Despite many retailers being negatively impacted by the Covid-19-induced lockdown regulations, the Shoprite Group gained market share and maintained a healthy cash flow – with its Checkers e-commerce and rewards programme attracting more than 4.7 million customers.
The giant food retail group, which is made up of Shoprite, Usave, Checkers and Checkers Hyper and known for its reasonable food prices, reported in its year to end-June results that sales jumped 6.4% to a record R156.9 billion.
This despite its liquor and furniture outlets being closed during the lockdown.
It says its operating profit increased by 8.7%, representing an R9.8 billion increase to R122.4 billion. The group reported a 20 basis point increase in trading margin to 5.3%.
The board has declared a final dividend of R2.27, bringing the total dividend for the year to R3.83 from R3.19 in 2019.
It expanded by 147 stores comprising 101 corporate and 46 franchise stores over the period.
The only downhill in its results came from its rest-of-Africa markets, where sales declined by 1.4% in rand terms.
The group said this was mainly due to the lockdown regulations in the past six months which affected store openings, days and hours of trade, as well as restrictions on transport in some countries, impeding the ability of its employees and customers to get to its stores.
Since August the group has embarked on a process through which it will consider the sale of either a majority stake or the entire shareholding in its Nigerian subsidiary after 15 years in that country.
It said it has received interest from potential buyers. The due diligence process is currently in progress and expected to be completed by the end of September 2020.
The group will close its remaining two stores in Kenya in the year ahead due to underperformance resulting from Covid-19 imposed regulations as well as the reduction in interest income earned on government bonds and bills.
FNB Wealth and Investments senior portfolio manager Wayne McCurrie says even though the results of its African market were not as positive in comparison to the South African market, the group managed to not increase its losses in comparison to last year’s results.
“The underlying operations didn’t do too bad, but the major issue was that the currencies decreased dramatically against the rand. However, the positive thing about the African markets is that the loss didn’t increase because of the lockdowns,” says McCurrie.
He highlights how the group’s results indicate how resilient the grocery retail market is. He believes they will continue to gain market share due to consumers finding Shoprite the better option in the market to do their grocery shopping as they are cash-strapped as a result of the pandemic.
“They clearly gained market share during the lockdown and they have good cash flow as well, however, all the retailers aren’t badly positioned for Covid-19 because people still shop [for groceries],” McCurrie says.
Sasfin Securities deputy chair David Shapiro says it was expected that the group’s results would be positive.
“They produced relatively good numbers and I think that if you are looking at buying retail shares, the Shoprite Group and Spar Group would be good companies to buy in this space,” Shapiro says.
He says the group’s upper hand is that it caters for the basic needs of consumers.
“They are in a better position than some of the other retailers as they give you what you [consumers] need,” Shapiro says.
E-commerce and rewards an added advantage
In November 2019 Checkers introduced its rewards programme, called Checkers Xtra Savings. According to the results it has signed up 4.7 million customers since inception.
It also revealed that the customer response to the launch of its Checkers Sixty60 one-hour grocery delivery application has been exceptional.
“These are attractive add-ons they have added which reinforce their brand in the market,” Shapiro says.
He says the advantage of the pandemic is that it has forced consumers to stay at home and thereby forced them to adapt to e-commerce.
“The one thing about the lockdown is that it sped up e-commerce that consumers showed resistance towards. The [need] for e-learning among consumers increased dramatically because it had to, and consumers embraced it.
“Companies like Checkers broke down barriers during this period that would have taken them a long time to do if it weren’t for the lockdown. So companies such as this – that were forward-thinking and innovative before the lockdown [benefitted] because the more they digitised, the more they learned about their customers,” Shapiro says.
Shapiro also notes the healthy cash flow of the group.
“What it highlights is that is turning over its stock, and that is a very important measure of how it is doing, so it means that they are not stuck with stock,” Shapiro says.
The big question is whether the group will continue to maintain a positive balance sheet and its newly gained market as life returns to normal.
“That is a very big challenge,” says Shapiro. “What happens now as things get back to normal? People are not forced to be at home anymore, will consumers continue with e-commerce?”
Shapiro says this something that should be watched closely in the next year.