When the late great SA Breweries (SAB) was swallowed and delisted by AB InBev in 2016, I was disconsolate to say the least. My favourite company had gone and though there were many good companies left on the JSE none quite measured up to SAB.
However, in recent years Shoprite has assumed that mantle of greatness. It rarely lets shareholders down and not only has gravitas in an SA sense but is a player in world terms. It is highly innovative in all aspects of retailing, and even though it’s a large company it’s still capable of growing earnings and dividends meaningfully and consistently.
Until about a decade ago Shoprite was wrongly perceived as being something of a one-trick pony, a low-end retailer with scruffy stores selling cheap fast-moving consumer goods to the indigent.
And, while it’s true that it was certainly mopping up meaningful market share in that arena, behind the scenes it was polishing its Checkers brand and getting it ready to take on the mighty Woolworths Foods at its own game.
In addition, it was investigating and implementing areas of retailing technology that would set it apart from the competition in years to come, notably but not confined to same-day home delivery.
It’s fair to say that Shoprite is by far the largest retailer in Southern Africa and probably by extension in Africa. It is undoubtedly the leader in retailing technology across the spectrum, and that with tight expense control is reflected in its superior profit margins. Its same-day home delivery service, Sixty60, is one of a handful of such operations anywhere that is profitable.
A Japanese person would immediately recognise the elements of Monozukuri and Kaizen in Shoprite’s operating practices. These are Japanese philosophies that are usually applied in a manufacturing sense but can equally be applied to any other type of operation. The former is the pursuit of perfection and innovation in the creation of things and the latter the principle of continuous, incremental improvement.
For the year to end-June Shoprite group sales rose 8.9% to R252.7bn, while gross profit margin rose 40 basis points to 24.3%. Like-for-like sales, excluding the effect of new floor space, grew 4.6%. Trading profit rose 16.6% to R15bn and diluted headline earnings per share rose 15.8% to 1367.2c while the full-year dividend was increased by 9.7%.
Considering Shoprite’s size it was another outstanding result from an already high base. The new financial year has begun strongly with market share continuing to be gained in all segments in which the group operates. And the technological advantages Shoprite enjoys compared with all other local retailers are set to continue.
An intriguing new development — which is in a different league to other retailers — is the Smart Trolley, which is being rolled out. Not only does this innovation permit the user to navigate efficiently around stores, it scans items as they are placed in the trolley, allowing the user to bypass normal, long manual checkouts.
Financial 2026 and beyond is likely to be characterised by slow ambient economic growth, which only really leaves companies with the ability to extract volume growth from a stagnant economy as the eventual winners. Shoprite has proved that it not only has the capability but the desire to keep on extracting such volume growth. The group intends adding an extra 309 stores to its estate this year, 223 of which will be in SA.
At a share price of R276 the historic price-earnings ratio is 19.3 times, which though on the high side is nowhere near the rarefied ratings of Clicks or Dis-Chem at 28 times and 23.9 times, respectively.
The late Selwyn MacFarlane, former SAB finance director, once told me, “It’s always a good time to buy SAB shares”. He was right. The same sentiment can probably be applied to Shoprite shares.
• Gilmour is an investment analyst.
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