Shoprite’s Checkers and Woolworths have grown market share at the premium end of the food market, signalling that gains are coming at the expense of other retailers.
Pick n Pay and Spar are closing stores and could be sacrificing market share to save the bottom line. “I still believe Checkers is the best positioned in the market at the moment, though Woolies has succeeded in retaining loyal customers throughout a difficult five years. I’d give them both five out of five,” says Gryphon Asset Management portfolio manager Casparus Treurnicht.
“I am not sure if Pick n Pay is moving fast enough to stop the bleeding. It is so far behind that it is going to take a long time to reposition and retake market share.”
The two groups, which released interim results in the past week, are also slugging it out in adjacent businesses. Woolworths is the market leader in pet food with 176 Absolute Pets stores, a business it bought last April. However, Shoprite aims to be the biggest operator in this category over the next few months with Petshop Science, now at 128 stores.
The pet industry has grown enormously over the past few years, especially since the pandemic, and this is attracting investment from retailers worldwide. Mordor Intelligence says the local pet food market is estimated at $890m this year and expected to reach $1.69bn by 2030.
Shoprite continues to surge forward on all fronts. Checkers has shown uninterrupted market share gains over five years. It has repositioned itself in the upper end over the past 10 years, and this week was named South Africa’s strongest brand according to brand valuation consultancy Brand Finance. Its on-demand delivery service, Sixty60, has become the market leader.
The pet industry has grown enormously over the past few years, especially since the pandemic, and this is attracting investment from retailers worldwide
For the 26 weeks ended December 29 2024, revenue grew 9.4% to R130.8bn. Shoprite operates in 10 markets in Africa, but supermarkets in South Africa account for more than 80% of the business. Sales from South African supermarkets increased by 10.4% to R108bn.
Headline earnings rose 10% to 659.9c a share and Shoprite’s trading margin of 5.7% is a standout among peers. CEO Pieter Engelbrecht says sales growth was the result of detailed data-led planning and execution.
Shoprite has moved into various adjacent businesses — most notably a dedicated clothing store offering with Uniq by Checkers and its Outdoor brand with 26 stores. Shoprite is also rolling out more standalone pharmacies through MediRite Plus, which now numbers 17. The group, though, does have 140 pharmacy licences.
“It’s like all the other adjacencies of ours; it’s a long-term play to make sure we continue to grow. We are significant in food; we are not significant in pet, baby, clothing and medicine,” Engelbrecht said in the investor presentation. The group assessed the builders’ material/DIY market about three years ago but decided not to enter.
Woolworths’ food business continues as its star performer, but it is still being dragged down by its apparel business. The group reduced its interim dividend more than a quarter by 27.7% to 107c a share. The local apparel business hit logistical snags over the peak December period. Its Australian business was hit by high interest rates and the rising cost of living — which prompted more in-store promotions and reduced profitability. The group is reviewing the carrying value of some of its underperforming brands in Australia.
Woolworths CEO Roy Bagattini admits the group’s fashion, beauty and home segment has a long track record of “inconsistent delivery” — due to decades of underinvestment in foundational capabilities. “Our single biggest commercial opportunity is getting our product availability right. It requires investment and transformation … it’s about operational execution.”
But Bagattini points out that Woolworths’ return on capital employed is north of 50%. “The next best in the market is significantly below 20%. We do have the best financial outcomes for our shareholders and at the same time we have the best outcomes for our customers.”
In the meantime, Woolworths is accelerating its innovation through Woolworths Ventures, a concept set up to act as an incubator to fast-track business that requires greater flexibility and quicker execution. This segment covers products with about R1bn of sales. Sales, encouragingly, are growing in double digits, with profits accelerating even faster.
There are more than 220 food service offerings, including WCafe, coffee carts and the healthy quick service Now Now. With more than 480 food stores in the Woolworths stable, the opportunity is seen as significant. Market share in food services is about 1%, and Bagattini sees scope to easily grow that by five times.
WEdit, the curated offering of Woolworths apparel, has 35 stores, and could also become more significant. Alcohol accounts for about 1%-2% of total sales, with almost 30 standalone stores. The aim is to grow this segment by three times.
A “Woolies After Dark” concept has been launched with Uber Eats and Engen at 20 trial sites. Customers can obtain food delivered from certain Woolworths stores until midnight.
