Shoprite CEO Pieter Engelbrecht says SA consumers are in serious distress and are changing their food shopping behaviour accordingly, based on data from its 26-million member reward programme.
SA’s largest retailer said customer are changing the sizes of products they buy as well as brands.
“I don’t want to call it a question of survival, but it’s definitely a question of affordability,” Engelbrecht said.
He was speaking on Tuesday at the release of the group’s earnings for the six months to January 1, which saw revenue jump 16.8% to R106.3bn.
Like-for-like sales, excluding new stores, rose 11.1% — well above that of competitors and higher than average store price increases of 9.4%. The numbers indicate that, unlike Woolworths and Pick and Pay, Shoprite is recording a slight increase in the volume of sales in same stores.
Shoprite and Checkers combined have the country’s biggest rewards programme, which Engelbrecht said was large even by global standards, that offers large amounts of real-time data on consumer shopping behaviour.
“There’s much less brand loyalty currently in the food space,” Engelbrecht said
The decline in brand loyalty by cash-strapped consumers could point to weaker sales for companies such as Tiger Brands, which sells premium brands such as Black Cat, Koo, Oros, Jungle Oats, All Gold and Tastic.
Engelbrecht said the highest inflation was seen in the group’s USave stores due to rising wheat, vegetable oil and maize prices that are set globally. Customers facing the highest prices are those least able to afford it, he added.
Still, Shoprite offers 600g loaves of bread at R5 each, a price that has remained unchanged since April 2016 even as wheat prices have rocketed. It sells one-million of the loaves a week.
Shoprite is also investing in higher inventory levels to ensure ample availability of products, though extra stock means it spends more on working capital. But Engelbrecht says cash- strapped customers can't afford to pay for an additional taxi fare or spend more on petrol to return to a store.
Shoprite increased prices by 9.4% on average, lower than official food inflation of 11.6% in the review period, and offered R7bn in rewards and savings.
The group reported 46 months of gains in market share and said Checkers is beginning to catch up to Shoprite in terms of its revenue contribution to SA sales. Excluding liquor stores, Shoprite made R43.8bn, while Checkers contributed R33.9bn.
The group declared an interim dividend of R2.48 a share, up 6.4% year on year, even as load-shedding cut into profits. Shoprite spent R465m more on diesel to power its backup generators, bringing the total to R560m as it dealt with load-shedding on 144 of the 182 days in the review period.
Shoprite’s operating margin dropped to 5.7% from 6.1% and CFO Anton de Bruyn said that was unlikely to return to 6% or above due to the high costs of diesel used to power generators.
Food retailers were not included in the R2.70/l refund from the Road Accident Fund for diesel spent on generators that was announced in last month’s budget.
“I think within the foreseeable future, as long as we have these additional costs coming through, especially from the diesel point of view, we will not be able to achieve that 6% trading margin, De Bruyn said.
“If we could achieve a 5.7% or 5.8% operating margin [in future], it will be a remarkable result for us,” he added.
Shoprite does not disclose the contribution of online sales and deliveries via Checkers Sixty60 to revenue, but said sales via the app rose almost 87%, off an already high base a year earlier.
Growth in sales of private labels — products manufactured specifically for Shoprite or Checkers — increased to just over 20% of the total. The labels include Ritebrand, Simple Truth, and Forage and Feast.
Engelbrecht said Checkers adopted a different approach to its competitors regarding private labels. Rather than simply selling the same product for less than premium brands, the group sought instead to increase customer loyalty.
“At Shoprite, we look at private labels differently to the rest of market,” he said. “The product needs to fall into a certain gap or niche in a market segment, whether it’s a price point, a recipe or a global trend or a consumer trend. We don’t just add more of the same.”
The group is rolling out about another 10 Checkers Foods stores that are smaller, convenience stores with limited ranges of products.
With Nico Gous
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