By Chris Gilmour
Retail group has medium-term plan to achieve 50% of earnings outside SA
Africa's largest retailer, Shoprite/Checkers, has turned in a mixed bag of year-end results. At first glance, the most striking factor is the large exchange-rate loss, but this is probably the least interesting feature .
Revenue grew by just less than 13%, with a little more than 10% coming from outside SA. Within SA, market share declined from 29,5% to 28%. This seems related to restrained spending at the lower end of the market, which grew by only about 5%, while the overall food retail market grew by 11%.
Profitability was not depressed, however, says Shoprite CEO Whitey Basson.
At Checkers, which is more up-market than the Shoprite chain, operating profit rose by 39%, based partly on restructuring and refurbishment of supermarkets. When floor space is reduced and stores are completely refurbished, profitability soars.
Before the effect of exchange-rate losses, operating profit rose by 21% from just less than R500m to R603m.
Mindful of its role in serving poorer communities, Shoprite kept its gross profit margin in line with the past year's at about 15% by reducing the prices of basic foodstuffs.
In fact, the profit margin in supermarkets declined marginally in the past year, but was more than offset by the higher profit margin in furniture. Overall, the group operating margin rose from 2,26% to 2,43%. This was achieved largely through cost containment, says Basson.
So much for the past year; what about the future? Well, provided the rand stays stable or declines slightly, there won't be a repetition of exchange-rate losses this year. But there are other dynamics.
The rest of Africa offers substantial opportunities. Shoprite wants to grow revenue by taking all opportunities that meet the group's required rate of return on capital employed. Its medium-term ambition is achieve 50% of earnings outside SA, says Basson.
Angola, where Shoprite intends establishing four stores this financial year, is growing economically, as is Ghana, where the group will be opening five stores. Shoprite is represented in 13 countries outside SA.
Egypt is seen as offering great opportunities in the medium term, even though its performance this year wasn't inspiring. Carrefour, the large French supermarket chain, has led the way in Egypt, where consumers are now more receptive to shopping in supermarkets. This factor, combined with easier access for imported goods into Egypt, makes Shoprite optimistic. But new operations are always expensive, as the UK's Sainsbury discovered a few years ago in Egypt.
India is another country where Shoprite has established a presence and, like Carrefour in Egypt, it seems to be leading the way with its technology. There are excellent prospects in India because the bulk of retailing is still through small, independent retailers.
Criticised for many years for being behind the competition in retail technology, Shoprite has finally grasped the nettle and is confident of having its entire store network linked to its scanning system by April next year.
In addition to this obvious benefit, the group has replaced its existing mainframe structure with a central e-business platform, one that communicates with any other software in a common language, called XML. A huge benefit of this is that the group can now communicate faster and more efficiently with business partners, suppliers, branches and buyers.
In the medium term, the furniture division may be listed separately in two to three years' time.
It doesn't seem Shoprite is rising to the challenge thrown down by Pick 'n Pay earlier this year, of cutting margins to grow the top line. Only time will tell which strategy is right.
Publisher: Financial Mail
Source: Financial Mail
Retail group has medium-term plan to achieve 50% of earnings outside SA.
Latest from eProperty News
- Love and property: a homebuying guide for couples
- From Civic Landmark to Collaborative Hub: A New Era for Muizenberg’s Post Office
- Growthpoint breaks ground on Tecoma Park, Cornubia, advancing its local logistics strategy
- Rosebank Mall adds Livo to its lifestyle line-up
- 166 sectional title units in the iconic Parktonian Hotel, located in the heart of Braamfontein, Johannesburg