Financial services group Nedbank says Shoprite’s early inroads and heavy investment in the township economy, said to be worth more than R700bn, has put the retail giant in a good position to keep growing its market share — with its competitors a distant second.
In an investment research note, the bank said Shoprite was one of the retailers that saw an opportunity in the township economy early and put in place a clearly defined segmentation strategy across three supermarket brands — Checkers, Shoprite and Usave — catering to three distinct consumer segments.
“Each of these brands appeals to its target market through assortment, store layout and location. The group’s ‘low cost, no frills, limited assortment discounter’ Usave caters to the low-income segment of the market, with stores largely located in underserved communities,” Nedbank said.
“To increase its penetration in these areas, the group introduced a container-store format branded Usave eKasi. These small and flexible-format stores require only five or six shipping containers and overcome some of the challenges faced by retailers and landlords in developing a presence in township locations,” the bank said.
“Pepkor is another retailer that is well positioned for this opportunity via its flagship Pep brand and Flash business, which provides payment devices to informal traders.”
In the six months to December, Shoprite added a net 197 new stores to total 3,543 stores, adding 2,617 new jobs in the process.
The retailer has also had 58 consecutive months of market share gains in SA.
Andrea Taverna-Turisan, the CEO of Equites Property Fund, which owns and develops prime logistics assets in SA and the UK, told Business Day in May that Shoprite was reaping the rewards of having invested early and aggressively in its distribution network, which was giving it an advantage over its rivals.
Shoprite is valued at R147bn on the JSE, more than Spar and Pick n Pay combined. Pick n Pay, which recently reported its first annual loss in its 57 year history, is worth R12.2bn while Spar is valued at just less that R19bn.
A few years ago, Pick n Pay introduced the Ekuseni strategy looking to make inroads in the low-income market. The key aspect was the launch of a new brand, Pick n Pay QualiSave, aimed at the mass middle market. The strategy was recently unravelled by new CEO Sean Summers.
Under his turnaround plan, the group will phase out the QualiSave brand and repackage most of its loss-making stores into its successful Boxer brand after the QualiSave brand failed to take off with consumers.
Pick n Pay acquired Boxer in 2002 — an inspired decision that has resulted in Boxer being the group’s cash cow 20 years later. As of March, Boxer had 295 superstores and 150 liquor stores across SA and Eswatini. Pick n Pay will unbundle Boxer later in 2024 as part of its turnaround strategy.
Winning formula
Nedbank said Shoprite and clothing retailer Mr Price have a winning formula for the township market.
“In our house view equity model we hold our retail exposure via Mr Price and Shoprite, where we are overweight relative to our benchmark. We consider both to be best in class in their respective categories and well positioned to capture the township retail opportunity,” Nedbank said.
“While Mr Price has faced various challenges over the past year, the group remains well positioned in the value segment of the apparel market with sector-leading return metrics and a disciplined management team,” the bank said.
“Shoprite has been the standout performer among the food retailers as the group continues to flawlessly execute on its clearly defined strategy and gain market share.”
In 2021, Mr Price bought Power Fashion, which Nedbank said gives it access to the low-income consumer segment.
Asset management behemoth Ninety One has also singled out Shoprite and Woolworths as retail groups that it expects to beat earnings forecasts in 2024 and increase their market share.
Nedbank also flagged property groups such as Resilient and Vukile, which have large exposure to the township economy, as well placed to benefit from growth in that space.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.