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Shoprite sales stall due to ‘price war’

| Retailer trading results

Food and household goods retail chain Shoprite Holdings, which owns brands including Shoprite, Checkers, Usave and OK Furniture, showed muted growth in the six months to December as South African consumers came under pressure and competition among supermarket chains intensified.

Retail groups’ sales figures are closely watched as an indicator of the health of the South African economy. Consumers have been squeezed in the past year by a commodities downturn, leading to retrenchments. The recent sharp devaluation of the rand against the dollar, which will make imports more expensive, with the effect of the drought on food prices, will add further pressures.

In a trading update on Tuesday, Shoprite said total sales had risen 8.8% to about R62.5bn in the six months compared with the same period last year. South African supermarkets grew sales by 7.2%. Internal inflation averaged 2.7% in this period.

Barclays Wealth and Investment Management investment analyst Chris Gilmour said Shoprite’s sales were almost standing still, up only 0.1% on a like-for-like basis.

This was markedly lower growth than clothing retail chain The Foschini Group reported on Monday. Shoprite’s result probably reflected relatively poor dynamics for South African consumers, Mr Gilmour said. But since food was less of a discretionary spending item than clothing, Shoprite’s sales should have increased faster than this.

Mr Gilmour said the figures suggested competition between the Shoprite group and Pick n Pay was becoming fiercer and this had also emerged from comments at a recent Pioneer Foods presentation in which a speaker referred to a "price war" between the two groups. It was possible Shoprite was losing market share to Pick n Pay.

Shoprite’s shares added 3.36% on the JSE to R132, but they are below the last peak of R191.80 achieved a year ago.

The group said the December quarter showed an improvement over the September quarter because of good festive season trading. The furniture division increased sales by 13.7% over the six-month period and the other operating segments achieved growth of 9.3%. Supermarkets outside SA grew sales 15.2%, defying low commodities prices and the devaluation of some African currencies. At constant currencies, sales rose 23.5%.

Shoprite Group CE Whitey Basson said in the group’s latest annual report that in this financial year, expansion in Africa outside SA would be mainly in Angola and Nigeria. Although the low oil price had constrained economic growth in those countries, consumer spending had proven resilient and the long-term potential of Africa remained intact.

In the 2015 financial year, Shoprite’s South African supermarket division generated 83% of the group’s trading profit. Shoprite, Checkers and Usave had 915 outlets in the country at the end of June.

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