Strapped con­sumers turn to lower cost food op­tions

The Star Early Edition - - BUSINESS NEWS - Janice Kew

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.

Bleaker pic­ture

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.

Food in­fla­tion

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

PHOTO: 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.

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