Our Strategic Approach

Shoprite Holdings | Our Strategic Approach
The Group’s strategy and operational activities are intrinsically linked to the value it creates for stakeholders, including investors. Over the past two years, the Group has focused on six drivers of revenue growth. In 2019, we expanded to nine strategic focus areas, largely as a result of new capabilities developed through our replacement project. Following our successful implementation of the enterprise-wide system, we are in the next phase of growth.

Our strategic focus areas

As technology enables more personalised shopping experience and communication channels to reach more customers, retailers have to become more agile and innovative to thrive. Taken together, our nine strategic focus areas indicate our business priorities for the next three years, as we aim to become smarter, close the gap in key market segments and ultimately win in the long term. Our strategic focus areas address global retail trends, such as customer centricity, a convenient omnichannel shopping experience, while also considering our African context. By pursuing these objectives in an ethical and sustainable way, we create long-term value for all our stakeholders, including our customers, employees, suppliers and the communities where we operate.

A smarter Shoprite Group


The core of our strategy is pursuing a truly customer-first culture. Our digital transformation project will enable deeper customer engagement and personalisation across the business. As our digital systems provide deeper insights, we will deepen our understanding of our customer’s behavior so we can serve them better.

Through our range of retail brands, we serve customers across all income levels and needs: from upmarket customers looking for the best value at Checkers, to mid-income customers searching for the lowest prices at Shoprite, down to lower-income customers seeking extreme affordability at Usave. Our wide range of products and formats meet every need.

For decades, we have led the market in cost management and price leadership. We remain the low price leader, but – we have shifted our approach to place customers at the centre of business development and pricing decisions to create an even more accessible and affordable product offers. We are embedding and incentivising customer-centric decision-making across the organisation.

We have invested in understanding our customers through data and analytics capabilities in new areas. Our customers already recognise us for low prices and great value. As we improve our understanding of them and develop our digital channels, we will personalize every experience to give them exactly what they want, where and when they want it.


Highlights:

Shoprite ranked number 1 for lowest prices (BrandTracker 2019)

Checkers ranked number 1 for best value (BrandTracker 2019)

We have the largest store footprint of any supermarket in Africa and have been successful in our race for space on the continent. Over the next decade we are focused on the “race for reach” by increasing our digital presence to be able to match our physical store estate. Our channels include bricks and mortar stores ranging from large hypermarkets to small box containers, e-commerce delivery for catering and liquor, and digital services such as our money market offers. These channels form a strong foundation for our omnichannel shopping experience that is fast becoming a retail norm.

We are using the insights from our digital offering to improve our store formats and experience so that customers can reach us in a way that suits their needs and finances. Expanding into smaller convenience formats benefits us in two ways: It will allow us to serve customers better as they increasingly shop fresh products more frequently and closer to their homes. These stores also require lower capital investment than our larger store formats.

Our IT replatforming project laid the foundation for digital consumer channels and smaller, better organised stores: over time, the project will allow us to tailor our store offerings more effectively and quickly, thereby optimising our inventory levels and serving customers more consistently.


Highlights:

386% online sales growth in 2019

80% of South Africans shop with the Group (Establishment Survey 2018)

For 40 years, our innovative, cost-conscious approach to retail has flourished in Africa . Now, with our investment in digital transformation, we can use data to develop smarter, more effective pricing, promotion and store layouts As a result, we can offer customers more choice in the categories.that matter to them.while reducing waste. By embedding insights and analytics into our processes, we will enable more agile data assisted.decision-making across the supply chain.

In addition, we have expanded management capacity to professionalise the business and act on our increased capability. We have developed our e-commerce, supply chain, financial services and sustainability management teams to lead improvements in these areas, all of which are important to maintain our global competitiveness.

Fundamentally, accessibility is about filling gaps and inadequacies in the market to save our customers time, money and hassle. Our expansion is increasingly data- and context-driven, so we consider the most effective way to meet an identified customer need. That might involve changing the layout of a store or building a small Usave store in a lower-income area with a smaller range of products, which saves our customers transport costs to use towards weekly shopping.

Our state-of-the-art supply chain ensures that each store is stocked for local needs and is able to adjust promotions, pricing, formats and stock at a granular level. Every change we make will be measured in the response of our customers, allowing us to improve incrementally every day.


