Shoprite is a large company by whichever metric is used to measure it. In terms of market capitalisation it is substantially larger than Nedbank and only slightly smaller than Absa, and is easily the largest JSE-listed retailer.
Most observers agree that Shoprite is the largest food retailer in Africa, though French international chain Carrefour is also heavily represented on the continent. The former employs 160,000 people and has an extensive branch network comprising 2,485 branches in SA and 269 outlets in nine countries in the rest of Africa.
Shoprite is the largest private sector employer in SA. Considering its large size, one would intuitively expect to see earnings and dividend growth tailing off and being less than impressive. But that’s not the case with Shoprite.
This is a company that lives by its wits. Even though it’s big, it is agile and able to adapt to changing circumstances. A case in point is its well-documented foray into the rest of Africa. While the group enjoyed first-mover advantage into this territory 30 years ago, conditions have changed and Shoprite has streamlined its exposure to the rest of Africa in recent years, notably taking the difficult decision to quit Africa’s most populous country, Nigeria.
Another example is in retailing technology; 30 years ago Shoprite was a notable laggard in this field. Today it is the acknowledged leader — and by quite some margin. And, while most retailers are blindly following the pack in home delivery and making losses, Shoprite is again the clear leader and making profits.
Until fairly recently Shoprite was widely perceived (wrongly, in my opinion) as a down-market, cut-price food retailer. And yet for almost a decade the Checkers brand has been rejuvenated and is now a serious competitor to Woolworths Foods in the upper-end food retailing market.
The degree of innovation in the Checkers chain is remarkable, as has been its ability to source and retain dedicated top-quality suppliers. Pick n Pay attempted a similar exercise more than 15 years ago, and though it was a valiant attempt it petered out after a few years. Checkers, on the other hand, has stuck it out for the long term and is now reaping big rewards.
It is difficult to think of a foreign retailer that approximates what Shoprite is doing, especially regarding its demographic composition. The German discounters Aldi and Lidl are mainly limited assortment retailers and don’t get involved with home delivery. Asda and Tesco are middle-of-the-road retailers, not unlike Pick n Pay, while Waitrose and M&S compete in the upper-end food retailing market in Britain and nowhere else. Shoprite has developed a uniquely SA way of retailing, and it’s working exceptionally well.
In its trading update for the six months to December 29, Shoprite group sales rose 9.5% to R128.6bn, with Supermarkets RSA growing 10.4% to R107.7bn and Rest of Africa supermarkets growing 4.1% to R11bn. The star performer in the group was undoubtedly Checkers, with sales growth of 13.5%. Online sales growth from Checkers Sixty 60 grew 47.1% from an already strong base.
Shoprite and Usave reported somewhat weaker sales growth of 6.7%. The OK Furniture and House & Home furniture brands have been sold to Pepkor and Competition Commission approval is pending. The furniture business is a tiny part of Shoprite’s universe and frankly made little or no sense in its continued inclusion.
The full interim results will be published in early March, and thereafter it will be possible to get a handle on the likely outcome for the full year. At the current share price of R272,70, the share is on a price to earnings ratio of 22.9 times, which is high but nowhere near the rarefied levels of Dis-Chem (27.4 times) or Clicks (29.3 times).
With the likelihood that further innovation will result in a continuation of sustained strong earnings growth, it seems reasonable to be confident that Shoprite’s rating should improve over time.
• Gilmour is an investment analyst.
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