This sentiment is echoed by several retailers flagging difficult market conditions, consumers facing sustained rising costs and a slowing economy, which would likely put the brakes on growth.
Shoprite says first-quarter turnover increased by 6.7% which is “a reflection of slower growth in the economy.” Year-to-date, Shoprite’s shares are down 5.58%, valuing the retailer at R91 billion.
Its SA stores, the group’s primary business, grew sales by 4.9% during the period under review, as they remained under pressure from mining job cuts, rising electricity costs, labour instability and lack of job creation. Shoprite says its performance during the period was influenced by fewer store openings.
“There will, however, be substantially more store openings in the remaining three-quarters of the financial year than in the same period a year prior,” it says.
Shoprite is forging ahead with store openings in SA and throughout the continent in a bid to grow market share.
For the 12 months to June 2015, Shoprite spent R823 million in opening 49 stores in the domestic market. However, it spent more capital rolling out stores on the continent – to the tune of R1.1 billion – opening 23 stores in markets such as Zambia, Nigeria, and Angola.
It has committed about R1.29 billion to opening stores: R679 million locally and R618 million on the continent. The new frontiers Shoprite is earmarking are Madagascar, the Democratic Republic of the Congo and Uganda.
Shoprite’s stores on the continent for the first-quarter saw turnover growth of 12.8% (18.6% in constant currencies) despite the impact of lower commodity prices and currency devaluations.
Shoprite’s shares closed 6.33% in the red at R148.80.
Shoprite CEO Whitey Basson recently said that the domestic market is still attractive, given that the retailer has grown its market share by only 0.4% to 32.1%, as competitors Pick n Pay and Spar are aggressive in their growth ambitions. He added that it is becoming increasingly difficult to grow beyond the 32% market share, as Pick n Pay is in a recovery mode.
As part of its long-term recovery, Pick n Pay shut underperforming stores in a bid to curb spiralling costs, improved supply chain and buying functions and refurbished existing stores. The retailer’s numbers support this view, as turnover for the six months to August 30 was up 8.5% to R34.9 billion compared with R32.1 billion in the previous financial year. Profit after tax was up 23% to R451 million, representing a marginal improvement of 1.3%.
Much of Pick n Pay’s profitability rests on the performance of its SA operations, where it has rolled out more stores, and aggressive promotional activity for competitive pricing.
Independent analyst Syd Vianello says Shoprite’s SA’s food operation is under pressure. “The performance looks awful to say the least. They are disguising the fact that they lost market share. Pick n Pay traded a lot better and Spar numbers might look better.
“The average Shoprite customer in the bottom-end of the market is under pressure and some may not have jobs anymore. There is no doubt that there are more layers of retrenchments in the mining industry and this will have an impact on Shoprite. The bad news will likely persist with us,” says Vianello.
Although Shoprite’s African operations might look like they are in better shape, Vianello says the weakness of currencies on the continent will reflect in poor sales growth.
Despite Pick n Pay’s inroads, Shoprite maintained its food inflation to 3.4%, below the official inflation figure of 4.6% (August 2015).
“Festive season sales are difficult to predict, but a stronger double-digit sales growth is already evident for the month of October,” it says.
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