Shoprite’s first-half profit surges over 25%

‘Shoprite is now heading to become a R200 billion revenue company…[and] one-third of our Sixty60 customers are completely new to our business’: Shoprite Holdings CEO Pieter Engelbrecht.

FIFI PIETERS: Shoprite, the biggest grocery store in Africa, reported at a 10% jump in its half-year sales to over R91 billion. That is as more of you shopped across its various stores, which include Checkers, Usave, House & Home and Computicket. The higher sales that Shoprite reported helped drive a 25.5% jump in profit, which Shoprite CEO Pieter Engelbrecht described as ‘extraordinary growth’ in sales. He joins the Market Update.

Pieter, thanks so much for your time. Out of curiosity, when was the last time the group sales went over R91 billion?

PIETER ENGELBRECHT: I don’t think ever; this would be the highest. As I said this morning, Shoprite is now heading to become a R200 billion revenue company.

Read: ‘Extraordinary growth in sales and profits’- Shoprite CEO

FIFI PIETERS: Over what timeframe?

PIETER ENGELBRECHT: Twelve months, the full year. In this six months’ results we did R91 billion. So with another year or so of this growth we should reach R200 billion.

FIFI PIETERS: That is phenomenal growth, and I understand why you yourself have even described it as ‘extraordinary’. I’m interested in where this growth is coming from because, having reviewed some of the numbers in the retail sector, your competitors are not growing as strongly as you are. So how much of the sales growth that you have experienced and that you anticipate is as a result of existing customers, and how much of it is new clientele coming into your stores?

PIETER ENGELBRECHT: Okay. The first thing I want to mention is that we are coming out of 34 months of consecutive market-share growth, and it’s across all the supermarket brands. That amounts, for the six months, to additional sales of R3.6 billion.

Checkers alone over the last three years has gained R7 billion in market share.

When I talk about market share, I know this probably can’t carry on forever but, while it’s coming our way, I will still talk about it. That’s the one side.

The other one is that that’s a lot of innovation, and we define innovation as that we deliver to customers what we believe they want, and then we build the business around that – not the other way around. Our narrative hasn’t changed over the last five years. We put a strategy down, we first had to re-platform ourselves, then we had to innovate. We were latecomers in the loyalty programme with our Xtra Savings. We now have 23 million customers.

Your question around new customers – the best example I can give here is that one-third of our Sixty60 customers are completely new to our business. So all of that is for us incremental sales, and we now see the users of that service also in-store. I always say never underestimate the in-store experience when you want to go digital in the omnichannel.

FIFI PIETERS: A number of the analysts we speak to who cover your stock closely speak very highly of Sixty60, of what you have been able to achieve in a short space of time, and just how well the platform is doing. But everybody’s looking to innovate right now, everybody’s looking to grow in this post Covid-19 world. So what are the plans for Checkers Sixry60 to ensure that it keeps the current momentum?

PIETER ENGELBRECHT: What’s interesting around it is that a lot of people thought that, as we get out of the pandemic, that service will be used less. Now for the six months we have grown, in the number of orders in Sixty 60, by 250%. So it’s definitely not subsiding.

The second difference between ourselves and our competitors is you still pay R35 for a Sixty 60 delivery, whereas our competitors offer this service for free at the moment, obviously to try and gain more customers there. Hence we can say that our service or that business unit of ours is profitable, and a lot of the revenue we get out of there is incremental, with the costs already fixed and covered by the physical store operation.

FIFI PIETERS: All right. So you are confident essentially in a sustainable business model around Sixty60 that you believe that you have built.

Another innovation that we saw from the Checkers group, Pieter, last year, was the piloting of your automated Checkers concept store with no cashier, no till points and the like. How’s that going?

PIETER ENGELBRECHT: That was purely what it was. We were actually after the technology, not so much about the fact that there’s now a cashier-less store or self-checkout. That wasn’t the aim behind it. For us it was to illustrate that we understand the technology, that we can use it. Then we have different applications that we use that technology for. So we are not going to expand on that store format.

We currently are investing rather in smaller convenience-store formats in the Checkers brand, as well as in Shoprite.

Then we are also complementing the business with new revenue in areas where we under-index, like pet and like baby as an example.

Maybe, just for interest’s sake, retailers in South Africa, supermarkets, are not allowed to sell premium brand pet food. So by opening these standalone pet stores, it’s a completely new incremental revenue source for us, similar to our Rainmaker media business. That’s a market worth about R30 billion, and we’ve only just started to play in that. That’s what our whole drive and aim is. In my presentation, in my last slide I explained our ecosystem, that we build all of these businesses around our core supermarket business which still generates the major chunk of our cash flow.

FIFI PIETERS: When you talk about the baby side of it, and just increasing your presence there, I saw one of your competitor’s advert on television, also showcasing their interest to expand in that area. It will be interesting to see how that expansion unfolds for you all.

I want to talk to you about your R5 initiative, something you started back in 2016, where you subsidised a loaf of bread for R5. I understand that to this day that loaf of bread still remains at R5. You’ve also since expanded that to other product categories – your daily hot foods, as well as some sanitary pads. But I imagine that you would’ve noticed some of the input cost pressures are coming through, just looking at what the current tension in Eastern Europe is doing to commodity prices and is doing to inflation expectations. My question therefore is, just given what we are seeing coming in – perhaps a thicker storm around inflation – how sustainable is it for you to continue with the R5 initiative, as well as keeping your own selling-price inflation within your store significantly below consumer price inflation levels presently?

PIETER ENGELBRECHT: We will continue to invest in essential food stuffs. That is what we do, it’s in our DNA. Yes, we are under a lot of pressure to increase the price of that bread. We have managed to keep it at the R5 and I will persevere for as long as I can. This idea was born out of out of [the idea] that I say you can be a car guard for half an hour or an hour, and get a coin and fill your stomach with that. So we have about 50-odd R5 meal solutions with high protein, and we will find innovative ways to support that. If we have to change recipes and so on, it is what we will do. It’s critical for us to illustrate how close Shoprite moves to each core consumer.

FIFI PIETERS: Just on your target of becoming a R200 billion revenue company in the next 12 months, how much of that revenue is likely to be boosted by some of the additional assets you’re bringing into your fold from Massmart in the form of the Rhino, Cambridge Food, and the Cash & Carry business.

PIETER ENGELBRECHT: Before the unrest, and when they were still operating at full capacity, the revenue they generated was around R8 billion. By now they’ve lost a lot of that revenue. A couple of those stores are still damaged from the unrest time, so it’s going to take us time to rebuild that. Firstly we hope to conclude this transaction before the end of June, which is the end of our financial year, which will mean we will probably have to take some of the costs this year without seeing the top-line benefit while we are integrating that and rebuilding them. We will rebrand them all to Shoprite. There are 112 stores in total, including a number of liquor outlets as well.

FIFI PIETERS: All right, sir. Thanks so much for your time. We’ll let you go. That was Shoprite CEO Pieter Engelbrecht, probably a man who is full of smiles today following the results that were released to shareholders earlier on.



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