Further economic decline ahead, but there will be opportunity, says Joffe

The economic decline heightened by the lockdown may turn out to be a catalyst for the sort of policy reforms the country needs to survive, says Brian Joffe, one of the most recognisable names in SA business.

Speaking on Thursday morning at the unveiling of the annual results of Long4Life — his investment vehicle which owns the Sorbet franchises, Sportsman’s Warehouse and bottling and drinks manufacturer Chilli, — Joffe predicted more pain for consumers and companies that sell to them.

SA, which slipped into a recession before the Covid-19 outbreak, is in the midst of what economists predict will be the deepest recession in about a century, heaping more misery on a country that had an unemployment rate close to 30%.

Before the present crisis, the country was struggling to find political consensus to address a decade of economic underperformance that eventually saw it lose its last remaining investment-grade rating.

“All of these negatives are potentially a catalyst for policy reform to take advantage of some of the inclusive growth opportunities to be sought after,” said Joffe, who made his name by transforming Bidvest from a small outfit selling bakery ingredients into a behemoth with businesses from banking to catering.

“It needs a sacrifice from all of us to ensure the South Africa of tomorrow actually survives, never mind what it looks like,” he said. With Long4Life businesses such as Sorbet beauty franchises closed during the lockdown, which began in late March, the group was not earning any franchise fees and was distributing food vouchers to 3,500 owners and staff, Joffe said. Some stores might never be able to reopen.

Sportsman’s Warehouse is open and can sell about 45% of its products.

Long4Life grew headline earnings per share 5% to R367.2m in the year to February, helped by a 73% jump in trading profit by its personal-care and wellness businesses.

Headline earnings are a widely used profit measure in SA, stripping out once-off items to give a better indication of underlying performance.

Joffe predicted further economic trouble for consumers.

“The ability of the consumer to pay is very, very limited” he said. Premium brands in any business, even food, will struggle as customers search for value.

He warned that supply chains that transcended regions would make it difficult for the government to implement a lockdown relaxation strategy that was not based on uniform rules for the whole country. Factories

and larger business did not operate in regions, but on “economies of scale”, he said.

As people exercised at home during the lockdown using equipment and online videos, Joffe said he believed gyms were “yesterday’s news”.

That could be good news for Sportsman’s Warehouse as that trend would boost demand for home-exercise equipment. This would change retail more broadly, while landlords would also be placed under more pressure by tenants going bankrupt.

As consumers became more home-centric, retailers would have to work out what demand would look like in future, he said. “For example, what does outdoor mean for Outdoor Warehouse. Is it a braai at home rather than camping?”

BEFORE THE CRISIS, SA WAS STRUGGLING TO FIND POLITICAL CONSENSUS TO ADDRESS A DECADE OF ECONOMIC UNDERPERFORMANCE