Rising household income and stable interest rates will support consumer spending and moderate retail trade sales until the end of the year, although the outlook remains uncertain because of the precarious situation in Europe.
Saijil Singh, a lead analyst at Coface South Africa, said yesterday that consumer spending should continue at current averages for the remainder of the year, supporting retail growth. But in the event of a European meltdown, businesses in South Africa would be affected, sparking another wave of liquidations and retrenchments that would constrain disposable income.
Coface said that higher food prices – due to rising electricity and fuel costs – were enabling retail growth in non-durable goods. He projects 2.3 percent food retail growth this year and 2.9 percent next year.
In the short-term, Singh said, Shoprite was likely to outperform Pick n Pay due to its larger footprint in other African countries. Outside South Africa, Shoprite operates 123 stores and Pick n Pay 94.
Overall, South African retailers should benefit from growth in neighbouring countries as demand was likely to continue to be strong, he said.
Chris Gilmour, an equity analyst at Absa Investments, said it would always be better for food retailers than retailers of durable goods “as people have to eat”.
However, the question remains how Walmart’s arrival into food retail through Massmart will affect the big players. Massmart, through Cambridge Food and Foodco, already has about 3 percent of the food retail market. Its biggest expansion problem is access to sites.
Singh believes Massmart will begin to have an impact on the local market only in about two years time.