Shoprite fills its shelves after snags
● The problems Shoprite, Africa’s largest grocery retailer, has experienced at its Centurion distribution centre have cost it R1bn in missed sales and the market is now watching closely to see if a new software supply chain system will solve the issues.
A strike at the distribution centre that lasted longer than anticipated had shaved off more than R250m from group profit, said CEO Pieter Engelbrecht this week.
The strike left stores with some empty shelves, but despite stock shortages, the retailer managed to grow customers 1.7%.
The implementation of a new software system also has resulted in supply chain problems. Shoprite is now hoping the installation of its new ERP system, which took four years to plan and 17 months to implement, will help turn the ship around.
“Not all our customers left us,” Engelbrecht said, “but certainly, their basket sizes had to contract because we did not have the product. We’ve got the people, so we’ve got to deliver the product to them when they want it and make sure that we support them, as always, with our low-prices philosophy.”
The company has also faced challenges in other major African markets, with sales declining 13.3%.
Topping the list of Shoprite’s struggles in stores outside SA is the Angolan market, where the value of its currency has decreased by 85.1% against the dollar.
However, speaking to Business Times this week, Engelbrecht, who took over from founder Whitey Basson at the start of 2017 when Shoprite’s share price was at a peak, said there were no plans to disinvest from Angola. They were in it for the long haul, he said. “Yes, it was good three years ago, when we had that absolutely unbelievable 160%odd growth, but we have no plans to disinvest,’’ he said.
“Angola in particular, why it is so big on our radar screens is because two years ago we had phenomenal growth there just prior to the country going into four consecutive quarters of recession. We are also quite heavily invested. It’s one of the countries where we had to invest our own capital to develop shopping centres.’’
On the impact stemming from Angola’s currency woes, Engelbrecht said: “We just could not pass that through to our consumers, which meant our growth margin had to be sacrificed, which had a negative profit effect.
“If one is invested in Africa one has to accept that … there is volatility that comes with it.” He said the group still had plans to expand further in Africa.
Shoprite recently gained a footing in Kenya, where it took advantage of the demise of two of the largest retail players in the East African retail market — Uchumi, one of the oldest Kenyan retailers, and one-time market leader Nakumatt, both of whom have ceased to exist.
“We are establishing four very seriously world-class supermarkets to ensure that our brand receives the correct identity and equity. Parallel to this, we will start to open our other smaller formats, like the U-Save, to complement those stores,” he said.
In the six months to the end of December, Shoprite’s profit slumped 19% while sales were up just 0.2% — the first decline in 10 years. Shoprite also told shareholders it was holding talks with Christo Wiese, who chairs the board.
The retailer is seeking to buy Wiese’s deferred Shoprite shares that he holds through his investment company, Thibault Square Financial Service. The move would limit his voting rights at Shoprite. Thibault Square Financial Service holds 32.2% of Shoprite voting rights.
Asked about the transaction, Wiese said: “That transaction currently is being put together and the details will be made public in due course.’’
In a move that may have raised suspicion about imminent board changes, Wiese said he was not on his way out.
“We’ve made several changes to the board over the last few years; other board members have retired, members have been appointed, and that’s the process that will continue in the life of the company,’’ he said.
Damon Buss, an equity analyst at Electus Fund Managers, said Shoprite’s results were a reflection of “a number of once-offs’’ that investors needed to exclude, such as the strike and IT system problems. He added, though, that it was imperative for the group to focus on how the implementation of the new IT software played out, which was a more pressing issue.
Buss said the group’s offshore operations were in markets exposed to immense economic pressure. “They’ve taken a really longterm view on getting into those markets. They’ve been there for a long time. They’ve built up a really good base. They’ve got firstmover advantage by far,’’ he said.
However, Casparus Treunicht, portfolio manager at Gryphon Asset Management, said he wasn’t sure Angola was a conducive investment market. “I am not sure if they [Shoprite] should be throwing more money at it. At best they should be holding back and reassessing the opportunity,” he said.
We’ve got the people, so we’ve got to deliver the product to them when they want it Pieter Engelbrecht
Shoprite CEO