CPI rise hits Massmart sales

A Game store, operated by Massmart, in Rosebank, Johannesburg.

Image credit: Sunday Times

The weak rand-to-dollar exchange rate and higher food prices have been a key driver of consumer price inflation (CPI), which topped 7% in February, pushing the repo rate up to 7%. Inflation fell to 6.2% in April.

"Reported CPI for April 2016 included a food inflation component of 11.3%, which is a five-year high," Hayward said at the Massmart annual general meeting on Thursday, when announcing the trading results of the first 21 weeks of the financial year.

Massmart’s 2015 financial year covered the 52 weeks to December 27. In the 21 weeks since then, group sales grew 9% compared with the first 21 weeks of its 2015 financial year.

Its Masscash Retail division grew sales 21.4%, falling to 13.3% if new stores were excluded.

SA’s "consumer economy was in a classic defensive cycle" with discretionary spending constrained, Hayward said.

The combination of more expensive food and debt is a drag on sales for Massmart. Comparable sales growth in its food and liquor unit was 11.5%, while general merchandise and home improvement had comparable sales growth of 0.5%.

The group said comparable sales growth for operations in Africa outside SA was almost double the growth in SA.

One of the most notable standouts of the statement, said Kaeleen Brown, an analyst with SBG Securities, was the fall-off in performance at the Massbuild division. "Massbuild’s sales slowdown is interesting, because it is the largest differential compared to last year. But then you also don’t know if the slowdown could be a first-half thing," Brown said, adding there could be a recovery in the second half.

Traditionally the second half accounts for about 55% of sales for Massbuild, as people spend year-end bonuses on home improvements. There was also a slowdown in some provincial government tender work that had affected contractors, as the management statement noted.

"They are in a very tough consumer spending space, and they are exposed to the most ‘discretionary part’ of discretionary spending. It is a good business, and a well-managed business, but when your largest product category (general merchandise and home improvement) is growing comparable sales at 0.5%, and you have 40% market share in some of these categories, there really is not much you can do," Brown said.

Massdiscounters — which houses the Game and DionWired chains — experienced total sales growth of 7.9%.

The trading results from the African business were good, but the contribution was affected by weaker African currencies. However, Brown said, the strategy in Africa was bearing fruit, and was being pursued in an appropriately cautious manner.

Massmart plans to open 13 new stores this year, seven of which are already operating. Excluding the new store openings, sales increased 6.7%.