Pick n Pay’s food inflation in its half-year to August doubled compared with that of the same period in 2021, showing under just how much pressure consumers are, even as retailers and food producers try to absorb some of the increases.
The retailer released an update on its earnings for the half-year to August 28, in which it reported a much stronger Boxer performance than that of its Pick n Pay brand, which appears to be struggling.
Sales growth in like-for-like stores was driven entirely by price rises with like-for-like sales up 7.4% and price inflation up to 7.2%, suggesting almost no volume growth off a base that included riots and alcohol sales bans.
Internal store price inflation in the same six-month period in 2021 was 3.6%.
The highest food inflation was experienced in July and August, Pick n Pay said, and if this period were excluded, store prices rose an average 5% in the 18 weeks to the end of June.
Global food inflation has been driven by increased maize, vegetable oil, fertiliser and energy prices due to Russia’s invasion of Ukraine — with spiking prices worldwide prompting central banks to raise interest rates.
Showing just how severe food inflation has become, Pick n Pay in-store inflation was 0.3% in the first of half of the 2018 calendar year, 2.2% in the 2019 interim period and 3.4% in the 2020 first half.
Retailers tend to push back when food producers try to enact price increases or absorb some of the hikes to avoid constrained consumers reducing how much they buy.
It is likely that Pick n Pay and others will continue to absorb costs as the 7.2% internal store inflation is below that of other food producers.
Tiger Brands, owner of the Koo, Oros, Tastic, Jungle Oats, Albany and Ace maizemeal brands, said in September that cost inflation it was facing — from increasing packaging, logistics and raw materials for its basket of goods hit 15% in the five months to August 31.
It also warned it expects high levels of inflation to have an effect on its business and products for the next few months.
Pick n Pay is not alone in reporting increasing prices. Food CPI rose from 8.6% in June to 11.3% in August, according to Stats SA. Shoprite reported internal inflation of 3.9% in its year ended July 3, but then noted in-store inflation spiked to 7.2% in July.
Shoprite group CEO Pieter Engelbrecht said in the group’s annual results presentation last month food inflation in stores could reach as much as 10%.
In the trading update, Pick n Pay said while growth was led by strong Boxer sales, its strategy that was introduced in May to have two distinct Pick n Pay brands — one serving the upper middle class and the other serving lower income groups is showing positive results. But the strategy is too new to reflect in these results.
In the period to August 28, it reported growth including new stores up 11.5% off a base that included liquor sales bans and civil unrest leading to closed stores, while the normalised figure was 8.2%.
In its upcoming October results presentation, the retailer will separate Boxer and Pick n Pay’s revenue for the first time and give investors a sense of the two businesses’ distinct performances.
Pick n Pay reported that its headline earnings per share (Heps), a figure used in SA to measure profit, will be 55% to 65% higher. But Pick n Pay released a normalised Heps figure showing a rise of 20% to 30% to between 85.01c and 92.1c, which excludes the payout of riot insurance in this period and adjusts for riots in the previous period.
The market cheered the results with the company’s share price rising the most in two years, up 6.89% to R59.30.
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