Shoprite, Africa’s biggest retailer, has chalked up 46 straight months of growth in market share and is considering more acquisitions — even as it bleeds R3m a day on diesel bills.
It spent a staggering R560m for the 26 weeks ended December 2022 — money that could have gone into the business or to shareholders.
“We’re not alone in this, but what a lot of people miss is the entire value chain is bearing the brunt of these costs,” CEO Pieter Engelbrecht said at the results presentation.
“It’s not only the diesel costs, that’s one component of it. There are times when farmers can’t irrigate because they don’t have power, then there’s the cost of generators.” Other costs include more food waste and the need for additional security.
Nonetheless, the supermarket chain is keen to expand further within South Africa, as opposed to elsewhere.
It’s already transformed the 94 Cambridge Food and Rhino Cash & Carry stores it bought from Walmart-owned Massmart. The acquisition brought 4,480 employees into the Shoprite fold.
It's not as if it needs acquisitions, however. Shoprite reported double-digit same-store growth, outstripping rivals and boosting market share by R3.9bn
It's not as if it needs acquisitions, however. The group reported double-digit same-store growth, outstripping rivals and boosting market share by R3.9bn. Visits to stores, it said, rose 12.9% in the period.
Overall, group sales were up 17.5% for the first half, diluted headline earnings grew 10.2% to 577.5c a share and Shoprite lifted the dividend 6.4% to R2.48 a share.
Sales growth for the last quarter was better than double that of its rivals, Engelbrecht tells the FM.
Checkers, especially, is closing the gap on Pick n Pay and Woolworths and contributes almost R34bn to group sales, while Shoprite contributes R44bn.
Private labels — including Checkers’ Ritebrand and Forage and Feast, and Usave’s Ubrand — are key to the group’s performance, accounting for about 20% of sales other than liquor, a segment in which shoppers are more brand loyal. In the period, 93% of customers bought at least one private label product.
No wonder Shoprite has taken Pick n Pay to court over what it deems a copyright infringement of Forage and Feast. Pick n Pay’s Crafted Collection private label has similar-looking branding.
“We have spent an enormous amount of effort and development to create a superior product and for it to be copied to that level, for us it’s a problem,” Engelbrecht says. “All we want is copyright protection like anywhere in the world. It goes without saying if you have put the IP into the product then, as would adidas or Nike or Ferrari, you would protect it.”
The Sixty60 delivery service grew sales 87% over the year, compared with 250% the year before when the pandemic boosted demand. Shoprite still refuses to disclose the contribution of online sales to the group, however.
“I don’t want to put it out because it becomes a target, and a target drives a certain behaviour, and it may not be the behaviour we currently want to support while we are still developing and expanding,” says Engelbrecht.
Still, not everything is booming in the financials. Shoprite’s margins have come down from 6.1% to 5.7%, and are unlikely to widen much while load-shedding remains in place.
The pressure is evident in Shoprite’s share performance, too — a negative total return of 4.6% year to date and of 5.5% over one year.
It’s hard to dispute they’re growing well, and their data capabilities are giving them an edge over their competitors
— Shaun Bruyns
Shaun Bruyns, portfolio manager at Mazi Asset Management, says: “It’s hard to dispute they’re growing well, and their data capabilities are giving them an edge over their competitors.”
But he’s anxious about load-shedding. Diesel alone is likely to cost Shoprite R1bn for the year. “It’s going to be difficult to see how they mitigate this and it will definitely have an impact on growth, but because of their scale they’re better positioned to handle it,” says Bruyns.
Raising prices is one way — Shoprite’s went up 9.4% on average, lower than official food inflation of 11.6% during the period.
Survival seems to be the name of the game for South African retailers right now. The rest of Africa is no longer considered an option — Shoprite, for example, has largely exited other countries on the continent. It’s sold its business in Nigeria and has completed its departure from Kenya, Tanzania, Uganda, Mauritius and Madagascar.
Rest of Africa sales will contribute just over R500m to the group total this year.
Engelbrecht says he doesn’t see green shoots in any of the rest of Africa countries. “It doesn’t mean things won’t change but at the moment I don’t see it. But it’s not to say never.”
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