Shoprite’s numbers underline the rising cost of doing business in SA after the country’s biggest grocer reported slightly lower profit margins on rising diesel, fuel, insurance and food prices.
Like-for-like sales in the six months to January 1 were up 11.1% year on year, though that was mostly due to price increases — 9.4% on average, the group said in a trading update on Tuesday.
The food retailer spent R560m on diesel in the period for its backup generators to supply power to stores during persistent power cuts.
“Load-shedding is adding pressure to the inflation picture we’ve witnessed globally. It is getting really expensive to do business in SA,” said Gryphon analyst Casparus Treurnicht.
Still, Shoprite said it recorded 46 months of market share gains, a record Black Friday and festive season, and overall growth figures of 17.5%.
That puts it head and shoulders above competitors, with the owner of Checkers supermarkets growing sales faster than Pick n Pay and Woolworths, though their slightly different reporting periods complicate a precise comparison of results.
Despite the growth, Shoprite told investors to expect lower gross margins, which could result in reduced profit, due to increased diesel, insurance, petrol and staff costs in the period.
The investment in keeping prices lower and “the approximate 56% year-on-year increase in fuel price on our supply chain operations will result in the segment reporting a marginally lower gross margin for the period,” Shoprite said in a statement on Tuesday.
The group has increased its insurance cover above what government insurer Sasria offers, a move that was prompted by other retailers, including Pick n Pay, facing higher insurance costs since the riots in parts of KwaZulu-Natal and Gauteng in 2021.
Same-store growth of 11.1% in the half-year was driven mainly by price increases of 9.4% rather than volumes, Shoprite said. The higher prices are “reflecting the group’s product mix exposure to commodities, where selling price inflation has been notably higher”.
Commodities such as maize, sunflower oil and wheat have reached record highs on global markets as a result of the invasion of Ukraine. Still, Shoprite said it offered R7bn in savings to its 24-million reward programme members to mitigate some of the effects. Shoprite and Checkers combined have the largest reward programme in the country.
Less firepower
Sasfin analyst Alec Abraham said the rising costs of doing business in SA is a concern, and Shoprite will have less “firepower to subsidise prices for consumers and so will be forced to pass on increases”. That is likely to lead to further volume declines, he said.
Treurnicht said: “Shoprite has always been the price leader, with consumers trading down to them.” But with Shoprite passing on costs, consumers cannot escape price increases, he added.
All retailers face a careful balancing act, Abraham warned. If they pass on all costs and do not cut prices they will sell less, but if they absorb rising costs to protect the consumer, profit will suffer. “It’s a fine balance to manage,” he said.
The group reported 16.9% growth at Checkers and Checkers Hyper, suggesting the brands and delivery service Sixty60 continues to pose a threat to Woolworths, Spar and Pick n Pay.
The group closed its three stores in the Democratic Republic of Congo in the period. It has also pulled out of Kenya, Madagascar and Nigeria, and has almost completed its withdrawal from Malawi, as the group focuses on growth in SA and in more profitable African countries. It remains in nine African countries.
Shoprite shares closed down 2% at R239.37 on the JSE on Tuesday.
Update: January 31 2023
This story contains additional comment from analysts.
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