Shoprite CEO Whitey Basson speaks about whether margins will be squeezed as the retailer tries to keep prices down despite the inflationary pressure from the weak rand and the drought

BUSINESS DAY TV: Agriculture Minister Senzeni Zokwana has warned that any businesses suspected of profiteering from the drought by raising prices on staple foods will face the full wrath of the Competition Authorities. This comes as the March CPI (consumer price index) showed a close to 10% rise in the price of food over the past year.

Shoprite today said it won’t tolerate food price increases that aren’t based on fundamentals. And CEO Whitey Basson joins us now on the line. Whitey, so as we’ve highlighted you say that you will act strongly in the interests of consumers and not tolerate food price increases. Is this not just clever PR on Shoprite’s part?

WHITEY BASSON: If it is then I’m happy with that as well. If it’s serious, then I’m even more happy, but it’s serious this time around because we have had a whole session on food prices and people saying that it will go up 20%, 30% and 40% and we found it not to be the fact. So what we did now was to go out to the consumers and warned them to be careful that they are not paying too much when they shouldn’t be paying it. And there are a lot of prices which people want increases on which we don’t think warrant any food price increases at this time. And if Shoprite can get away with 3% selling price inflation in March, then we really do not see this 30% and 40% in the next two months ... there’s just nothing that supports that.

BDTV: Perhaps take us through some of the fundamentals that are pushing those food prices higher because we had the March CPI out last week as we mentioned, and some of those food costs ... fruit and veg up by close to 19%, bread and cereal up by over 13%, so why are you not seeing the same rate of internal inflation as we’re seeing in that food basket?

WB: Our customers say they buy from Shoprite so we do the job for them, and they’re probably very clever customers because if you now look at the price of fruit and veg, fruit and veg prices obviously had to go up with the drought, but there are other prices where you can substitute ... maize with price cuts which haven’t gone up. You can substitute beef with pork, which has in fact gone down, you can substitute your protein requirements with IGF (insulin-like growth factor) portions at minus 14%. So there are things which actually can come down if you buy clever and you support your basket properly.... If you then want to pay more, there are obviously people that don’t really have a problem with their budgets. But there are a lot of people that do have problems and they need to be supported, so we would take bread, from white to brown and sell it at R4.99 so people will probably change and buy brown bread at R4.99 instead of buying white bread, which is much more expensive.

BDTV: Yes, while you are seeing prices abating in some categories as you highlight, in others you are seeing price increases coming through. Overall, how much pressure are your margins under right now as you try to remain cost-competitive?

WB: It’s not a question that it would affect our margins substantially. We’re used to passing on big subsidies, and our margins percentage wise will be the same on most of the products which I’ve mentioned to you, which are down compared to the products that have gone up. We complain again when the price moves up by 70% ... you can’t maintain the gross margin of 10% at which you make R7 gross profit, where you actually had if it was R20 you would have made R2, so you can’t take R5 and put it in your bank account.

BDTV: To what extent are you benefiting from volume growth as you do absorb some of those price increases and pass them onto the customers? Are you seeing growing volumes?

WB: No, in times like this people are battling to get through with their budgets just to move on. But we see switches between one product and another product and that grows volumes in specific products, but overall no, the country is growing at 1% or 2% or less than 1%, so you would have to be in that situation or take market share from other people to grow volumes outside that scope.

BDTV: You alluded to subsidising food products from your end, and you’ve made mention today of extending that subsidisation or that food subsidy across a broader range of products. Just how far can you extend that programme?

WB: The programme is based on how much profit we’re making and how much we can afford to put on the side to keep our customers happy. We most certainly would have our customers that would weigh up heavily for us, but not to be expensive and to remain the cheapest supermarket. So if I have to vote, I will vote that we claim our prices are as low as possible to remain the cheapest supermarket rather to increase our profit by 20% or 30% or 40% because our stakeholders will understand that we are not there for the week or the day, we’re here for another century, hopefully.

BDTV: What sort of relief has the rand’s strengthening over the past few months given to retailers like yourselves because from January’s levels we have seen significant strength coming through from the rand, so currently just above R14.40 – R14.50 to the dollar?

WB: We’re actually not currency predictive and know very little about currencies ..., but all I can tell is that I feel very uncomfortable moves in one thing ... the rand against the dollar, because surely that can’t be fundamental. I am also worried that when we look at the imports from China and the Chinese money has moved 8% against the dollar, that we don’t set that off and ask them to supply us with cheaper products, which they’ve done for Shoprite. So I’m not quite sure if anything should be passed on and we shouldn’t put up a slight fight to maintain prices in SA.

BDTV: Have you derived any benefit from international trade agreements like on the chicken front with the US for example?

WB: The chicken price from the US. I’m very happy that it happened in the sense that the AGOA agreement serves the country better than what the chicken agreement serves the retailers. But the retailers ... there’s so little in the price of chicken now at R1.15 or whatever that figure should be. It’s not something we should have on top of our minds right now. We just said that we would sell it cheaper or at cost and try and work with the local suppliers that it doesn’t affect their production badly and causes them losses. And that’s why we put up a fight and said we shouldn’t just give it to wholesalers and people like that alone. Give it to us and we can sit with the suppliers of chickens to take it to the market. We’re 50% of the chicken market in Shoprite alone, so surely we should sit down with our suppliers.

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