Shoprite takes lead on costs

The difference is that other retailers have not promoted the savings in advertising campaigns, an analyst said this week. An advertisement tells consumers that Shoprite has “good news” and says that because it has its own fleet of more than 400 trucks, travelling more than 25-million kilometres a year, it would save R27m in fuel, which it would use to subsidise prices across a basket of basic food items for as long as fuel savings were achieved.

The group said it had a policy of passing on savings to consumers. Shoprite said the R27m figure was a “conservative estimate of savings” achieved from the first diesel price cut in August. The savings would be earned between the price cut and the end of its financial year in June.

“More than half of this saving has already been realised and with the most recent price decrease in January, the total savings could be even higher if the oil price remains in a consistent range,” a spokesman said. Shoprite has called on manufacturers to pass on savings to retailers.

But Absa Asset Management Private Clients analyst Chris Gilmour said although any price relief was to be welcomed, it would be difficult to measure the difference that the R27m would make against Shoprite's trading profit of R2,3bn last year.

Pick n Pay had been quietly passing on price relief, he said.

Gilmour said consumers needed to see evidence that lower fuel prices were having a profound effect on the entire supply chain, from farm to shelf.

He said the company's decision to run TV advertisements indicated that it was confident of additional sales.

Shoprite said consumers wanted to see the effect of the decreases in the fuel price on the shelf price of food. “The advertisement is a tool to communicate to consumers what action the group is taking.”

Pick n Pay said it always had “massive discounts on basic food items to assist consumers who are hard pressed by higher food prices”.

Financial director Dennis Cope said that because of the recent drop in commodity prices, “we have decreased the price of bread, flour, cooking oil and maize meal”.

The company also aimed to negotiate “firmly and fairly” with suppliers and pass savings on to consumers. But fuel was a “relatively small component of our — or any retailer's — costs, which is why we have never claimed that any increase in our selling prices is as a result of our fuel costs going up,” Cope said.

“When fuel costs shot up so dramatically a few months ago we never increased our margins but absorbed the cost internally.”

Woolworths said it had also looked again at its cost base. Julian Novak, divisional director of food, said the company had revisited its pricing, especially at the growing commodity end of the business.

Novak said the group benchmarked its basic food items with market prices and “reformulated selected recipes to make some food product more cost-efficient but with the same eating experience”.

Woolworths also aimed to reduce costs through efficiencies.

Source: Business Day

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