Strapped consumers turn to lower cost food options
SOUTH African shoppers with limited spending money are turning to lowcost supermarket chains such as Shoprite Holdings for cheaper food and eschewing new clothes to counter accelerating inflation.
Africa’s biggest food retailer on Tuesday reported 7.4 percent half-year sales growth at South African stores that have been open for more than a year, equal to how much the company raised prices in the period.
That outperformed like-forlike food growth at higher-end department store chain Woolworths as shoppers shunned more expensive foodstuffs in favour of cheaper options.
For those selling fridges, furniture and clothes, it’s an even bleaker picture.
“It’s a confidence issue,” said Damon Buss, an equity analyst at Electus Fund Managers in Cape Town. “Consumers are not spending as easily, they are holding back.”
South African shoppers have been hurt by an inflation rate that climbed to a 10-month high of 6.8 percent in December, led by surging food costs following the worst drought since at least 1904.
That’s been compounded by unemployment of 27 percent and economic growth in 2016 that was the slowest in seven years.
Interest rates at their highest level since March 2010 and tax increases have also weighed on disposable income.
With the first of the retailers due to release detailed earnings next month, Buss expects sales growth to have been supported by aggressive promotional deals.
This probably meant that profit margins were under pressure, he said.
Mr Price Group, a South African clothing and homeware retailer, cited “high levels of price discounting” and tougher competition when reporting a quarterly revenue decline on Tuesday that sent the share price tumbling the most in two months.
But there are some positive signs. November retail sales jumped 3.8 percent compared with economist estimates of a contraction, while clothing retailer The Foschini Group may be seeing a pick-up in sales after it announced on Monday that trading over the festive period had been better than the company had expected.
The JSE general retailers index, which fell 11 percent last year, has climbed 7.4 percent in the past week.
Any recovery for the industry would depend on how quickly food inflation started to slow, and how soon that was passed on to consumers, SBG Securities equity analyst Kaeleen Brown said from Cape Town.
Heavy rainfall over the past two weeks has eased the effect of last year’s drought, with the Vaal Dam, which supplies water to Johannesburg and surrounding areas, reaching its highest level in 15 months.
“Food-price inflation should start dropping significantly, but possibly only in the second half of this year,” Buss said.
“It takes a while for the relief felt by farmers to come through to the food producers, and only then is it passed on to the retailers,” he said. – Bloomberg
An employee restocks shelves with food products inside a Shoprite store in Cape Town. South African shoppers with limited spending money are turning to low-cost supermarket chains for cheaper food.