Shoprite can gain much in fight for market share
Shoprite’s fight for a bigger slice of SA’s premium grocery market is getting ferocious. Three years ago, Shoprite, best known for its discount chain of the same name, and newly appointed CEO at the time Pieter Engelbrecht, launched an assault with highend convenience meals, inevitably pitting it against its Cape Town neighbour, Woolworths.
The scene of the turf war is far from the broader consumer population, which is battling high personal debt levels — which stand at dangerously high levels of 70% of disposal income — job losses in a range of industries from manufacturing to banking, record low pay increases and an economy stuck in its longest downward trend since World War 2.
Retail sales contracted 0.4% in December, according to data from Stats SA, bringing the sales growth average for 2019 to just 1.2%, the weakest rate since 2009, when SA was caught up in the global financial crisis.
Shoprite’s evolving strategic shift to add premium offerings to its discount empire through Checkers — acquired in the 1990s as direct competition to another crosstown rival, Pick n Pay, in the middle-income market — is going after what Engelbrecht has called the 2million richest SA households.
Though it is a commendable effort at diversification, premium grocery retailing is uncharted territory for Shoprite, best known for its unrelenting high-volume, low-margin business tactics honed over more than four decades under the leadership of Whitey Basson and chair and biggest shareholder Christo Wiese, who is stepping down this year.
But it’s easy to see the reasons for Engelbrecht’s determination to push upmarket.
First, sales at Checkers chains rose more than 11% to R23.4bn in the six months to end-December, more than twice the sales growth at its budget chains Shoprite and Usave, whose consumer heartland is the hardest hit by the economic slowdown.
Second, the performance of the company’s 14 supermarket chains elsewhere in Africa — hit by a 3.4% sales fall in the latest half-year earnings report — have given investors and executives a sobering reality check about the pitfalls in the hunt for returns on the continent, touted as the next bright spot for consumer industries only a few years ago.
In Angola, Africa’s secondlargest crude oil producer, a fall in oil prices and production wreaked economic havoc in what was once Shoprite’s biggest money spinner. A combination of hyperinflation and a devaluation of more than 60% of the kwanza currency has reduced consumer spending power, while onerous regulation of goods importing threatens to leave shelves empty. It is more or less the same problem in Nigeria and Zambia, where currencies have sharply depreciated as prices of crude oil and copper, export mainstays of the two countries, remain relatively low.
To appease investors watching in dismay as Shoprite’s share price fell more than 60% from highs of R270 a year or so ago, a pivot to richer consumers is a logical next step. It is this consumer segment that partly shielded Woolworths from the costs of an ill-fated Australian acquisition and weak consumer spending at its clothing business.
Success in this market will depend largely on the extent to which Engelbrecht can keep up with latest shopping trends: stocking sought-after premium products, tapping into the growing healthy eating trend, making space on the shelves for nonalcoholic drinks and constantly improving its online shopping services.