'R100bn turnover gives Shoprite power'Comment on this story
Shoprite’s achievement of the R100 billion annual turnover mark demonstrated the size of its economies of scale, as well as its purchasing power, analysts said yesterday.
Shoprite said yesterday it had achieved double-digit growth of 10.5 percent in total turnover to R102.2bn for the year to June, surpassing the R100bn mark for the first time.
In a trading update, Shoprite said growth accelerated to 11.4 percent in the second half of the financial year, compared with a 9.7 percent gain in the first half. On a like-for-like basis, turnover increased by 5.1 percent.
Reuben Beelders, a portfolio manager at Gryphon Asset Management, said Shoprite’s turnover exceeding R100bn indicated the likelihood of increasing economies of scale.
“With over 70 percent of Shoprite’s sales being in South Africa, the purchasing power in the local economy would be significant. This power would also increase [across borders] as Shoprite operations became more established in the rest of Africa,” Beelders said.
Chief executive Whitey Basson said the sustained pressure on consumer disposable income was evident in the slowdown in sales growth at South African supermarkets, the largest division, which increased sales by 8.7 percent.
Shoprite’s 196 supermarkets outside South Africa increased sales by 26.8 percent compared with the previous year.
Taken at constant currencies, growth was 16.2 percent. Amid highly competitive market conditions, the furniture division was able to grow turnover by 12.2 percent.
Beelders maintained that the group’s turnover growth was good, in a tough operating environment.
He believed that in tough times consumers traded down and the Shoprite chain, in particular, was probably a beneficiary of this trend. The group’s South African operations grew turnover by 7.6 percent in the first half to December last year and the growth rate accelerated to 8.7 percent for the full year.
Beelders felt that the total turnover increase of 10.5 percent was a good number. Traditionally, the group’s operational gearing had resulted in a higher rate of growth in the bottom line.
“Shoprite was also well represented across living standards measures (LSMs) as opposed to other South African retailers who have a mid- to upper-LSM focus,” he said. This, in his view, made the group slightly more defensive in the difficult consumer environment, which the economy was currently experiencing.
Chris Gilmour, a retail analyst at Absa Investments, said Shoprite’s R100bn turnover was significant relative to other players in this market. “Among all the retailers, whether in the food or clothing sector, nobody else has achieved R100bn turnover,” he said.
He said this kind of turnover would give Shoprite an advantage in scoring contractual rebates from manufacturers, which are based on selling high volumes of products. “The bigger the volume you sell the bigger the rebate, which gives a retailer buying power.”
He believed that through its good supply chain infrastructure, which included central distribution centres, “Shoprite is so big that [it is] able to get preferential deals from suppliers that other smaller retailers are not able to get”.
Gilmour said the economy was in a difficult place, particularly at the low end of the market. He said Shoprite’s local sales numbers were not a surprise because it operated in that end of the market. “The ability to spend in this part of the economy has been squeezed by other expenses, including debt,” he said.
Shoprite’s shares gained 2.96 percent to close at R163.05 on the JSE yesterday.