Supermarket giant Shoprite Holdings remains in fine fettle — at least compared with some of its traditional rivals that are finding traction in margins and market share elusive.
Shoprite’s volume-led market share gains, superior execution and cash generation reinforce its competitive lead, but sustaining Checkers’ outperformance and converting adjacent investments into meaningful earnings growth are now the key tests.
The country’s largest food retailer posted another strong set of results, marking 89 consecutive months of market share growth, with scale, execution and its expanding ecosystem doing the heavy lifting.
Checkers, Shoprite’s premium banner and the country’s second-largest food retailer, was the standout performer. Sales grew 10% to R105bn — about five times the market’s growth rate — driven by fresh food and continued momentum at the dashing Sixty60 delivery platform.
Shoprite, the value banner and Africa’s largest food retailer, grew a more modest 4.3% to R122bn, weighed down by steep deflation in staples such as maize meal and rice (where prices fell 20%–30%).
Shoprite CEO Pieter Engelbrecht pointed to a natural hedge between the two banners: their customer bases respond to economic cycles in opposite ways. Rising interest rates hit Checkers’ shoppers harder, since they’re more likely to carry mortgages and vehicle finance, while a deflationary environment tends to favour Shoprite’s more price-sensitive base.
Sixty60, the group’s on-demand delivery platform, grew total sales 34.7% to R25.5bn and now operates from 997 stores. It is described as Africa’s largest digital commerce platform. Engelbrecht said a key shift was moving delivery away from central distribution warehouses to a store-based model, enabling faster delivery nationally.
Group sales rose 7.2% to R270.8bn in the 52 weeks to June 28, adding R18.1bn in turnover. Trading profit grew faster, up 8.4% to R16.2bn, hitting the group’s targeted 6.6% trading margin. Headline earnings increased 12.2% and the full-year dividend rose 11.8% to 873c a share.
The growth came from volumes, not inflation. Average selling price inflation was just 0.8%, well below the food inflation rate of 3.9%. Shoprite cut prices on about 11,500 products over the year. The group recorded 1.3-billion customer visits, about 1.1-million a week more than the prior year, while volumes rose 5.6% to 9.3-billion items.
The market reaction was broadly positive precisely because the growth came from customers choosing Shoprite over competitors, rather than from food inflation, a far harder feat to repeat.
Steph Erasmus, an investment analyst at Anchor Capital, doubts that Pick n Pay, Spar or others will close the gap any time soon. This is put down to a combination of good timing, strong execution and management willing to keep investing in distribution centres, data and AI capability regardless of competitive pressure.
He says investment has given Shoprite a sharper read on its own business than rivals have on theirs, which is likely to translate into more efficient decisions in future. Pick n Pay and Spar, meanwhile, have their own self-inflicted problems.
Erasmus also sees Shoprite’s decision to focus on South Africa rather than chase pan-African or international expansion as the right call. He believes it keeps management focused and avoids currency and country-specific risks.
The group is putting about R1bn into buying Vida e Caffè and a majority stake in R&A Cellular. Vida is the country’s largest coffee franchise with more than 400 stores, and it should bolster Shoprite’s presence at forecourts, in Checkers stores and other locations. It could also provide OK store owners with an interesting addition to their franchise offering. R&A Cellular is a South African payments and technology company and extends Shoprite’s push into financial services.
Other adjacent businesses — including Petshop Science, Checkers Outdoor and Uniq Clothing by Checkers — grew 57.4% to R1.9bn. Liquor sales rose 12.1% to R23.1bn, adding R2.3bn in sales, and the pharmacy division, now more than 130 stores, is growing fast too.
Not everything is within management’s grip. Water, electricity and property rates costs have crept up over Engelbrecht’s 30 years at the group, from under 1% of costs to 2.3% of the group’s bill today. On sales of R270bn, that shift makes a material difference.
Supermarkets outside South Africa grew 11% to R22.8bn, aided by improved electricity supply and lower diesel costs in Zambia, though Mozambique remains a challenge.
Cash generation was strong at R24.2bn. The group is sitting on R12.9bn in cash and would consider further acquisitions if the right opportunity came along, though nothing is imminent.
Asked by the FM where the next R100bn in growth will come from, Engelbrecht pointed to continued store openings, fast-growing adjacent businesses and greater focus on financial services and pharmacy.
Guidance for the year ahead includes a 53rd trading week — last seen in financial 2021, worth about R331m in trading profit — a continued 6% trading margin target, about 6% space growth and capex of around R7.7bn (which is below 3% of sales).
Margins are improving despite the aggressive pricing and online sales continue to drive much of the growth. But replicating this year’s volume-led gains won’t get any easier.