Highlights:

57 merchandising categories revised and adjusted using customer data



Closing the gap in key segments


Through our private label products, we innovate and provide our customers with greater choice and at better value in line with our commitment to better affordability and accessibility. In 2019, our private label offer grew to comprise 16.5% of our South African supermarket sales, up from 14% two years ago. Over the reporting period, we added 1 251 new private label products – and, we still have room to grow given the current industry average for private label participation.

We aim to produce products that match the brand leader’s quality – but at a lower cost thanks to our size and economies for scale, which allow us to develop and distribute products more effectively. As a result, we can meet our customers’ growing demand for diverse product ranges and buying alternatives from grocery staples to premium and fresh products, and general merchandise. Increasingly, we are building full product ranges that fulfill specific market gaps , such as our Simple Truth brand catering for healthier, cleaner eating and more environmentally friendly products. By developing our own brands, we can offer better value to customers from entry-level commodity products all the way to exclusive premium and fresh products in every store. e control our private-label supply chain, which gives us greater control in sourcing and availability to rapidly adjust to changes in demand.

In 2019, sales of both our Ubrand range in Usave stores and our Simple Truth range of cleaner ingredients and healthier products in Checkers Supermarkets exceeded our internal targets. Annual sales for 21 of our own private label brands now each exceed R100 million demonstrating both the acceptance and trust consumers have shown in our own label brands.


Highlights:

591 premium private label products added in 2019

660 value and affordability private label products added in 2019


Although we are the leading food retailer on the continent, we still have headroom to grow our market share in fresh and convenience food, which we are pursuing through our FreshX stores and innovation in premium and fresh food in Checkers. We have grown this area of the business with the same focus on affordability and quality for our more discerning customer-target market.

Historically, the Group has appealed primarily to middle- and lower-income customers, In tight economic conditions, however, higher-income customers are increasingly seeking more value from grocery outlets. These customers are looking for a larger range of the freshest produce and healthy quality food, without having to compromise on value.

In 2019, our upmarket customer base grew by 5.1%. We’ve grown this segment of our base by refreshing and expanding the fresh in-store experience particularly in our FreshX stores to provide world-class fresh produce and a broad range of products for higher-income customers. Our stronger focus on procurement, food safety and quality across the business has ensured Checkers continues to outgrow its peers inkey premium and fresh categories. By innovating in this area and producing better value alternatives, we are also expanding access to healthier, value-added food to even more consumer.

We added another 100 fresh and convenience products to our range in 2019. During the past year, we renovated three FreshX stores and opened five new FreshX stores aimed at the higher-income customer.


Highlights:

21 FreshX stores on track to 80 store target

R123 million market share gains in fresh and convenience sales

Our 460 franchises and buying partners benefit from the larger Group’s know-how, product ranges, pricing power and supply chain strength. We continued to improve our franchise offer by rebranding stores and integrating them more tightly into our supply chain. Historically, our franchises were stocked through dedicated distribution centres. During the reporting period, we accelerated their integration into our corporate distribution channels so that franchisees can benefit from our fully integrated planning, procurement and logistics capabilities in the same way our corporate stores do. This shift, which will be completed in 2020, also increases their access to our fresh and private label products.

We are growing our franchise options through an express format and forecourt stores at fuel stations. These new formats provide more convenient shopping options, enhancing retail access for customers who are shopping more frequently in convenient locations.


Highlights:

460 franchise stores across 3 countries, including 44 forecourt OK Express stores

6 unique franchise formats

42 net new franchise stores in the reporting period


Winning in the long term


Profits from our African operations have been volatile over the past few years, with the Group realising a loss in Non-RSA markets in 2019. Our underperformance was primarily the result of sharp currency devaluations in our most important trading countries outside South Africa, which negatively affected rand-value sales and profit. Although some countries, such as Ghana and Madagascar, performed well, Angola’s performance overshadowed them after significant currency weakness.

