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ARTICLE 3 Shoprite strategy is right on the money An…
ARTICLE 3
Shoprite strategy is right on the money
An upstart in the 1980s, the group has become Africa’s largest retailer and ranks in the world’s top 100
20 SEPTEMBER 2022 CHRIS GILMOUR
In the 1980s Shoprite was nothing more than an upstart. The three main food retailers then were Checkers, Pick n Pay and OK Bazaars. But Shoprite stuck to its knitting, concentrating on the lower end of the market. It grew organically and by clever acquisitions over the decades to become not only Africa’s largest retailer but ranked in the top 100 retailers worldwide. Those acquisitions included Checkers in 1991 and OK Bazaars, which SAB sold to Shoprite for R1 in 1997.
Pick n Pay, meanwhile, was looking for growth in Australia and would probably have succeeded there had the Australian unions, government and its biggest rival, the Coles-Myer group, not ganged up on Pick n Pay and forced them out of the country.
Shoprite also gained first-mover advantage into the rest of Africa and though it has retreated significantly from many parts of the continent, it still has the largest African footprint of any local retailer.
And over the past few years, the group managed to seamlessly hand over power from longtime CEO James Wellwood “Whitey” Basson to Pieter Engelbrecht. During this financial year, Shoprite will become a R200bnturnover company, employing more than 140,000 people and yet, even from this high base, it is likely to exhibit another strong year of earnings and dividend growth. For the 52 weeks to June 30, Shoprite’s turnover grew 11.9% to R184.1bn and on a comparable basis, excluding the effect of new stores space, it grew 8.1%. Market share was gained but as is usual in the supermarket fraternity no indication was given as to which other chain lost market share to Shoprite. However, in its presentation pack, Shoprite followed Pick n Pay’s example by giving a breakdown of market share in the various categories in which the group operates. In the very lowend segment of the market, the group estimates it has an 18.3% share with its limited assortment USave brand. It says it has 32.1% of the middle to lower-end market with the Shoprite brand and 13.8% of the middle to upper-end market with Checkers & Checkers Hyper brands. Within the rest of Africa, Zambia was the best-performing market while the group exited Madagascar and Uganda last year and is now trading in 10 countries on the African continent outside SA. More stores Gross profit rose 9.35% to R45.1bn while trading profit rose 6.8% to R11bn. Trading margin reduced slightly from 6.1% to 6%, but is still by far the leading trading margin among the three big listed grocery chains. Basic headline earnings per share (EPS) rose 10.3% to 1,055c and a full-year dividend of 600c was declared, also rising 10.3%. The difference between return on invested capital and weighted average cost of capital was a healthy 12%, compared with 12.6% the previous year. Financial gearing
is a low 21.5%. Despite the very high base of the current financial year, Shoprite intends opening 275 more stores this year, excluding new stores that will arise due to the recent acquisition of Cambridge, Rhino and Fruit spot from Massmart earlier this year and which still have to be ratified by the Competition Tribunal. This is a bold and ambitious target but one borne out of the highly methodical and strategic mind of Pieter Engelbrecht. Like his predecessor, he does nothing on whim. Everything is considered carefully. Engelbrecht is clearly looking through the current depressed part of the economic cycle to better days in future and is gearing up for it. He knows full well that only the strong will survive in the increasingly competitive SA food retail space and this is a very strong vote of confidence in the economy recovering in the longer term. At the present share price of 2,2579c, the historic PE ratio is 21.4x and the dividend yield 2.7%. Not cheap, but not expensive either for this degree of quality.
https://www.businesslive.co.za/bd/opinion/columnists/2022-09-20-chrisgilmour-shoprite-strategy-is-right-on-the-money/
(1.1) “Shoprite strategy is right on the money” (Article 3) Discuss the strategic advantage(s) that Shoprite possesses,
including in your discussion the source(s) of these advantages. (10)
