SA grocery retailers hoping for a merry festive season
Grocery retails have had a tough year, and like other retailers are hoping to see a boost in sales over the festive season.
If they are lucky, they might just replicate their performance of the previous December period. This is despite 2017’s numbers being more robust than spectacular. Revenue for Shoprite’s SA stores was up 7.8% to R57.4bn for the six months to end-December.
There was a similar showing at Spar Group, with the franchise chain increasing revenue by 7% to R33.8bn for the 17 weeks to end-January. For its part, Pick n Pay saw revenue rise a modest 5.3% to R81.6bn for the year to end-February. This rise was more muted considering revenue was up 5.5% for the half-year.
Back then, the retailers did not shoot the lights out, but this is understandable, given that the country was preoccupied with finding out who would replace Jacob Zuma as president of the ANC and eventually the country.
Retailers have found themselves at the mercy of an increasingly difficult economy, with SA consumers taking the brunt of a technical recession, dealing with an increase in the VAT rate and sharp rises in fuel prices. The recent rise in interest rates has not helped.
There are also signs that the credit health of many South Africans is weakening, with the Transunion SA consumer credit index showing a rise in defaults in the second quarter of the year.
The sector’s woes were also reflected by Stats SA, which reported a 0.7% rise in year-on-year retail sales for September.
But just as retailers were preparing for a difficult festive season, the economy started to get the wind from behind. Stats SA says the recession has come to an end and fuel prices are decreasing.
Spar Group CEO Graham O’Connor said in November local sales for his chain remained strong, even after it produced robust numbers for the year to end-September.
Independent analyst Anthony Clark thinks retailers can expect a reasonable festive season, even if the economy remains difficult. “South Africans love Christmas. They will spend even if it gets them into debt.”
Clark pointed out that Spar operates in the upper end of the retail market, so it cannot really be seen as a measure of how the entire sector is doing. He said to get a better understanding of the broader economy, it was best to wait to see the numbers coming from Shoprite’s U-Save and Massmart’s Makro.
Clark is not the only analyst circumspect about the sector’s prospects.
“I am aware of the recession that we’ve escaped. However, this was only a technical one and the economic statistics for the country are still looking dire. SA is on the brink of an economic disaster. Pretty much every state-owned enterprise is in financial disarray and this will cost taxpayers more money to resolve,” said Gryphon research analyst and portfolio manager Casparus Treurnicht.
He said even though the rand fuel price had improved, there were still some questions over whether it was sustainable. “A temporary improvement is pointless when electricity blackouts curtail business sentiment and unemployment remains at all-time highs.”
From Treurnicht’s perspective, the country still has a long way to go until it turns the corner. “We haven’t seen the VAT increase being reversed, or the tax brackets being lowered again. Government is also not able to maintain similar levels of social spending, so I am not convinced that we have turned the corner at all.”
In fact, he thinks there is a good chance of more trouble ahead. “I believe we will be entering a recession again and therefore I believe the retailers will be treading very carefully over the next year.”