Shoprite has continued keeping food prices low to ease the pressure on shoppers, but the strategy is starting to squeeze profits at the country’s largest corporate employer.
For the six months to end-December, the group’s sales rose 7.2% to R136.8bn, adding R9.2bn compared with last year. But despite the strong growth, profit before tax fell slightly, indicating the cost of keeping prices so low.
CEO Pieter Engelbrecht said staples such as rice, maize and potatoes dropped by as much as 40%-50%, giving much-needed relief to lower-income households.
“It is very good news for the consumer,” he said, adding that shoppers at Shoprite and Usave, the group’s value-focused stores, are the main beneficiaries.
The festive season saw deflation in basic groceries, even as overall living costs remained high.
“Trading with costs growing faster than prices is challenging,” Engelbrecht said.
The group said it faces a tough balancing act, with operating costs continuing to rise while customer prices stay flat or even fall.
Part of the pressure comes from investments in new stores and distribution centres. Finance charges and depreciation, non-cash accounting costs, have increased, affecting overall profits.
Still, Shoprite said its core supermarkets grew faster than the rest of the market, showing the strategy is helping it win customers.
Digital sales continue to shine. The group’s Sixty60 on-demand platform saw a 34.6% jump in sales, reaching R11.9bn. The growth is being driven by new store openings, more products online, and constant improvements to the app.
The group also raised its interim shareholder payout to 307c per share from 285c last year, a confidence signal in cash flow despite tighter margins.
Engelbrecht said the group remains focused on affordability and convenience, even if that means slower profit growth in the short term.
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