Shoprite has turned up the pressure on its rivals in the grocery sector with a R8.5bn allocation in 2024 for shop upgrades, new stores and more warehouse space after a healthy set of results.
This is likely to further put competitors such as Pick n Pay and Spar on the back foot as the group consolidates its position as market leader. Shoprite boasted market share gains of R8.1bn in its 2023 financial year to July 2. It reported continued growth after the year end in the past six weeks, suggesting it is still winning market share.
The group says it has already had 52 months of what it called uninterrupted market share gains and looks set to continue this trajectory.
Meanwhile, Spar faces challenges in its biggest market in KwaZulu-Natal with its SAP software rollout, which has reduced deliveries to independent stores. Pick n Pay reported its first half-year loss to end-February due to load-shedding costs and low margins.
RMB Morgan Stanley analyst Sean Holmes was quoted by Bloomberg as saying that with Spar and Pick n Pay “on the back foot”, it is likely Shoprite’s increased spend could put further pressure on them.
The R8.5bn expenditure is for store refurbishments, expansion, e-commerce, digital investments and increased warehouse space.
In the year to July 2, the group saw sales exceeding R200bn for the first time, reaching R215bn, an increase of almost 17%. Checkers sales grew 18% and the Shoprite and uSave brands grew revenue 15.6%.
The Checkers brand has 14.8% market share in the formal grocery market and the group says it is the fastest-growing grocer in the premium segment. It is also growing sales in the fresh food category, a staple of Woolworths Food, the market leader in premium groceries. Shoprite has 19% market share in the formal grocery market.
CEO Pieter Engelbrecht said he believes there is room to grow market share in both brands. In the low-income market, Shoprite is still the preferred brand for absolute value and lowest prices, he said.
“It’s also an anchor tenant for most [retail] developments in the lower-income market. That’s why I say there’s still a lot of organic growth.
“There’s all these ancillary brands that we’ve started to invest in: pet stores, clothing, media, outdoor and baby [stores]. But those are all long-term plays,” Engelbrecht said.
They are too small to currently affect earnings, he said.
Shoprite offers a simple bank account and is planning to open as many as 100 pet stores. It has 53 pet stores and says expenditure in them is three times the spend on pet food in grocery stores, which do not stock premium products.
In its SA supermarket business, excluding furniture stores and businesses such as Computicket, Shoprite boasted a trading margin of 6.2%. This is just below Woolworths Foods’ record margin and among the highest in the world. By contrast, Pick n Pay’s operating margin sits around 2%.
During the group’s results presentation on Tuesday, Engelbrecht spoke about global retailers’ operating margins from as low as 0.7% to about 3%. Shoprite’s is high due in part to knowing what to charge for goods at different times of the month and keeping optimal stock levels.
“One mustn’t underestimate the multiyear of investment in gaining data on customers.”
It has 27-million loyalty members between its Shoprite and Checkers programmes, which offer instant discounts. At the same time, the retailer gets detailed customer data.
It also has more than 530 OK franchise stores, which grew sales 13.7%. Some franchises are upgrading to the new OK Urban brand, which is smarter and modern. Expansion in franchises is limited as the group must ensure it finds the right owners to run a profitable business.
Engelbrecht said franchisees from other groups have switched over to its OK brand. Both Pick n Pay and Spar have franchise-style businesses.
Deliveries
The Checkers Sixty60 online shopping delivery service has also been stealing market share from competitors and grew sales 81.5%. The service is likely to continue to challenge the Spar neighbourhood convenience model when it launches unlimited deliveries for R99 a month next week.
The group’s furniture business reported a loss but Engelbrecht expects this to change as shipping rates have dropped since pandemic highs, making imports cheaper.
Operating costs for the group increased more than 18%, in part due to load-shedding, which drove electricity and water costs up 36%. The group spent R1.3bn on diesel, up from R200m in the previous year.
Shoprite faced an additional R181m insurance cost as Sasria insurance for rioting is not sufficient and insurance has become more expensive since the 2021 KwaZulu-Natal riots.
Update: September 5 2023
This story has been updated with new information.
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