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Retailer grows at ‘low end of market'

Shoprite has gained market share at the bottom end of the market, taking custom from cash-and-carry outlets.

Food and furniture retailer Shoprite had gained market share at the bottom end of the market, taking custom from cash-and-carry outlets, an analyst said yesterday.

The company said yesterday sales grew 22,3% in the year to June, with turnover at about R47,7bn. On a like-for-like basis, growth was 18%, it said.

The local supermarket division, which incorporates Checkers and Shoprite, grew sales 21,8%. The division's dominant brand, Shoprite, grew turnover 25%. However, this figure could be inflated as a result of industrial action in the first half of the previous year, which dampened last year's sales.

Checkers, which serves a higher income group, grew sales 15,6%. “Checkers' turnover reflected the effect of higher interest and bond rates on the credit leveraged sector of the community,” Shoprite said.

Syd Vianello, a retail analyst with Nedcor Securities, said Shoprite's gain in market share was likely to be skewed as a result of higher inflation at the lower end of the market.

During this period internal food inflation rose to 10,6% compared to less than 6% during the corresponding 12 months. Statistics SA said inflation for May was 11,7%, which was driven by rising transport and food costs. Food inflation increased to 17% in May from 15,7% in April.

The increase was due to rising prices of grain products, meat, milk, cheese, eggs, fats and oils, it said.

Cash and carry outlets lose out

Excluding inflation, Shoprite seemed to have gained share when compared to all the players in the market, and not just the four listed retailers.

Vianello said Shoprite's roll out into townships had been at the expense of cash-and-carry outlets.

Despite turnover growth that was slightly ahead of expectations, Vianello did not expect profit gains to match revenue improvement. Shoprite said it had taken a “strategic decision to cut margins on basic foodstuffs in an attempt to alleviate the impact of worldwide food price increases on consumers”.

Vianello expected the decision to affect margins, although it resulted in customer transactions increasing 10,3%.

Vianello said the furniture and franchising division traded in line with expectations. The franchise division, trading mainly under the OK banner, improved turnover 17%, while furniture grew turnover 5,6%.

The furniture division, which was trading in a near deflationary environment, showed real growth, Chris Gilmour, an analyst with Absa Asset Management Private Clients, said. Shoprite said the division had been affected by lower consumer spending on durable goods and the introduction of the National Credit Act, but managed to grow turnover.

Vianello said Shoprite's Africa division was ahead of expectations, but this could be due to the benefit of a weaker rand. The 100 supermarkets outside SA's borders increased turnover 38,2% from the previous year. On a like-for-like basis, growth was 30,5%.

Source: Business Day

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