SA’s leading supermarket group aims up as recession hits lower-end consumers first
As South Africa slides into recession, and households have less and less to spend, number-one supermarket group Shoprite is adopting an unlikely strategy – it is pushing upmarket.
While the lower-income families that have long been its core customers cut back, the spending of the wealthier class remains undented by the downturn.
In a bid to retain its leading industry position, the discount retailer’s new boss is driving hard into the upmarket, higher-margin niche dominated by rival Woolworths.
The stage is set for a turf war to win the hearts, minds and wallets of South Africa’s richest two million households – and ultimately pre-eminence in the supermarket sector.
Shoprite chief executive Pieter Engelbrecht said affluent areas and customers were where he saw growth in the maturing South African market.
“A lot of those [wealthier] customers, two million of them, frequent our stores already, but not exclusively,” he said. “Our job is to get a better share of their wallets when they are in our stores and then impress them so that they come back again.”
Shoprite is doubling its offering of the kind of high-end convenience foods that Woolworths has built its reputation on – from gourmet lamb shanks and oxtail stew to teriyaki-and-ginger-basted pork ribs. Its range would reach around 500 products by the end of this year, Engelbrecht said.
These products typically cost about R200 for a meal for four – 10 times the minimum wage of R20 an hour as set by new labour laws making their way through parliament.
As part of the drive to expand its range, Engelbrecht said Shoprite had upgraded its food technology and development facilities and gone on a hiring spree for food developers and technologists.
He said the department had grown 10-fold in a year, without giving details on staff numbers. The mainly discount retail group is executing this strategic shift by expanding its higher-end Checkers chain of stores.
It plans to open 23 new outlets, mostly in wealthy suburbs, by June next year to bring the number of stores to about 230. Checkers has, for years, been underrepresented in the wealthiest neighbourhoods with the most spending power, according to analysts.
New Checkers stores, and established ones that have been refurbished, resemble Woolworths outlets, with sparse lighting and wood-panelled sections boasting extensive wine and gourmet coffee selections, as well as counters selling quality selections of cheese and meat.
Shoprite’s core, low-income customer base has been battered by high inflation, stagnant wages and unemployment reaching a 14-year peak.
Higher interest rates and currency depreciation have further eroded consumers’ disposable income. South Africa’s economy has fallen into recession for the first time since 2009, data showed last week, in a slide that has slowed profits across the grocery sector.
The discount group’s push upmarket has been driven by its own economics. It is grappling with an internal inflation rate – the rise in what it pays for its goods – of 7.4%, the highest level in years, but has not been able to fully pass the increase on to poorer consumers.
This has undermined its traditional, mass-market strategy of low margins and high volumes.
To absorb the hit and continue to secure the growth demanded by investors, it is hunting the higher margins and healthier sales growth on offer at the higher-end of the market by expanding Checkers.
While Shoprite-branded stores’ sales have grown by 8.8% over the past 12 months, Checkers’ have risen by 11.1%.
The Woolworths and Shoprite groups also variously encompass the likes of furniture and clothing. Woolworths Foods’ margin is about 7%, according to the company’s financial reports.
Shoprite did not immediately respond to a request for comment on the food margin figure.
Shoprite, which is 16% owned by retail tycoon Christo Wiese, has grown from eight supermarkets in 1979 to a no-frills mass-market grocer with operations in 15 African countries.
Woolworths, which is more than 80 years old, morphed from a clothing chain into South Africa’s fine-foods market leader in the early 2000s.
Engelbrecht took the reins of Shoprite in February from Whitey Basson, who had led the group for 37 years. – Reuters