FIFI PETERS: Shoprite, which is South Africa’s biggest employer, achieved record sales of R168 billion in the 2021 financial year (to end June). Profits were also much higher, as many South Africans chose to do their shopping at Shoprite stores. Shoprite CEO Peter Engelbrecht joins us now to review the numbers.
Pieter, thanks so much for your time. What a year it has been for the group – in fact, what a year it has been for all of us. But how do you explain how you were able to achieve record sales growth in one of the worst years for humanity because of the pandemic?
PIETER ENGELBRECHT: Thank you, Fifi. Firstly, we set ourselves a target to be Africa’s most accessible, affordable and innovative retailer. Playing on all three of those (aspects) we first and foremost stayed with our unwavering commitment to our customers. It’s now five years that we’ve been selling a loaf of bread for R5. We’ve added our eight-pack sanitary pads for R5 as well for the girls to go to school. Because we do that, because we believe it’s the right thing to do, we think that our customers appreciate it. We are a responsible corporate. We are looking at the environment, we are looking after the planet.
In particular what made a big difference in the year was the very successful implementation of the ‘Xtra Savings’ reward programme.
We now have over 21 million customers on it, and that information tells us a lot about what customers expect from us and what kind of pricing they expect from us.
FIFI PETERS: Pieter, are you still gunning to be Africa’s largest retailer, because you you’re saying goodbye to many countries on the continent – [including] Nigeria, Uganda, Kenya and Madagascar. It sounds like it’s more of a South Africa play for you going forward.
PIETER ENGELBRECHT: We still have 10 countries in the rest of Africa portfolio. The first and most important (objective) was for us to consolidate that investment, make sure that we return back to profitability, which we’ve done. That segment of the market achieved a R307 million profit this year. So that met our short-term target of R300 million to R500 million. It also meant that our operating model had to change.
There’s a lot of focus on localisation. We also had to address the supply chain and associated costs with that, and the massive currency devaluations. Just this year we saw Zambia 48% down on its currency. So we had to address that first.
Of course, having adapted our operating model locally, we also focus a lot on digital. Who knows what we can take back next into the continent?
I’m still putting it out there that we want to become the most accessible, affordable and innovative retailer on the continent.
FIFI PETERS: Just about the number of customers that you have signed on to your rewards programme – 21 million, you said – I imagine that most of them come from South Africa?
PIETER ENGELBRECHT: That is a purely South African programme. It’s Shoprite. We started with Checkers and in the past year added the Shoprite brand as well. Those are all South African customers.
FIFI PETERS: That’s essentially saying that a third of the South African population shops at your stores.
PIETER ENGELBRECHT: Yes.
FIFI PETERS: That’s incredible. So what do you plan on doing with that data?
PIETER ENGELBRECHT: In the last year alone we used it to do personalised marketing. Over 750 million offers went to customers individually. What that brings us, firstly, is that it’s personalised to a specific customer which means one can manage your markdowns in terms of the promotions. Secondly, you reduce your marketing spillage because it is not general marketing, like on a leaflet, but to a customer specifically, giving you an example of the benefits we get out of that.
FIFI PETERS: Pieter, you may or may not have seen – it’s a busy day for the group – you’re trending on Twitter presently. What is trending is the number of jobs that you were able to create in this period – 3 897. You presently employ 142 000 people across the group. The question then becomes: how many jobs are you likely to create in the coming year?
PIETER ENGELBRECHT: I want to add to what you said. We’re also currently shielding 3 500 employees who basically lost their workplace because of the unrest we had; those stores are currently closed. We didn’t retrench anybody in that sense, which we were very pleased and happy about.
And secondly, with the possible transaction – we’re waiting for approval of the buy of Masscash [from Massmart] – that is another 7 000 jobs that we will be protecting. We are also the number one contributor to the YES programme over the last three years, and what is quite commendable there is that more than 12% of our trainees on that programme get permanent employment either with us or with the SME suppliers that we are developing. I would expect the same number again for this year around – round about the 3 000 number.
FIFI PETERS: Incredible. It would be remiss of me not to ask the other side of that question – because of course people see the number of jobs that you’re creating – but there are concerns around the pay for each job. What is your response to that, your response to the conversation around the minimum wage or even around South Africans earning a little bit more than the minimum wage?
PIETER ENGELBRECHT: The nature of food retail is that we have a fairly high churn of people at the entry level. That’s what people come in at, at just above the minimum wage, and from there on years of service and so on will address your pay. What is different this year is that we’ve been able to agree [on] a percentage increase with the union. I think that will also assist then to bring more of an equal scenario across the levels of qualification, as well as experience and years of service.
FIFI PETERS: If you don’t mind sharing, perhaps the level of increase that was agreed to unions and what that takes the salaries to within a range – if you’re able to share that information?
PIETER ENGELBRECHT: This year it’s just over 8%. It is substantially higher than inflation, or if you compare that to what grants have been increased [by], et cetera.
I (consider) it also my duty that it is our job to improve the lives of our people.
We’ve done a fairly large amount of work to make sure that through all of this crisis, in terms of the appreciation bonus to our staff during Covid, and now during the unrest, that our employees understand that we appreciate and value them and that we would be a very poor business without them.
FIFI PETERS: That’s double the rate of inflation. It is quite commendable, especially in an environment where a lot of people have received salary cuts.
Just one last question regarding the transaction with Massmart to onboard their Rhino Cash & Carry and Cambridge stores, how far is this deal from reaching the finish line?
PIETER ENGELBRECHT: I don’t really expect it to be concluded before early next year. So I’ll estimate around February.
FIFI PETERS: And why is this deal good for your shareholders and good for the workers?
PIETER ENGELBRECHT: Firstly, part of the transaction would be that we will protect 7 000 jobs where people currently have employment. Of course some of these stores were also damaged now during the unrest and there’s some work to be done. So that’s the first (benefit).
The second one in terms of the shareholder question is it’ll add R10 billion in revenue in roughly a 12-month period. It will add substantial revenue overall to the group. We do believe that Shoprite is really best positioned to integrate that business quite seamlessly into our existing business.
FIFI PETERS: And your township business model – how is that going, and what are your plans for making further inroads into the townships of South Africa?
PIETER ENGELBRECHT: We have four basic formats: we’ve got our eKasi store, where we are really going rural and taking low prices to people. People in rural South Africa spend enormous amounts of money on transport to just get access to basic food. So that’s the one.
Then we’ve got the Usave limit assortment, we’ve got the Mini Shoprite and we’ve got our standard Shoprite. So through those four models, depending on the catchment and the size thereof and the kind of development happening in that environment, that will depend what format we will go with. And then we will grow and change as we go along. There are still many areas that are currently being developed, changes in people’s migration patterns. So, next year we are planning to open 133 additional stores. So yes, there is still opportunity for us to access that market even better.
FIFI PETERS: All right, Pieter, thanks so much for your time, sir. We’ll leave it there. That was the CEO of Shoprite, Pieter Engelbrecht.