Shoprite produced not only the largest profits recorded by any domestic retailer this financial year and increased market share by 1.5%, but it also grew its trading margin from 4.82% to 4.96%. This is high both in local terms and internationally.
At Massmart, a more diversified business, profits were 1.5% down on the previous year, a satisfactory result given the tougher trading conditions.
Shoprite grew sales by 24.5% to R59,3bn and profit for the 12 months to the end of June by 27% to R2bn. Diluted headline earnings per share rose 31% to 391c. Shoprite's Checkers stores, which have been positioned to serve upper income customers, were the star in the portfolio, growing at 27.6% — faster than any other supermarket brand in SA.
At Massmart, sales rose by 10.7% to R43bn for the 52 weeks to June. Profit for the year (on a 52-week basis) declined by 1.5% to R1,2bn. “I took over the management of this business in a boom,” says CEO Grant Pattison. “I have learnt it is okay just to survive. Growth is not a given under these conditions.”
Like Shoprite, Masscash (part of Massmart), the food wholesaler which includes CBW and Jumbo, is in the sweet spot. It grew sales by 14% to R15bn and profit before tax by 24% to R530m.
Massbuild, on the other hand, experienced a 3.7% decline in sales and a 40% decline in profit before interest and tax. “If you have flat sales in a high inflation environment this is the result,” says Massmart CFO Guy Hayward.
Though retail numbers can be used as an early sign of a change in economic trends, Shoprite's figures should not be seen as an indicator that things are improving for the consumer, says Shoprite deputy MD Carel Goosen. There have been reports in recent weeks that SA could return to positive growth in the third or fourth quarter. “We think the recession will last longer, particularly while banks are not lending,” he says.
Despite the difficult times, companies have benefited from growth in floor space. Shoprite opened another 60 supermarkets, 28 furniture stores and a clutch of pharmacies, liquor stores and Hungry Lion fast food outlets.
Massmart grew trading space by 4% with the opening of three Game stores, a Dion Wired, a Builders Warehouse, Builders Express and four Trade Depots. It also acquired nine cash 'n carry businesses in the year. “Property barons are becoming more flexible,” says Hayward. “That means they at least take your call.”
But both retailers struggled to grow their footprint in the rest of Africa. Shoprite opened two new stores while Massmart opened one.
The DRC is problematic. “There is no paperwork to prove the person you are signing a lease with is the legitimate owner of the property,” says Pattison.
Still, both companies benefited from growth in their existing African operations. At Shoprite the African business is growing faster than the SA business, with the exception of Checkers. It delivered 40% sales growth and more than 50% growth in profits.
Massmart's Game stores, which operate in 10 countries outside SA, increased sales by 26.9% in local currency. Property challenges aside, Massmart will explore opportunities in new countries such as Rwanda, Senegal and Côte d'Ivoire.
“We want to make the most of existing Game infrastructure,” says Pattison, “and extend the Builders Warehouse and then Makro brands into the rest of Africa.”
But neither retailer is ignoring the challenges in the year ahead.
“Food inflation has collapsed in the past four months from 16% to 7% and should fall further in the next three,” says Nedcor Securities retail analyst Syd Vianello. “This will put pressure on trading margins in an environment of tighter gross margins, lower stock profits, weaker comparable store sales growth and embedded cost expansion.”
The focus on cutting costs will remain. “If it's not ordering systems, distribution or logistics, it's supplier co-ordination,” says Pattison. “Now it's replenishment and distribution. It is amazing how much cost can be taken out of the business.”
But to maintain performance these companies know they must grow turnover by 7%-8% next year.
Source: Financial Mail
Published courtesy of
