Feb 18, 2009


Food retailer Shoprite has again produced a satisfactory set of results despite the economic downturn that has seen the disposable income of consumers severely curtailed. For the six months to end December the group generated trading profit of R1,409bn, which is 38,2% higher than in the corresponding six months on turnover that rose 27,3% to R29,604bn. 

The turnover growth comfortably exceeded internal food inflation, which grew by 16,9% against 9,2% in the corresponding period. 

Shoprite ended the period with net profit of R962,0m, an increase of 40,8% over the comparable six months in 2007. Diluted headline earnings per share increased by 43,3% to 184,0c and the board declared a dividend of 70,0c a share payable to shareholders on Monday, 16 March 2009. 

Chief Executive Officer Whitey Basson said the group had experienced strong growth in all its divisions. “Our franchise operation and our furniture division increased turnover substantially above the inflation rates for their respective sectors. The strongest growth, however, came from our supermarket operations outside the RSA where turnover grew by 54,3% supported by a weaker rand.” 

Basson said the strong performance was achieved under tougher trading conditions, lower consumer confidence and declining disposable income. “It was not the result of growth in the size of the market but because of the group’s low price-positioning attracting increasing numbers of price-sensitive consumers across the income spectrum as well as managing its cost base efficiently on the higher turnover. 

“As in the last financial year, when Shoprite put some R286 million back into the pockets of its customers, we continued to build turnover through our policy of sacrificing gross margin. Over the past 18 months the group reduced margins from 20,0% to 19,5%. In the period under review the group subsidised prices further by approximately R170 million, bringing the total price subsidy over 18 months to approximately R456 million. By relentlessly controlling overhead costs we maximised the difference between income and expenditure resulting in our trading margin increasing from 4,4%, previously to 4,8%. 

“We assisted shoppers in any way we could such as allocating the estimated savings of R27million on transport costs as from the first in a series of fuel price cuts in August 2008 to lower prices on basic food products. All these factors contributed to our strong growth and enabled us to increase our market share in South Africa by 1,6% to 29,8% (30,4 % in like-for-like stores). 

Basson said the group also benefited from the fact that many of its customers at the lower end of the income spectrum received government grants and were thus at least partially shielded from the worst effects of the present downturn. 

All three of its food chains in South Africa, which represent 77,6% of the group’s total business, performed above the rest of the market. The number of customer transactions was 8.5% higher with an increase of 15,2% per transaction. Shoprite, which with 312 stores constituted the core business, continued its strong growth path by increasing sales by 23,3% growing customer transactions by 6,2% and basket spend by 16,5%. 

However, it was Checkers which raced ahead, validating its repositioning at the higher end of the market, Basson said. “For the first time it grew turnover ahead of Shoprite at 23,6% and became, according to independent market research, the country’s fastest-growing food chain during the review period.” Turnover grew mainly due to an increase of 9,9% in customer transactions and 12,8% in basket spend.” 

The roll-out of the no-frills, limited-range Usave chain, continued apace with a net gain of 24 new stores in South Africa during the review period. At the end of 2008 it was trading from 115 outlets. The chain of small-format stores is gaining support from an increasing number of consumers and in the reporting period it achieved same-store growth of 32,1%. 

The group’s 101 supermarkets trading in 16 countries outside South Africa’s borders reported satisfactorily and continued to grow despite intense difficulties and long lead times. Total sales increased 54,3% and same-store sales 50,3%, assisted by a rand that had weakened against those of some trading partners in Africa. The non-RSA supermarkets contributed 14,1% of the group’s supermarket sales. The group is pursuing its growth strategy on the continent and negotiations for the opening of a number of new outlets are at an advanced stage. 

During the reporting period 33 new members joined OK Franchise which increased turnover by almost 29%. During the review period the division continued to stabilise its franchisee base and now has 281 independent members. Trading profit rose strongly in an environment in which costs grew considerably slower than turnover. 

Basson said despite the problems besetting the market for durable and semi-durable goods, the OK Furniture division managed to grow turnover by 13,3% while product inflation was approximately 2%. Turnover was thus built by increasing unit sales through new store openings. A positive trend was the steady increase in credit sales and the consequent rise in finance income. 

Basson said despite sales growing in January at the same rate as in the reporting period, he did not believe they could be sustained for the entire second half of the financial year. “No one can predict with any accuracy the extent to which our economy will be affected by the global financial meltdown, but it is a certainty that a slowdown in world trade, with resultant reduced exports will lead to job losses that will impact negatively on business. However, I do believe that whatever happens, we are better placed than most to weather the storm and to achieve satisfactory results for the remainder of the financial year.” 

View Interim Results for the six months ended 31 December 2008

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