Shoprite, SA’s leading grocer, is using artificial intelligence (AI) to price goods based on demand and timing as it has too many data points to rely on human pricing, which analysts say puts it streets ahead of competitors.
The group reported almost five years of market share gains over rivals in its half-year to end-December in which it grew revenue 12.9% to R121.1bn and diluted headline earnings per share by 7.6% to R6.21.
CEO Pieter Engelbrecht told Business Day it has 29-million loyalty customers using its Extra Savings rewards programme across its Shoprite and Checkers brands and 5,000 data points on each consumer. It requires advanced analytics and AI to turn 12 “petabytes” of data into information on each customer, using in-house software.
In the half-year, the retailer made 454-million personalised offers to shoppers based on their spending habits, offering loyalty-card discounts worth R8.4bn.
“How Shoprite is using AI to leverage the immense customer data they have, and to continuously optimise their supply chain, sourcing and selling, has given them a competitive edge,” M&G Investments analyst Damon Buss said. “The rest of the retailers are trying to play catch up now”.
Sasfin analyst Alec Abraham agreed, saying Shoprite’s data advantage was “a big deal”. “No matter which industry you’re in — food producers, car manufacturers, banks, retailers or hospitals — in order to get more sales, you need data and analysis to extract insights.”
Shoprite concedes the environment is highly competitive. As the SA economy is failing to grow, retailers are fighting for more market share in the same pool of consumer spend. The Shoprite group is winning, as reflected in its 14.6% sales growth in its core SA supermarkets, almost double that of other retailers’ 7.6% growth, according to data from marketing consultancy NielsenIQ.
“It’s a hard-fought market. We are all competing very fiercely,” Engelbrecht said.
Despite Shoprite’s strong showing, constrained consumers are in reality buying slightly lower volumes of goods. This is shown in the like-for-like SA supermarket growth, that strips out all new stores, of 6.3% and selling price inflation of 7.7%.
Average basket spend in SA increased 7.7%, the same rate as price inflation.
“There is very little capital investment and capacity manufacturing capacity in SA, from all manufacturers Very few are currently comfortable to invest large amounts of capital into this space.”
— Shoprite CEO Pieter Engelbrecht.
Engelbrecht said that in the current environment, manufacturers were not investing in capacity and where Shoprite did not have distribution centres and used direct deliveries it received as little as 40% to 50% of the items or quantities ordered.
This made it hard to meet its goal of having 98% of required stock available in-store. It had to invest more in the distribution and storage of goods due to the “deteriorating supplier service levels”.
“There is very little capital investment in manufacturing capacity in SA, from all manufacturers. Very few are now comfortable to invest large amounts of capital into this space.”
Shoprite recently signed a R1.2bn loan with Standard Bank vehicle and asset finance to expand its supply chain.
Abraham said manufacturers’ underinvestment “supports my view that companies in SA are generally shrinking or not investing in their asset base in SA”.
Shoprite and Checkers stores use private label products such as Ritebrand, Simple Truth and The Kitchen to drive customer loyalty. A few years ago it had 23 own brands that brought in R100m each per year. It now had 25 that recorded R100m in sales every six months, Engelbrecht said.
The group said, however, private label growth in the first half was “somewhat constrained by global supply chain and domestic port challenges, as well as avian flu-related product shortages”.
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