Despite the economic tensions tearing at the fabric of the nation, these are dynamic times for the South African supermarket sector.
Pick n Pay has announced a substantial rise in earnings during a period of heightened competition in the industry, while Shoprite is seeking to sustain its rapid growth with overseas expansion. Pick n Pay announced a 17% rise in earnings in its full year results to R2.58 a share for the year to 26 February.
Apart from being the second biggest supermarket chain in South Africa, the company also operates across Anglophone Southern Africa, with the exception of Malawi, trading in Zimbabwe as TM Supermarkets. Although its results were below market expectations, the company announced a 7% rise in sales to R77.5bn, suggesting a reasonable performance.
A big factor in supermarket performance has been deep seated economic weakness. The economy is stagnating, inflation has reached 6% and unemployment stands at 27%, while many more work in the informal economy and are underemployed. All this means that consumers are seeking lower cost retail options, such as Shoprite supermarkets, shopping in markets and generally spending less.
CEO Pick n Pay Richard Brasher said: “At all income levels, people are finding it harder to make ends meet – they are demanding consistently lower prices and better value. In our low growth economy, competition for the hard-pressed customer is going to be the new normal.”
The company has responded by introducing far more low cost lines in an attempt to retain customers. It is also expanding its network of Express stores: it will soon have 120, up from just 60 in 2015. As in other more sophisticated supermarket sectors, big South African chains are investing heavily in small, local shops. Similarly, more supermarkets, including Woolworths, are opening outlets in highway service stations.
The economic crisis is certainly affecting the consumer goods sector. Pioneer Foods had expected investment from an unnamed multinational but this option evaporated with the sovereign credit rating downgrade and the dismissal of Finance Minister Pravin Gordhan [link to my story on this]. Pioneer CEO Phil Roux said: “Panic ensued and news flow was terribly negative abroad and consequently they advised that while they are a massive organisation they just cannot, given the state of investment required, deepen their risk in any shape, manner or form.”
In terms of customer satisfaction, Pick n Pay seems to be middle of the pack. The most recent South African Customer Satisfaction Index for supermarkets once again put Woolworths in top spot. Almost 3,000 customers were interviewed by analysts Consulta, with the results collated to give each chain a mark out of 100.
Woolworths with 82.2 had a big lead on the rest, which were all fairly tightly packed. Checkers took second spot with 77.2, followed by Pick n Pay (76.5), Shoprite (75.5) and Spar (75.2). For the uninitiated, Woolworths is a high quality, higher cost supermarket, akin to Marks & Spencer in the UK.
The CEO of Consulta, Adré Schreuder, said: “In tough economic times, the price of goods is likely to influence consumers’ loyalty even though they are satisfied customers. But price- motivated ‘loyalty’ is not permanent so while customers may display less brand loyalty now, supermarkets cannot afford to stop investing in positive shopping experiences.”
Shoprite has become the biggest retailer in Africa, partly because it offers low prices but also by pitching its brands at the right markets. In particular, it has opened supermarkets in parts of South Africa that were previously unserved, while competitors continued to focus on more prosperous areas, shopping centres and retail parks.
It has also aggressively expanded into the rest of the continent and now operates in 15 African countries. It has more than 2,600 outlets, only a quarter of which operate under the Shoprite brand. It also owns Checkers, Usave and a number of more niche retailers, such as LiquorShop and OK Furniture.
Christo Wiese, the chairman of Shoprite, is reported to be keen to expand the company more quickly still. He owns a 16% stake in the company, as well as 18% in furniture retailer Steinhoff International, and wants to merge the two businesses, not just to benefit their African operations but to expand in Europe and North America.