Shoprite Holdings is upping the ante in the township and rural economy in which it already has a dominant position, with the group planning to more than double the stores of its Usave brand within five years.
Group CEO Pieter Engelbrecht said data from the Xtra Savings platform highlights the complementary nature of the Shoprite and Usave brands, with the latter set to get about 540 new stores within five years.
Usave, launched in 2003, now has 463 stores countrywide, primarily in townships and rural towns — the heartland of the low-income consumer market.
“There is room for at least 1,000 of these stores in SA over the next five years. We use these store formats where we can’t own land, such as where tribal authorities own the land or where there is limited infrastructure,” said Engelbrecht after the company issued its annual earnings report.
“The macroeconomic environment is tough for consumers, particularly when it gets to mid-month. The cost of travel is also burdensome. That is where Usave comes in handy.
“We have seen a strong interplay between Shoprite and Usave. Our data shows that [at] month-end people flock to Shoprite to buy their groceries, but come mid-month they visit Usave stores because they are within walking distance.”
The group, which on Tuesday reported sales of R240.7bn in the year ended June, now has just more than 31-million consumers who use its Xtra Savings card, more than half the population.
Engelbrecht said 19-million Xtra Savings members use Shoprite and Usave, with the rest belonging to its high-end brands, Checkers and Checkers Hyper.
The results show that Shoprite and Usave accounted for R99.6bn of the group’s sales in the period under review, narrowly missing the R100bn mark. The Checkers and Checkers Hyper offerings reported sales of R77.9bn.
A three-year snapshot of the group’s results shows aggressive gains in market share across the board, with sales up R72.9bn and 744 new stores in the period.
Competitor Pick n Pay was left bruised after launching QualiSave, targeting the lower end of the market.
QualiSave reduced the product range, a move that proved unpopular with Pick n Pay’s core client base. Pick n Pay, which reported its first annual loss in the year ended February, is now phasing out QualiSave.
Nedbank said in June that Shoprite’s early inroads and heavy investment in the township economy, said to be worth more than R700bn, 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.
Engelbrecht said the group was “well positioned” for further market share gains due to the capital expenditure it has ploughed into the business, and renewed rigour in SA’s economy after the formation of a government of national unity.
Group trading profit in the year under review was 12.4% higher at R13.4bn. Its core business, Supermarkets RSA, increased its sale of merchandise by 12.3% to R195bn.
The board declared a final dividend of 445c, bringing the total dividend to 712c, from 663c a year ago.
Engelbrecht said that the results aptly reflected a year in which the group remained focused on its business and what it stood for: being best priced, in stock, solution driven and customer led.
Bianca Lakha, an analyst at Old Mutual Private Clients, said Shoprite was using its scale to achieve attractive margins and make significant progress in the high-end market.
“After years of low-cost supremacy catering to lower LSM groups, Shoprite has effectively gained market share among relatively more affluent consumers ... we believe the group’s continued penetration of this segment serves as an attractive growth area that will drive sales volumes and economies of scale, but will also enhance margins over time,” she said.
Engelbrecht said the company was in advanced discussions to purchase the remaining 50% shareholding in its last-mile logistics provider, Pingo Delivery, as part of a plan to boost its online offering.
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