Shoprite outperforms market
During the six months to end December 2016 the Shoprite Group comfortably outperformed the rest of the South African market. Total turnover increased by 14% to R71.30bn while the trading profit rose by 19.2% to R3.91bn. Diluted headline earnings per share grew 15.5% to 460c and the board declared an interim dividend of 180c, up by 15.4% year-on-year.
Sustaining its growth momentum, the Group opened a net 147 new stores during the past 12 months and by the end of December was trading from a total of 2 653 outlets, with just over 1 200 of these being supermarkets. This enabled the Group to provide an additional 7 144 people with jobs, proudly bringing its total staff complement to over 143 000 as South Africa’s largest private sector employer.
The rise in trading profit above turnover growth was the result of strict cost control across the spectrum, improved planning involving all the various disciplines in the business, and the Group’s ability to achieve constantly improving supply line efficiencies.
Newly appointed CEO Pieter Engelbrecht, the Group’s chief operating officer during the last 10 years who took over the reins from Whitey Basson on 1 January this year, said market share gains were achieved without sacrificing profitability in the process. The Group was in fact able to increase its trading margin from 5.2% to 5.5%. He added that a key reason for the market-defying results it achieved in the six months to December was the Group’s increased and adjusted promotional activity, which made the Group’s supermarkets a more attractive option for consumers.
“Better planning enabled us to achieve our highest on-shelf availability levels ever. At the same time, we met customers’ demand for greater value by intensifying our global sourcing. This enabled us to greatly expand our range of private-label food products to assist price-sensitive consumers. He added that consumers voted with their wallets and the 6.3% growth in customers is testimony to the Group’s ability to improve on its overall customer delivery.”
The star performer during the reporting period was its Supermarkets Non-RSA division, which grew turnover by 32.3% to R12.88bn. Of the 14 countries in which it trades outside the borders of South Africa, Angola and Nigeria performed particularly well. The Group was able to overcome the foreign currency shortage in those countries and, unlike other traders, managed to keep shelves fully stocked. The result was that consumers flocked to its stores leading to a constant currency sales increase in Angola of 155.4% and 60.1% in Nigeria.
“We are confident that these customers, having been exposed to the quality and extent of our product offering will remain loyal to us. So, when the availability of foreign currency in these countries improves, we should be able to maintain our momentum to a large extent,” Engelbrecht said.
The Group’s core business, Supermarkets RSA that generates almost 80% of its total supermarket sales, outshone its main competitors, raising turnover by 10.7% to R50.89bn and market share to 31.7%. Internal inflation averaged 7.4%.
Among its three supermarket brands – Shoprite, Checkers and Usave – Usave was the best performer, increasing sales by 13.1%. The Checkers brand’s increased focus on fresh and convenience foods, which saw sales increase four-fold over the festive season, further enhanced the brand’s appeal to higher-income consumers.
Among the smaller businesses supporting the supermarket chains, LiquorShop, located at or near supermarket entrances, went from strength to strength, increasing turnover by 26.3% through 355 outlets in South Africa with 29 of these opened during the six months.
The franchise division continues to demonstrate new energy and vigour, said Engelbrecht. Ongoing restructuring aimed at enhancing the OK brand and increasing support and service to members saw turnover grow 13.7%. The division gained 27 new members during the six months and now has 377 in South Africa and Namibia. The number of standalone liquor stores operated by members increased from ten to 47 over the past 12 months.
Looking ahead, Engelbrecht said the slightly higher economic growth rate predicted for 2017 would have little effect on the lives of the millions of consumers constituting the Group’s primary target market. However, food inflation in particular was expected to drop.
“We have structured the business to contend efficiently and profitably under market conditions such as those prevailing currently. To sustain our growth, we are constantly investigating the potential of new markets, not only in Africa but also on other continents. The second half of the year has started well for us and we are confident this trend will continue,” Engelbrecht said.
View the complete results here.