the g spot
Shoprite: back on top
We asked CEO Pieter Engelbrecht how it is that Shoprite seems in better shape than a year ago, when many had begun to write it off
It’s not hard to see why Shoprite shares rallied 10% on the day the retailer’s full-year results were released. Despite Covid, Shoprite produced record sales of R156.9bn and a slight increase in its trading margin (excluding the effects of hyperinflation in some African countries), to 5.3%. That doesn’t sound like much, until you consider that its furniture and liquor stores were shuttered during the initial lockdown, losing 654,610 trading hours in the process. Shoprite also continues to hoover up market share. Rest of Africa, where sales fell, was the only real blot on its results. We asked CEO Pieter Engelbrecht how it is that Shoprite seems in better shape than a year ago, when many had begun to write it off.
PE: We started on a strategy three years ago; I’m sticking to it, I think it’s right for the time and it’s working. You’ll remember that four years ago I said we’d try to claim a bigger market share in the more affluent share of wallet, reposition Checkers and do new things there, and it’s paid off.
On the fresh food sector alone we’ve grown R1bn in market share in the Checkers brand this year. Overall market share growth was just short of R5bn. We said we will not run after nonprofitable market share, and we’ve increased our SA trading margin from 6.1% to 6.8%, which I’d say is global best practice. The plan was to create a smarter Shoprite, and as part of that was a digitalisation project. I think hitting Covid just assisted us.
Are people more open-minded about shopping online?
PE: It doesn’t matter who you are, you had to adapt to be more digital … something had to happen.
You said in your presentation it’s a "once-in-a-generation" shift to online. Is it as key as that?
PE: I think so, and I’m just happy we were on the front foot with it. We managed to go from a beta testing environment in March, from eight stores to 87 stores. I really thought that by now with the lockdown easing, demand there would also slow down, but it’s been the opposite — it’s been accelerating.
Why do you think that is?
PE: It’s all mobile, it’s not web-based click-click. My pet hate — and why I didn’t like online shopping at grocers — was you want to buy milk, you’d have to click on the brand, then on skim, or full cream, then on the size, et cetera, et cetera. It’s eight clicks before you get the item — I just couldn’t shop like that. So we found the solution and it seems that people like it. There’s a lot more for us to build on it — but I want to say that this is not the silver bullet for the next 12 months that’s going to make billions. It’s just another front where we are competing; another distribution mechanism.
Is all this just going to add tiny increments to margins? SA’s economy is contracting at a vicious rate and you can do amazing things as a company, but if the economy doesn’t grow, where does that leave you?
PE: Every year people ask, can we improve the margins, and then I say no, I’d be happy to just maintain the margins. I think we pushed it very hard this year and a couple of things turned in our favour. We had very good volume growth; second, because there was slight inflation and most rebates are percentage based, we gained a bit there. And then we had some very good efficiencies out of our supply chain. I do think the margin is high and the other side of that coin is affordability: we check this every single day but we are still the best-priced retailer in SA and we are guarding that with our lives. It’s now three years that we are selling a 600g loaf of bread for R4.99. I do believe that people trust the brand for that: if you have only a R5 coin, you can go to Shoprite and get a loaf of bread.
That said, job losses really worry me — we are seeing massive spikes and valleys in terms of grant paydays, and you can clearly see there’s no money in between. We don’t see the green shoots, but in the end we only have 31.6% market share.
Do you have a target in mind?
PE: Woolworths Australia has a 45% market share so I’m not going to put a limit on it, but I still believe there’s a lot of growth, in particular for Checkers.
Last year, analysts were really worried about your debt. This seems to have eased. Did they call it wrong?
PE: I think it was more that people were surprised than that the debt itself posed a problem. The improvement in cash has been R6.6bn, we converted R2bn of stock into cash and by December we want to reduce our dollar debt to $80m. Our earnings before interest, tax, debt and amortisation cover is 0.2 — how strong should a balance sheet be?
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