Today’s conversation will focus on the great achievements by Shoprite Checkers the past few years and to look at why the major Supermarket brands are needing to look north across the borders of South Africa for sustained growth and shareholder return.
When looking at South Africa’s Top 50 Most Valuable Brands ranking (as we discussed in a previous edition) we see that Woolworths ranks at number 10 last year, with Shoprite ranking number 11, Spar ranking number 14 and Pick n Pay ranking number 17. It is important to note that this ranking is not based on turn-over or profitability, but on the perceived value that the brand brings to the business’s performance.
The Conversation Continues…
The key question then is “what makes them different and why does one retailer succeed so much more than the others, as is the case with Shoprite the past few years?
With the tough economic times facing consumers globally, it’s obvious that SA consumers also have very little in their wallets at the moment and this has definitely played havoc with the mid-year results of our major retailers.
Not meeting target has a knock-on effect with market share value also declining across the big four:
- Shoprite down 13.8%
- Pick n Pay down 5%
- Massmart down 5.9%
On the positive side, Spar has seen a rise in share of 13% (on back of news that it will take up a stake in an Irish distribution company) and Woolworths has seen a share growth of 22.6%, possible on the back of the eventual purchase of a majority stake in the Australian department store David Jones.
That said, Shoprite still aim to continue with an aggressive roll-out across the continent, with a further 30 Supermarkets planned for north of the borders.
Shoprite will be trading from over 200 supermarkets on the continent outside of SA.
The Shoprite Group of companies started from South Africa small town beginnings in 1979 with the purchase of a chain of 8 supermarkets in Cape Town for R1 million. The next 30 years were marked by various acquisitions and innovative expansion strategies that brought it to the R72 billion business that Shoprite is today.
Adding to the convenience of shopping with Shoprite, we offer the following value added services:
- Money Markets, where consumers can make various third party payments
- MediRite pharmacies, with qualified pharmacists
- LiquorShops, located in close proximity to selected stores.
We are continuously growing our shopper base, with more than half of all South African adults shopping with Shoprite.
Shoprite invests a record R1.6 billion on new stores for future growth
The Shoprite Group said sales exceeded R100bn for the first time in the 12 months to June 2014. It created 11 762 new jobs and opened a record number of stores in a single year (a net 125 new corporate stores) which saw market share growth for an eighth consecutive year. It increased turnover by 10.5% to R102.204bn to realise a trading profit of R5.714bn (2013: R5.392bn).
“Within the context of the challenging conditions that existed in the South African food retail market, we believe this represents a sound performance,” said Shoprite CEO Whitey Basson.
“Economies of scale, meticulous cost control and increased efficiencies generated by the Group’s extensive distribution infrastructure enabled us to achieve a world-class trading profit margin of 5.6%, marginally below the 5.8% of 2013 as investment into new stores topped R1.6bn.”
The Group improved sales performance in the second half of the year, growing turnover by 11.4% from 9.7% in the first half– a trend which has continued into the new financial year.
Trading profit was impacted by the opening of a large number of new stores in the year. External factors such as electricity and energy costs as well as the introduction of many hybrid bank cards that attract higher card fees also impacted costs.
Mr Basson said amidst the harsh conditions for consumers reigning during the year, the Group restricted food price increases to 4.7% or 1.4 percentage points below South Africa’s official food inflation figure of 6.1%. The Group remains committed to bringing price relief to SA consumers.
While the country’s official unemployment figure had again soared above 25%, the Group had created 11 762 new jobs during the reporting period and now employs 123 100 people; 107 467 in South Africa and 15 633 beyond the country’s borders.
During the year the Group continued to invest in the future by opening new stores and extending the supply-line infrastructure and information technology supporting them. It opened proportionately more stores in the second half than in the corresponding period in 2013 which affected the depreciation costs in the latter part of the year.
“We opened a net 92 corporate supermarkets – more than ever before and more than any of our competitors. Although the country’s present low economic growth could force the business to cut back expansion plans, the Group is well positioned to take advantage of the eventual economic upswing.
“To satisfy the growth we need, our capital investment focus is shifting increasingly to the rest of Africa where more than one third of its 54 countries have an annual GDP growth rate of above 6%. The Group’s focus for growth in Africa is mainly on resource rich countries where the Group has built up a strong presence over the years.
“In the year to June 2015 we shall be opening 30 supermarkets in Africa. We shall then be trading from almost 200 supermarkets elsewhere on the continent,” Basson said.
In South Africa, sales growth in Shoprite, by far the largest of the three brands with 400 stores and 21.7 million regular shoppers, was affected by high unemployment and the lack of disposable income in its market segment. It nevertheless eclipsed last year’s sales, benefitting from an ongoing campaign of subsidising basic foods aimed at strengthening its positioning as the food chain consistently offering the lowest prices.
Checkers, with 211 supermarkets and Hyper stores, further reinforced its standing as a value retailer while expanding its support base in the LSM 8 – 10 consumer segments. Usave, with its limited range of basic food products offered at permanently discounted prices in its 266 stores, grew sales by 12.9%; almost double the industry average.
Despite consumers’ dwindling expenditure on durables, the furniture division was one of the best performing in the Group. It grew turnover by 12.2% and trading profit by 49.6%. The division, which operates under three brands of which OK Furniture is the biggest and most profitable, opened a net number of 32 stores during the year for a total of 368 of which 45 are in countries elsewhere on the continent.
Craig Page-Lee is the MD of Posterscope – SA’s leading Out Of Home specialists. He is passionate about retail and has a background in design and architecture and one day dreams of heading off on a world adventure on his motor-cycle.
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