In the short term, we are limiting capital expenditure in non-RSA, and we continue to focus on controlling costs and maintaining our operational efficiency in these countries. Nonetheless, we remain committed to Africa over the longer term – no one is similarly positioned to serve Africa’s growing population over the next few decades. Alongside brand strength and large customer base, our extensive physical footprint, know-how and digital infrastructure gives us a competitive advantage that we will amplify as soon as economic conditions improve.

In 2019, we opened nine net new stores in the 14 African countries outside South Africa where we operate, including our first stores in Kenya.

Wherever we go, we localise ranges and sourcing it as quickly as possible to ensure that we understand local conditions and contribute to local economies. As a result, we are a trusted brand in the markets where we trade: we ranked fourth, the highest ranking of an African brand, in Brand Africa’s 2019 Top 100 brands survey.


Highlights:

424 stores across 14 countries

The highest ranking African brand, in Brand Africa's 2019 Top 100 brands survey

We are shifting away from larger, more expensive bricks and mortar capital projects to prioritise smaller and more productive store formats and technology projects with higher returns. These include our Usave eKasi stores that are manufactured from shipping containers that allows us to move closer to consumers homes where no formal retail space exists.

Over the past few decades, we’ve led the retail sector in developing and maintaining a centralised supply chain. As we’ve grown in size, the cost of owning the properties has crowded out spending on higher-return capital projects, such as our technology investments.

To unlock value from the balance sheet, improve our return on assets and pursue higher-return projects, we are selling certain non-strategic properties and distribution centres where the terms meet the Group’s strategic criteria. Our distribution centre infrastructure has been purpose-built for our needs, and selling and long-term leasing back the buildings will not alter how we strategically operate our supply chain. We also aim to become more agile and improve our ability to adapt to changing legislation and retail trends in the longer term around fulfilment for customers.


Highlights:

23 Usave eKasi stores


Every week, 22 million customers visit one of the Group’s stores, and our digital transformation will increasingly allow us to communicate directly with customers based on their needs and preferences. We are finding new ways to monetise our 2 779 stores and our large customer base.

In 2020, we will amplify omnichannel media platform to enable advertisers to target their customers and improve their measurability of their media return more effectively through digital advertising combined with traditional in-store promotions. In addition, we are re-energising financial and mobile services through more accessible, standalone k’nect stores reaching underserved areas. These stores offer the full array of money market services as well as cellular products.

Our leading global procurement capability combined with a strong private label portfolio presents an opportunity to collaborate with global retailers who wish to fill gaps in their own non-competing markets. By opening these new export routes to market, we can earn commission on private label products in uncontested territories.



Customer-centric innovation through money market services

Although the Group has a large physical footprint across multiple countries and geographies, it is increasingly becoming a digital organisation, connected by digital systems and providing digital services. Our money market services have grown into a range of digital products and services, including:
  • Buying airtime, electricity and insurance.
  • Paying municipal accounts.
  • Transferring money to friends and family.

In many cases, our customers have limited access to financial services, whether it’s because they live in hard-to-reach areas, earn lower incomes, or cannot afford the high fees associated with withdrawing cash or transferring money. We provide access more broadly and affordably than almost anyone else.

Our advantage is that we can use our already profitable and capacitated physical stores to leverage new digital products and services. As a result, it costs us less to provide these services than it would for a bank to build, staff and maintain a branch, and we pass those savings on to our customers.

We also use our infrastructure to provide affordable cross-border money transfers to Lesotho and will soon provide transfers to Eswatini. FinMark Trust estimated that the Group’s lower prices for money transfers had saved customers about R80 million in additional fees over the last three years. Customers can also transfer money affordably to over 100 countries online, via telephone or in one of the 50 selected stores.

For smaller countries that are highly dependent on remittances, this service is invaluable, not just for recipients but for communities and governments.

Our savings stamps are another important innovation. The Group offers R5, R10 and R20 savings stamps, which can be redeemed at any Checkers, Shoprite or Usave store. These are purpose-driven savings that customers invest in for specific events, such as the beginning of the school year or for a birthday celebration. They motivate customers to save.

Our money market services are a growing source of revenue and foundation for future innovations. Nonetheless, there are associated risks, particularly the rising cost of keeping cash safe. Our focus in the coming year is to reduce our cash handling, for example, by enabling additional payment options and we will launch several related initiatives over the next few months.