Shoprite mulls over rivals’ stores

With cash to spare, retailer eyes Massmart outlets that are close to commuters

Cash-flush Shoprite may have its sights on Massmart‘s Cambridge Foods and Rhino retail brands that are up for sale as they fit in with its growth strategy.

Asked in an interview this week if the group would be interested in buying Cambridge and Rhino from Massmart, Shoprite CEO Pieter Engelbrecht said: “Yes, definitely. It would be right up our alley.

“I am also always concerned about job losses in South Africa and stemming job losses would be one of my main concerns in possible acquisitions.”

Engelbrecht, speaking after the release of Shoprite’s results for the 26 weeks ended December 27, said Shoprite was always looking at growth opportunities and the Cambridge and Rhino stores “fit our portfolio”.

Last week Massmart, in which US retail giant Walmart has a 51% stake, said it would sell 57 Cambridge Food and Rhino outlets, and Massfresh grocery assets, an acknowledgement that its food strategy had not delivered.

Asked if there would be competition issues if Shoprite made a bid for these brands, Engelbrecht said the biggest concern in the country was employment and if a buyer could safeguard jobs, it “most probably could be successful in being granted permission from the Competition Commission”.

Shoprite is one of the few companies in SA to have added jobs since the pandemic hit. It said its Supermarkets RSA business created 4,305 jobs in the six months to endDecember. It employs more than 140,000 people in SA and the rest of Africa.

Protea Capital Management senior analyst Richard Cheesman said Shoprite had a “history of some successful acquisitions of struggling businesses such as OK Bazaars”, but given Shoprite’s dominance in the retail grocery sector it was unclear if the competition authorities would allow it to buy another large food business.

Stephán Engelbrecht, head of research at Anchor Group, said Shoprite would likely not keep the Massmart brand names and instead would convert the stores to the Shoprite Usave brand that targets lowerincome consumers.

He said it was “apparently quite difficult to get sites” such as Cambridge stores near taxi ranks. “It will be all about the sites. They would probably make that case to the Competition Commission, saying, ‘We will buy the sites, we will keep the stores open and keep most of the jobs’.”

Shoprite finds itself in a stronger position in terms of its balance sheet than at the beginning of the pandemic. The group, through strong cash generation, settled $400m (R5.9bn) of its $480m dollar debt, which had been a concern to investors.

Shoprite’s Engelbrecht said the group’s net cash after borrowings in December 2019 was a negative R3.3bn and that the group had now swung to a positive R6.6bn.

“We got rid of the US dollar debt, we managed to expatriate $58m from Angola, and overall the company generated basically R12bn in cash. In the previous results presentation, I actually said that in times of uncertainty I would like to be in a net cash position, and that is exactly what we did.”

Trading profit rose 18.3% to R4.7bn; its dividend per share increased 22.4% to 191c.

Casparus Treurnicht, research analyst and portfolio manager at Gryphon Asset Management, said the market had been “quite nervous” in the past over Shoprite’s dollar-denominated debt, and that a depreciating rand had the potential to “wreck your whole balance sheet for reasons that are not under your control”.

The group said its middle-to-upmarket Checkers brand gained R400m of market share in the fresh food and convenience category. Engelbrecht said this had been gained from competitors, but did not name them.

The market share of grocery retailers is not independently audited.

Treurnicht said Spar might have been a temporary victim of Shoprite’s market-share gains, particularly during the stricter lockdown because consumers might have made fewer trips to a larger Checkers than frequent visits to a neighbourhood Spar.

Spar was “very competitive” and “should reverse later this year”, but Treurnicht believes Shoprite is taking “market share from Pick n Pay on a rolling basis”.

Shoprite’s Engelbrecht said the group also had success with its Checkers and Shoprite Xtra Savings Rewards programme, which, with 17-million members, is now the largest in SA based on membership.

And Shoprite’s Sixty60 delivery app linked to 156 stores has “already been profitable in year one”, he said, but would not disclose details because it “just gives our competition an idea of how well we are doing”.

Overall, the company generated basically R12bn in cash. Pieter Engelbrecht