Boxer’s private-label brands are expected to provide the retailer with a competitive advantage, transforming the discount supermarket sector as the retailer prepares for its spin-off from Pick n Pay.
This is according to asset manager M&G Investments, which said Boxer’s future hinged on how it navigated financial dynamics while leveraging its strong private-label portfolio to differentiate itself in a competitive market.
If managed well, the retailer could become a formidable player on the JSE, offering shareholders significant returns.
Private-label brands, once perceived as low-cost alternatives, have in recent years transformed into high-quality and value-driven options that resonate with consumers.
The latest NIQ State of the Retail Nation analysis for the third quarter of 2023 highlights this shift, showing that private labels, especially in the liquor and fast-moving consumer goods (FMCG) sectors, are now major contributors to the retail sector’s R631bn annual sales. Private-label products alone accounted for more than R89bn in 2023.
Boxer, in particular, has capitalised on this trend. M&G Investments equity analyst Damon Buss said Boxer’s business model, similar to those of global discount giants such as Aldi and Lidl, revolves around offering a limited range of products at competitive prices, with a substantial proportion of sales driven by private labels.
Private-label products account for about 35% of sales in key categories for Boxer. Buss said these products not only provided market differentiation but also generated higher profit margins, with private labels typically achieving gross margins of 20%-25% compared with the single-digit margins of branded goods.
“Boxer is continually developing private-label products under their various labels. ‘Golden Ray’, a tribute to Pick n Pay founder Raymond Ackerman, has become a trusted brand throughout the basic commodity categories,” said Buss. “The confined labels often outsell branded goods — for example, Boxer sells more ‘Best Cook’ baked beans than Koo baked beans.”
Boxer is set for robust growth after its unbundling, especially with its plans to roll out 50 new stores a year. Despite a strong presence in KwaZulu-Natal and the Eastern Cape, the challenge remained in expanding into provinces where competitors such as Shoprite, with its market capitalisation of R181bn and aggressive footprint, dominated, Buss said.
With a compound annual growth rate of 14% in store numbers since its inception, Boxer now operates 281 supermarkets, 150 liquor stores, 31 Build stores and 15 Boxer Punch stores across SA.
The rapid expansion, coupled with an efficient supply chain and low operating costs, positioned Boxer as a formidable player in the retail sector, said Buss.
Boxer’s imminent listing on the JSE is part of Pick n Pay’s broader strategy to stabilise its finances. The parent company has faced significant challenges, including a R1.5bn operating loss in the 2024 financial year. However, a rights offer, which raised R4bn, was oversubscribed, reflecting strong investor confidence.
The planned unbundling presents opportunities and risks. Buss estimates Boxer’s worth at about R20bn, with Pick n Pay expected to retain a majority stake after the initial public offering (IPO).
“In our view, listing Boxer separately will be positive,” Buss said. “The robust competitive offering, growth prospects from further store rollout, low capital intensity and expected strong free cash flow generation should deliver good returns for shareholders over time.”
Buss said the way in which the balance sheet and dividend policy would be structured after the listing posed a challenge. He said the amount of debt Pick n Pay would assign to Boxer’s balance sheet and whether the planned controlling stake by Pick n Pay would lead to a generous dividend policy could affect Boxer’s ability to expand without taking on additional debt.
“While Pick n Pay is raising R10bn-R12bn of capital, we are uncertain whether it is enough to fix the challenges within the Pick n Pay division. Pick n Pay’s planned controlling stake in Boxer provides the ability to implement a generous dividend policy, sending cash back to the group to invest in Pick n Pay. This would either restrict Boxer’s ability to roll out more stores or force them to take on debt. Neither are as beneficial as allowing Boxer to use its cash to fund its own growth,” said Buss.
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