Shoprite profits up, remains bullish on Africa

The company, which has a market capitalisation of R73 billion, reported an 18.6% rise in first-half profit on the back of "particularly good" sales in December, as it benefited from its vast store footprint and infrastructure efficiency.

"We'll open another 10 [supermarkets] in Africa... mostly Nigeria, Angola, Malawi and the DRC," Basson said.

With Africa's consumer spending forecast to hit US$1.4 trillion in 2020, retail players are hoping to cash in on a burgeoning middle class, whose disposable income is rising rapidly.

However, in a report examining the barriers that stifle cross-border trade within Africa, the World Bank revealed that the Shoprite spends US$20,000 a week in import permits to truck meat, milk and other goods to its stores in Zambia alone.

"For all countries it operates in, approximately 100 single entry import permits are applied for every week; this can rise up to 300 per week in peak periods.

"As a result of these and other requirements, there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region," the World Bank stated.

Trading challenges

Basson acknowledged the challenges.

"It's difficult to trade with Africa from SA. Last year alone, we imported 2,200 tons of meat into Angola from South America, because either we had no permit or foot and mouth disease or something," he commented.

Last February an outbreak of foot-and-mouth disease in parts of KwaZulu-Natal saw the World Organisation for Animal Health suspend SA as a foot-and-mouth free zone, which lead to many countries not accepting the country's meat.

Despite the red tape, however, opportunities lurking in Africa are too tempting to ignore.

Pointing to the continent's GDP growth which is set to remain at around 5%, Basson said SA property funds were looking at investing in Nigeria.

Contraints

"Property was our biggest constraint. Now we'll probably join up with a few funds and make sure we're first in line to get that done.

"In a town like Abuja we have four sites that we can choose from - a year ago we couldn't get one ... and those people have money.

"You can actually see the growth in Africa in terms of infrastructure and that's just a pre-run for people to enter and turn those economies into really viable economies," he said.

The Cape Town based company was the first of SA's big retailers to trade north of the border, more than ten years ago, and has the largest African footprint, with 123 stores.

Rival Pick n Pay (PIK) has just over 40 stores outside of SA, and plans to open up to 100 stores in the next four years, as part of their foray into Africa.

On Tuesday, Shoprite, which is Africa's largest food retailer, said it achieved an exchange-rate gain of R27.7 million, compared with a loss of R13.4 million a year earlier, as the rand weakened against the US dollar and other African currencies.

"The relative weakness of the rand against the main African currencies during the review period assisted our 123 supermarkets in 15 countries outside SA to achieve a sales growth of 21.2%," it said.

At constant currencies this represents a rand turnover growth of 16.9%. Its core business, Supermarkets RSA, grew sales by 12.3% to R32.031 billion and trading profit by 16.8% to R1.788 billion.

Shoprite's total turnover grew 13.2% to R41.054 billion after the group increased prices by an average of 4.6%.

The company opened 59 new stores in the first half; it will add a total of 174 by June next year.

"We've got more than R1.1 billion committed to expansion, distribution centre upgrades and also stores," Basson said at a presentation in Johannesburg on Tuesday.

Retail sales

Last week upmarket retailer Woolworths (WHL) reported a 36% surge in first half profit, as consumers continued to benefit from decades-low interest rates and relatively tame inflation.

According to Stats SA, December retail sales rose 8.7%, from a revised 7.2% in November.

Growth was expected to ring in at 6.7%, according to a survey of leading economists by I-Net Bridge.

Future outlook

Standard Bank economists' warned that despite the strong retail print, consumers would face headwinds emanating from high food and fuel prices.

Their Nedbank counterparts were similarly ominous.

"Challenging global conditions will increase worries about job security, which will weigh on consumer confidence.

This, along with high inflation and debt levels will make consumers more cautious, containing growth in retail sales during the year," Nedbank economists' said.

Looking ahead to the second half of the financial year, Shoprite's Basson said he did not expect any material changes in market conditions although food inflation was bound to increase further.

"There is nothing in the economy suggesting that the pressure on consumers will ease.

"However, I believe we are well equipped to maintain our present growth in turnover and profitability, albeit at a slightly lower level," he commented.