Aug 25, 2009
Shoprite Holdings has repeated its excellent results of 2008 in the 12 months to end June 2009, growing trading profit while continuing its approach of assisting hard-pressed consumers by lowering gross margin with a further 0.6%. Over the past 24 months, when the effect of the global economic crisis came to bear on consumers, the group forfeited a total gross margin of 1,2% by subsidising food prices to the value of approximately R642 million and lowering the expense ratio by 2,8% through greater efficiencies.
Despite a weaker second half of the financial year, when the disposable income of consumers came under severe pressure, turnover was 24,5% higher at R59,319bn resulting in an increase in trading profit of 28,1% to R2,941bn.
The turnover growth exceeded internal food inflation and enabled the group to increase market share by 1,5% to 30,0%.
Diluted headline earnings per share increased 30,9% to 390,8c and the company declared a final dividend of 130c per ordinary share to bring the total distribution for the year to 200c per ordinary share.
CEO Whitey Basson said the success of the group in an intensely contested retail environment was the result of a focused business plan applied consistently over the years by a stable and experienced management team. “Central to this plan is the decision to control, to the best of our ability, all aspects of our business, from focussing on the right market segments to reducing the cost of managing a very large and complex business.”
To stimulate sales and assist hard-pressed consumers, especially lower-income shoppers, management continued to lower gross margins “The result was that sales at 24,5% grew at a faster rate than our cost base resulting in an improvement of 28,1% in trading profit and an increase in the trading margin from 4,82% to 4,96%. “We managed our cost base rigorously at every level and in all aspects of the business. At store level the speed and quality of decision-making was materially improved by further investing in world-class technology,” Basson said.
To support the growth of the business a net 59 supermarkets and a net 28 furniture stores were opened during the year. “Our workforce complement was increased from 73 000 a year ago to 84 000 at the end of June. I am grateful that at a time when hundreds of thousands of people are losing their jobs we could offer employment to 11 000 new colleagues.”
Basson said all the divisions, with the exception of the furniture division, reported strong turnover growth, particularly the group’s non-RSA supermarket operation which posted turnover growth of 39,9% and contributed 13,6% to total supermarket turnover. “We have overcome a number of the difficulties and frustrations of doing business on the continent to the extent where we are making major inroads into food retailing in a number of countries. While infrastructure is still bad and red tape restraining we are proud that we were instrumental in lighting the flame of a better way of living on the continent.
All three its food chains in South Africa – Shoprite, Checkers and Usave – outperformed the market with a combined turnover growth of 22,8% to R46,551bn. “Much of the success of the supermarket chains is due to the fact that each of them addresses a separate but complementary target audience. Management can therefore focus on the exact needs and aspirations of each consumer group and satisfy these through a correctly target product offering.”
Research showed that Shoprite, the group’s largest chain with 310 supermarkets in South Africa, was the brand that best delivered on the most important needs of the majority of shoppers. It increased turnover by 20,9%, benefiting not only from the support of its traditional customers but also from higher-income shoppers in search of value.
Checkers, with its accelerated focus on freshness and convenience, continued to justify the decision of four years ago to reposition it for higher-income earners by increasing turnover by 23,1% in South Africa. Checkers supermarkets became the country’s fastest growing food retail chain in the period under review and grew the value per customer transaction by 11,8%. The brand is becoming an increasingly sought-after anchor tenant in up-market shopping centres.
The small-format, limited-range Usave chain operated 129 outlets in South Africa at the end of the reporting period, 36 more than a year ago. Growth continued to be brisk. The chain, stocking mainly basic food lines, proved increasingly attractive to financially pressured consumers.
With the continued shift to fresh and value-added products Freshmark, the group’s fruit and vegetable procurement arm, has over the past few years grown into the biggest operation of its kind in Africa. In procuring 280 000 tons of fruit and vegetables for its 440 product lines, it buys more than 95% of all its requirements from 550 producers in South Africa. Basson said in addition to the many emerging farmers it supports in South Africa, it also assists 358 small farmers in the 16 countries in which it does business outside South Africa.
The franchise division also made strong gains during the year, growing turnover by 26,5% and reporting a substantially higher trading profit due to increased operational efficiencies. During the year it further stabilised its membership base and at the end of June showed a net gain of 13 members to bring the total to 265 franchisees spread throughout South Africa and four neighbouring countries. Most of them trade under the OK banner.
The furniture division managed to raise turnover by 13,9% in a tough market for durable and semi-durable goods. Its mass-market chain OK Furniture fared particularly well. Taking a longer-term view, the division continued its strong expansion drive, opening a net 28 stores to bring the total to 264 outlets. Of these, 27 are located in the BLSN countries (Botswana, Lesotho, Swaziland, Namibia) and Mozambique and the intention is to move further into Africa.
Looking at the year ahead Basson said he anticipated trading conditions to become more difficult and that job losses will increase as more small businesses will exit the market due to reduced consumer spending, higher electricity tariffs and local government taxes which increase the costs of many businesses to unaffordable levels. “The Shoprite Group is, however, better placed than most – and also employs the best people – to weather the storm and we are confident that we will prevail to the benefit of all our colleagues and stakeholders.”
View Preliminary Results for the year ended 30 June 2009