Ann Crotty Writer-at-large
Food inflation will stay tame for the rest of the year, Shoprite assures consumers. Picture: BLOOMBERG
Food inflation will stay tame for the rest of the year, Shoprite assures consumers. Picture: BLOOMBERG

Africa’s largest food retailer, Shoprite, reported a nominal turnover increase for the three months to end-September as currency devaluations, low food inflation and strikes heightened the challenges of rolling out its multibillion-rand new warehousing system. This has put the group on course for one of its weakest set of interim results in several years.

In the past six years Shoprite has spent R40bn on capital expenditure (capex), R7bn more than the market cap of its nearest rival, Pick n Pay, which invested just R1bn in its last financial year. In 2017 Shoprite committed R7bn to capex, mostly directed to centralised warehouse facilities and information systems.

Addressing the media after the group’s annual general meeting on Monday, CEO Pieter Engelbrecht said if the board had known how tough the trading environment was going to be he was not sure they would have gone ahead with the ambitious capex programme.

“We had to deal with three strikes in one year, deflation, new distribution centres and the implementation of a new SAP [systems applications and products] project, which required us to train 147,000 employees,” said Engelbrecht, who took over from long-serving CEO Whitey Basson in 2016. But he said he was optimistic and the group was now running better numbers. “We are going flat-out to Christmas; the results will be soft for the half year but good for the full year.”

Retail analyst Nic Krige said it was unacceptable that the group was spending so much on capex and could only achieve a 0.4% increase in turnover.

“You would expect turnover to increase dramatically with that sort of capex. They could have bought Pick n Pay,” said Krige, adding: “Maybe I’m taking too short-term a perspective.”

Fairtree Capital portfolio manager Jean Pierre Verster said the update was disappointing especially given the high expectations implied in the share price. He said with the benefit of hindsight it is easy to say the capex was badly timed,  but noted: “This type of capex project has an average useful life measured in decades.”

More than 40% of shareholders, up from 30% in 2017, voted against the nonbinding resolutions on the remuneration policy and the remuneration implementation policy.

Mehluli Ncube, representing the Sentinel pension fund, told the meeting not much had changed with the group’s remuneration despite the 2017 vote against the policy.

And in a first for the group its billionaire chair, Christo Wiese, was unable to attend the AGM. Acting chair Edward Kieswetter told the meeting that Wiese “had to attend another meeting and could not get out of it”. Engelbrecht confirmed it was the first time Wiese, who was appointed chair in 1991, had not attended an AGM.