Feb 22, 2011
In what chief executive officer Whitey Basson has described as one of the most challenging periods in a long time for food retailers, the Shoprite group increased turnover by 9,4% to R36, 259 billion to generate a trading profit of R1,854 billion. This was 11,9% higher than in the corresponding period.
Diluted headline earnings per share rose 13,6% to 236,8 cents and the company declared an interim dividend of 88c per share (2010: 80c per share).
Basson said food retailers had to contend with low food inflation on the one hand and on the other, growth in costs over which they had little control. “The group itself had to contend with internal price deflation which averaged 1,2% for the period. During the same time, expenditure such as electricity, water as well as rates and taxes increased by 36%.
“We continued our strategy of substantial investment in infrastructure for future growth. We added 41 new supermarkets, more than any of our competitors, and we continued to extend and upgrade our infrastructure, distribution capacity and information technology systems.
“This made it possible for us to achieve further efficiencies across the spectrum of our business to the extent where we were able to raise our trading margin to 5,1%.”
Basson said market conditions had worsened after the Soccer World Cup when a number of major construction projects had come to an end. “The disposable income of millions of consumers remained under pressure and demand continued to be sluggish. As always, this generated strong competition among retailers who discounted heavily to attract consumers and boost sales at the expense of profit margins.”
He said all the divisions in the group had reported acceptable turnover growth and trading profits. The furniture division, however, had to contend with an average sales price deflation of 14,5%, which put extreme pressure on turnover growth and profits.
“The best performers in the group were the value-added services which reported strong growth in turnover, brought consumers into the stores and promoted the one-stop shopping concept.
Basson said the group’s core business, its South African supermarket division, reported positive sales growth of 8,4%. “If internal price deflation of 1,2% across the product range is taken into consideration, the division achieved real growth of 9,6%.” Turnover growth of 8,4% from R26,303 billion to R28,515 billion produced a trading profit growth of 15,8%.
Although market share figures for the food retailing sector are not available, he believes the group has made gains across the spectrum. This is borne out by an AMPS 2010 study which indicated that 63% of South African consumers do their grocery shopping at Shoprite and Checkers stores, a 21% bigger share of the formal market than its closest competitor. The number of customer transactions, new stores included, increased 4,5% to 58 million per month while the average value per transaction grew by 2,9% despite deflationary prices.
Of the three supermarket chains, Shoprite in South Africa was hardest hit by negative market conditions. Due to its price-competitiveness, particularly in respect of staple products, the chain increased turnover by 5%. It remains the major food retailer offering lower prices.
In the 2010 Sunday Times Top Brands Survey the Shoprite brand was voted SA's No. 1 supermarket for the third year in a row and it scored first place in all five grocery categories. Shoprite also won a first place in the annual The Times and Sowetan 2010 Retail Awards as top supermarket for overall customer experience, and it was rated as the second most favourite retail brand in South Africa.
Checkers, which was ranked as Best Retailer in the Ask Africa Orange Index Service Excellence Awards in 2010 and has been the fastest growing supermarket brand in South Africa for the past two years, withstood general market conditions well and increased turnover by 9,8% in South Africa.
The limited-range Usave experienced increasing customer support. It operated 181 stores in South Africa at the end of the period under review.
The Supermarket Non RSA division, which opened a net nine new stores, reported sound growth, although this is masked in the group’s results because of the continuing strength of the rand during the review period. Turnover increased by 13,6% in constant currency terms, but in rand terms by only 3,1%. The growth manifested itself in the increase in both the number and value of customer transactions. The Shoprite group is strengthening its presence in the main countries where it trades.
Amongst the other operating segments, OK Franchise grew turnover on existing business by 14,2%, servicing its stable membership of 280 members from seven centres countrywide. Strict management control of every aspect of the division’s operations enabled it to report a trading profit substantially higher than its turnover growth.
The MediRite chain of in-store pharmacies, which now consists of 113 outlets, grew turnover by 37,0% and on a like-for-like basis by 23,2%.
Basson said he did not expect market conditions to change materially in the second half of the year. “Food inflation will rise, as it has been doing since the start of 2011, as a weakening rand increasingly exposes local consumers to the high food prices already evident on overseas markets while escalating energy and transport costs will further erode their disposable income.
“Although food prices will increase, I believe such increases will be held in check by the strong competition amongst the major food retailers. The group is well equipped to deal with the challenges and we should be able to maintain the level of profitability achieved in the first half of the year.”