Basket sizes are smaller, volumes are down, and customers are buying ready-made meals and braai packs. These are Woolies' customers, who mostly have their own wheels and so can pop into the shops frequently, avoiding the risk of food spoiling in their fridges and freezers during load-shedding.
Roy Baggattini, Woolworths CEO, said in an interview this week that customers were shopping frequently but baskets had fewer items and those were mainly ready-to-eat meals.
These are the effects of load-shedding on shopping behaviour, he said, speaking after the release of the group's results.
In response to increased blackouts, , Baggattini said Woolworths had launched 100 braai lines which have been popular. “Given load-shedding, braaiing activities seem to have increased. We are seeing consumers coming back for our braai items,” he said.
Woolworths, which has an extensive cold chain from supplier through delivery and at stores, has invested in backup power since 1998 and 99% of its stores and all distribution centres have generators.
Bagattini said if there is an interruption in their retailers' cold chain of more than eight consecutive minutes, those products cannot be sold to consumers.
Jami Jepthas, investment analyst at Mergence Investment Managers, said if load-shedding escalates to a level at which the cold chain is interrupted beyond what can be mitigated, it could result in higher waste and other costs for the business.
The food business, which contributes 43% of group turnover, reported for the 26 weeks to December 26 2022 adjusted operating profit growth of 0.2% to R1.4bn, returning an operating profit margin of 6.7% for the period, compared to 7.2% in the prior period. Excluding the effect of load-shedding, adjusted operating profit growth was 5.1%, with an operating margin of 7%.
Alec Abraham, a senior equity analyst at Sasfin Wealth, said the food division has been recording negative volume growth despite the group’s investment in price and continued dedication to quality.
Commenting on the retail sector, he said “it is with great surprise to me that to date we haven’t seen consumers and hence retailers collapse under the extreme negative forces on consumers’ real incomes, the additional costs that come with load-shedding, higher interest rates and higher costs for consumers and retailers alike.
“However, I can’t help but feel that there must just be a long lag and that consumer sentiment, credit quality and spending is bound to buckle, and with that retailers' performance,” he said.
From Shoprite’s trading statement it appears to have raised prices in line with overall food inflation, meaning no subsidising of prices, whereas Woolworths food’s basket price inflation was below that of overall food inflation. This is bound to affect the more price-sensitive Shoprite/Checkers customers, which will be reflected in lower volumes, he said.
While it is too early to tell, given that other food retailers have yet to release their interim results, Abraham said: “We may well see when more information is provided by its peers that Woolworths Foods may land up having the lowest decline in volumes, thereby supporting my statement.”
Jepthas said consumers had been fairly resilient up to the end of last year, with discretionary spend remaining relatively strong. “I would expect consumers to come under more pressure throughout the rest of 2023, having to contend with ongoing high inflation, higher interest rates and potential job losses. This will likely result in more spend being diverted away from discretionary items, creating a tougher and more competitive environment for discretionary retailers,” he said.
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said investors are anxious about the sector. “In my opinion we are not going to get growth numbers out of the retailers like we did for the past 20 years. Those days are gone,” he said.
Treurnicht expects the food division to “remain problematic for Woolies over the immediate future. It is simply too expensive for the average consumer to shop there.”
But the Woolworths fashion, beauty and home division performed well, helping the retailer record its highest earnings per share in the history of the company — up 74.9% to 293.7c.
Analysts said the turnaround for this troublesome division appeared to be gaining traction.
Despite the challenges in South Africa, Woolworths plans to spend R8bn on its business here in the next three to five years. In the current financial year ending June, Woolworths plans to open 14 FBH stores and 24 food outlets that includes 16 stand-alone food stores, as well as stores within stores at Engen garages.
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