as a specialist chain of health and wellness. We believe it might be an attractive purchase for another retailer who wants to enter this space.

A second exit option is in another private equity fund. We know that private equity funds currently have a lot of dry dust and are looking for investment opportunities.