Shoprite pleases market

Johannesburg - Food and household goods retailer Shoprite impressed analysts with a solid increase in turnover and sales volumes during the past financial year. The group's total turnover rose by 24.5% to around R59.3bn in the year to end-June 2009. Growth on a like-to-like basis was 19.1%.

Shoprite's South African operations - the core of the group - saw sales increase by 22.8%.

"This is a very good performance," said Quinton Ivan, equity analyst at Coronation Fund Managers. He said the increase in sales volumes should be considered against its main competitors Pick n Pay and Woolworths, where volumes were either flat or declining.

"Shoprite is actually gaining market share versus competitors," he said.

However, Shoprite did report a small slump in turnover growth in the second half of the year to 21.8%, from 27.3% in the first half.

The company cited persistent pressure on consumers' disposable income and lower internal food inflation, which declined 2.2 percentage points to 14.7% in the second half of the year, as the reason behind the downtick.

Ivan said disposable incomes remain tight because consumers are choosing to use the breathing space afforded by recent rate cuts to pay off debt.

Three shopping choices

Many consumers are also downtrading purchases and looking for cheaper alternatives to essential goods.

However, Ivan said this is an area where Shoprite stands to benefit. The company operates three main chains in South Africa - Checkers, Shoprite and Usave.

Checkers is aimed at higher-income earners, Shoprite is the mid-range option and Usave targets lower income brackets.

"Shoprite caters for a wide range of LSMs [an indicator of living standards] so they can catch consumers who are choosing to trade down either from competitors or within the group," he said.

Shoprite also operates 102 supermarkets in the rest of Africa. These grew turnover by 39.9% compared to the 2008 financial year.

Growth on a like-to-like basis was 36.7%.

The company said this division's turnover was lower in the second half because the rand appreciated against some of the currencies of the countries in which it operates.

Ivan said the growth in Africa was solid even after considering this foreign exchange loss.

Shoprite's shares were trading 115c (2%) higher at 5 870c/share for the day at 16:00 on Thursday.

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