Aug 24, 2010
In the year to June 2010 Shoprite Holdings continued to outperform the market. Its supermarket operation in South Africa grew turnover by 14,6% in a 53-week reporting period while the total market grew 9,6%. According to the revised information now used by Nielsen, the group held a 34,4% share of the market for the month of June and 32,6% for the year, the highest of all supermarket groups in South Africa, up from 31,4% a year ago.
As a whole, the group, which includes food retailing, furniture and franchise operations, raised turnover 13,6% from R59,3bn to R67,4bn, generating a trading profit of R3,5bn which was 18,7% higher than in 2009.
Further efficiencies in the information systems and logistics infrastructure, combined with cost controls in all areas of the business and reduced stock losses, resulted in a trading margin of 5,18% for the year, up from last year’s 4,96%.
The board declared a final dividend of 147c a share, up 13,1% from last year’s 130c a share. This brings the total distribution for the year to 227c (2009: 200c).
Shoprite chief executive officer Whitey Basson said the reporting period had been dominated by tumbling food inflation which had brought prices back to where they had been a year ago. “Internal food inflation came down from 15,8% in 2009 to an average of 2,2% during the past financial year. This means the group achieved real growth of 11,4% as against 8,7% in 2009.”
Basson said the dramatic nature of the drop was best illustrated by the fact that in the first six months of the reporting period internal food inflation averaged 4,2%, during the last six months of the year it had fallen to a mere 0,2% reaching a negative low of -2,3% in the month of June.
“Although positive for consumers, especially those in lower income groups, the low food inflation put increasing pressure on food retailers contending with substantially higher cost inflation. The focus consequently shifted to building turnover based on lower prices.
“During the period under review the Group continued to build on its historical price positioning which is to consistently offer low prices on the most important basic foods. By consistently applying well-considered trading strategies, the Group was able, not only to retain the loyalty and support of customers across the spectrum, but also to extend its customer base,” Basson said.
Despite the downswing, the group continued to grow its store base, adding a net 87 outlets during the year bringing its total number of outlets in South Africa to 1 015 and to 151 outside its borders. The group envisages the opening of 85 new outlets in the new financial year. The group now employs 88 000 people, of these, more than 10 000 work in its stores outside South Africa. The Group created almost 7 000 more jobs in the period under review and expect to create a further estimated 5 700 jobs during the next year.
Basson said the group’s RSA supermarkets segment with its three main chains Shoprite, Checkers and Usave, had again been the best performing area of the business. It produced turnover of R53,4bn for the 53-week period compared to R46,6bn for the 52 weeks of the previous year. Trading profit was 19,6% higher at R2,8bn.
“The Shoprite chain has always been ideally positioned to benefit from tough conditions. Adding a net 11 stores during the year, it increased total turnover by 13,5% while the value per transaction was up 6,6%,” Basson said.
Checkers, which has been very successfully repositioned for higher-income consumers, grew turnover at the same rate as Shoprite’s 13,5%. It increased the value per transaction by 7,5%, the highest of the three chains.
Basson said the small-format Usave chain had grown strongly during the year, opening new stores at a rate of almost one a week, which enabled it to increase turnover by 33,5%.
Referring to the group’s supermarket operations elsewhere in Africa, Basson said turnover growth in constant currency terms had averaged 18% in what was also a low inflationary environment. Due to the strength of the rand relative to the US dollar and the weakening of most African currencies in which the group trades, the revenue of R7,2bn generated by this segment translated into a turnover decline of 2,1% in rand terms compared to the previous year. Owing to improved gross margins, trading profit was 17.2% higher at R486 million.
With reference to the group’s furniture sales, Basson said spending on durable goods had remained a low priority for most consumers. “But, the run-up to the Soccer World Cup in the last three months of the reporting period fuelled a demand for the latest technology television sets. This spurt in sales helped push total turnover 16,7% higher to R3,0bn with sales in existing stores up 10,9%. To compete effectively in a fiercely contested market, profit margins were sacrificed with a resultant decline in profitability.”
Basson said a noteworthy development during the year had been the acquisition of Transfarm Pharmaceutical Wholesalers to substantially improve the security of MediRite’s, the group’s in-store chain of pharmacies, supply chain. MediRite, which now operates 104 pharmacies, recorded growth on existing business of 35%, albeit off a relatively low base. MediRite is well positioned to extend its pharmaceutical services, supplying low-priced medicines to underserviced rural and disadvantaged communities.
Referring to the year ahead Basson said with the country’s economic recovery continuing to lack momentum he did not expect market conditions to change materially. However, in time, rising input costs had to impact on food prices and he believed food inflation would again start rising in the second half of the new financial year. “Nonetheless, we expect to continue growing turnover and trading profit at comparable levels and to this end we shall continue to invest in staff development, new stores and infrastructural capabilities.”