SA’s economic squeeze hurts Shoprite

By SANDILE MCHUNU Time of article published Oct 30, 2018

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JOHANNESBURG - Africa's biggest supermarket chain Shoprite’s share price fell 4.6 percent after it released a flat operational update for the quarter to end September hampered by weak consumer sentiment. 

Shoprite said that its Supermarkets RSA, the group’s primary business, grew sales by a modest 1.7 percent during the period from 8.1 percent that were recorded during the corresponding period last year. 

The group’s overall turnover also grew marginally at 0.4 percent. Shoprite said the growth was impacted by the sharp devaluations in the currencies of some of the countries in the rest of Africa where it operated while sales in Supermarkets RSA eased as a result of consistently low internal food inflation of -0.1 percent and a sixweek strike in its largest distribution centre in Gauteng which accounts for 53 percent of total centralised food distribution for the RSA supermarkets business.

 “The culmination of a six-week service provider strike and the deployment of a brand new warehousing system shortly after the labour disruption meant that we were temporarily not able to meet store demand adequately. “The result was that the group didn’t live up to the high customer standards we pride ourselves in,” Shoprite said. 

“This resulted in significant lost sales opportunities, which naturally benefited some of the group’s competitors.”  

However, Citadel trader Jordan Weir said Shoprite recorded the muted results on the back of VAT and multiple fuel price hikes. Weir said this had a direct impact on consumers’ spending habits this year. 

“The 1 percentage VAT increase automatically increases the cost of goods and services, but less obvious is the impact of the multiple fuel increases,” Weir said. “As the fuel price rises, the cost to transport product to store increases.” Weir said retailers had to raise prices to offset this increase in cost of sales. 

“As salaries remain roughly flat, year-on-year, the continual increase in the price of basic daily necessities has made consumers more cognisant of their cash income and cash outflow circumstance. Consumers being more aware and vigilant with their spending will ultimately impact most local retailers and their sales figures.” Shoprite also acknowledged the impact of the VAT increase and rising fuel hikes on its fortunes, charging that consumers remained under pressure from rising transport costs and unemployment. The group said, however, that the situation had now normalised and a more positive volume trend was emerging this month. Shoprite’s share price closed 0.46 percent lower at R182 on the JSE yesterday. 

The group said, however, that the situation had now normalised and a more positive volume trend was emerging this month. 

Shoprite’s share price closed 0.46 percent lower at R182 on the JSE yesterday. The group’s Supermarkets NonRSA operating segment reported an 8.6 percent decline in turnover in rand terms, mainly due to the further depreciation of both Angola’s currency after year-end and more recently the depreciation of the Zambian currency. 

“The Angola kwanza and Zambia kwacha have depreciated 76.3 percent and 21 percent respectively against the dollar since the beginning of 2018,” it said. Its other operating segments, which included the OK Franchise, Computicket, MediRite pharmacies and Checkers Food Services continued to make a good contribution to group turnover, with the furniture division reporting an 8.7 percent rise in sales. 

The OK franchise division recorded turnover growth of 6.3 percent. The group said it opened 15 supermarkets in the quarter and would open a further 41 before the end of December. 


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