Shoprite pushes its expansion harder in Africa

Releasing the group's results yesterday CE Whitey Basson made a plea to property companies in SA to venture into Africa and acquire land so that it could be easier for the group to open stores in those countries.

“Africa has a big pool of educated people, which needs to be oiled. There is no problem in running stores in Africa. The only problem is infrastructure and getting land, because once you have identified the land, you need to get the owner, which is a problem.

“I will be meeting with the board next month to make a final decision on whether to go heavily in Africa or not. But I always try and convince them to invest in Africa, which has huge potential,” Basson said.

Shoprite, which operates in 17 countries across Africa, the Indian Ocean islands and southern Asia, expects to start operating in the Democratic Republic of Congo, and open more stores in Angola and Ghana. It had identified 16 sites in Nigeria alone to develop new stores.

Basson said the major challenge in Africa was red tape, with every single product needing to be checked and every truck certified.

Group turnover jumped 22,3% to R47,65bn for the year to June. With the exception of furniture, all divisions reported excellent sales growth in excess of rising food inflation levels.

Strongest growth was delivered by the Shoprite brand, including three chains, Shoprite, Checkers and Usave, its core business, while the biggest percentage growth was reported by the non-South African operation.

To alleviate the effect of worldwide food price rises on consumers already buffeted by high cost-of-living increases, Basson said management decided last October to cut margins on basic foods, generating higher sales and sacrificing R286m in gross profit in the remainder of the year.

Given strong growth in turnover and strictly contained overheads, trading profit surged 43,7% to R2,3bn, while diluted headline earnings per share rose 54,1% to 298,6c.

A final dividend was declared, rising 60,6% to 106,0c a share over last year.

Absa Asset Management Private Clients analyst Christopher Gilmour said it was fascinating that Shoprite was closing on Pick n Pay market share because of its presence in the lower end of the market. “Africa is where Shoprite's next growth will come from because it has first-entrance advantage over any retailer in Africa over 10 years.

“These guys have paid their dues ... operating in this continent, and know it like clockwork,” Gilmour said.

Basson said: “We are selling enough sausages that will span the coastline of Africa, and 10,000ha of potatoes. And apples that would stretch from Cape Town to Paris and back.”

He said the group, which had enough sugar to give everyone on Earth a double chocolate-chip cookie, expected higher operating costs to affect profitability, while turnover growth was projected to slow in anticipation of intensified competition.

Shoprite closed 2,17% higher at R47 on the JSE yesterday, just shy of its 12 month high of R47,30.

Source: Business Day

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