Johannesburg - South Africa’s biggest food retailer, Shoprite, has pinned its hopes on its operations outside the country, as local consumers struggle with spiralling costs and competition among retailers is expected to heat up.
Shoprite chief executive Whitey Basson was confident the business outside South Africa would continue to flourish, he said yesterday. Sales in its 163 stores in 15 countries outside South Africa increased by 28.1 percent in the six months to December last year.
However, Kagiso Asset Management investment analyst Simon Anderssen said the weaker rand contributed to the better sales performance in the non-South African stores.
“Stripping out this effect, the growth rate was 15 percent including a contribution from a 13 percent increase in the number of supermarkets in those countries,” he said.
Shoprite increased turnover to R51 billion, 9.7 percent up from the previous corresponding period.
The retailer, which trades under Checkers, Usave and OK Furniture, said it was on its way to achieving a turnover of R100bn for its full year after the interim turnover exceeded R50bn for the first time.
An interim dividend of R1.32 a share was declared.
The group’s trading margin took a slight fall to 5.3 percent from 5.4 percent, which the retailer said reflected the effects of the slower growth in turnover as well as the high upfront costs associated with new store openings.
Depreciation and amortisation rose 8 percent to R688 million due to the investment in new and refurbished stores.
Basson said trading within South Africa remained difficult during the six-month period and consumer confidence was at a low.
Shoprite’s South African operations, with more than 1 700 stores, increased turnover by 7.6 percent to R38.2bn.
“Despite these conditions, we did not slow the pace of our store development programme but continued to open new outlets at a rapid rate,” Basson said.
Shoprite opened 104 corporate stores over the past year.
Shoprite said consumers’ lack of disposable income was particularly noticeable in the turnover growth of the group’s core brand, Shoprite.
“Much of the chain’s focus has been alleviating the plight of low-income consumers through support programmes such as a R20m food subsidy campaign to confirm its positioning as the brand offering the lowest prices,” it said.
Basson said the difficult trading conditions in the first half of last year continued into the second half with strikes becoming an entrenched part of the local business landscape.
The group said its Shoprite stores continued to be a haven for recipients of social grants, with the number of grants paid out in stores doubling.
Checkers, the group’s brand serving higher-income earners, experienced slower sales growth, while Usave stores continued to build a loyal following of price-conscious consumers, especially in rural and semi-urban areas.
Anderssen said Shoprite’s results were disappointing from an investor’s perspective. However, he said the retail group’s operational performance was good.
“The decline in gross margin year on year for the first time since 2010 is indicative of the real strain consumers are experiencing and the retailer’s inability to pass on price increases,” he said.
He commended Shoprite for keeping cost growth below 10 percent.
Shoprite shares fell 1.89 percent to close at R140.53 yesterday, while the food and drug retailers index fell 1.32 percent. - Business Report