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Despite many retailers being adversely affected by the Covid-19 induced lockdown regulations, Shoprite Group gained market share and maintained healthy cash flow, with its Checkers e-commerce and rewards program attracting over 4.7 millions of customers.
The giant food retail group, which is made up of Shoprite, Usave, Checkers and Checkers Hyper and known for their reasonable food prices, reported in its year’s results through the end of June that sales rose 6.4% to a record of R156.9 billion.
This despite the fact that its liquor and furniture points of sale were closed during the closure.
It says its operating profit increased by 8.7%, which represents an increase from R9.8 billion to R122.4 billion. The group reported a 20 basis point increase in trading margin to 5.3%.
The board has declared a final dividend of R2.27, bringing the total dividend for the year to R3.83 from R3.19 in 2019.
It expanded into 147 stores comprising 101 corporate stores and 46 franchises during the period.
African markets
The only decline in its results came from the rest of Africa markets, where sales were down 1.4% in rand terms.
The group said this was mainly due to closing regulations in the last six months that affected store openings, trading days and hours, as well as transportation restrictions in some countries, impeding the ability of its employees and customers. to get to their stores. .
Since August, the group has embarked on a process through which it will consider selling a majority stake or the entire stake in its Nigerian subsidiary after 15 years in that country.
He said he has received interest from potential buyers. The due diligence process is currently ongoing and is expected to be completed by the end of September 2020.
The group will close its two remaining stores in Kenya in the next year due to underperformance resulting from regulations imposed by Covid-19, as well as reduced interest income earned on government bonds and bills.
Analysis
FNB Wealth and Investments Senior Portfolio Manager Wayne McCurrie says that while its African market was not as positive compared to the South African market, the group managed not to increase its losses compared to last year’s results.
“The underlying trades didn’t fare too badly, but the main problem was that currencies were down sharply against the rand. However, the good thing about African markets is that the loss did not increase due to the blockages, ”says McCurrie.
It highlights how the group’s results indicate how resilient the grocery retail market is. He believes that they will continue to gain market share as consumers find Shoprite the best option in the market to do their grocery shopping, as they have liquidity problems as a result of the pandemic.
“They clearly got market share during the lockdown and they also have good cash flow, however all the retailers are not badly positioned for Covid-19 because people still buy. [for groceries]”McCurrie says.
Sasfin Securities VP David Shapiro says the group’s results were expected to be positive.
“They produced relatively good numbers and I think that if you are thinking of buying retail stocks, Shoprite Group and Spar Group would be good companies to buy in this space,” says Shapiro.
He says the group’s advantage is that it caters for the basic needs of consumers.
“They are in a better position than some of the other retailers as they provide you with what you need. [consumers] necessity, ”says Shapiro.
Ecommerce and rewards an added bonus
In November 2019, Checkers introduced its rewards program, called Checkers Xtra Savings. According to the results, it has registered 4.7 million clients since its inception.
It also revealed that customer response to the launch of its Checkers Sixty60 one-hour grocery delivery app has been exceptional.
“These are cool add-ons they’ve added that reinforce their brand in the marketplace,” says Shapiro.
He says the advantage of the pandemic is that it has forced consumers to stay at home and thus forced them to adapt to e-commerce.
“The only thing about the blockade is that it accelerated e-commerce to which consumers showed resistance. the [need] for e-learning among consumers increased dramatically because it had to, and consumers accepted it.
“Companies like Checkers broke barriers during this period that would have taken them a long time to do if it weren’t for the shutdown. So companies like this, that were innovative and forward-thinking before closing [benefitted] because the more they digitized, the more they learned about their customers, “says Shapiro.
Shapiro also highlights the group’s healthy cash flow.
“What stands out is that you are rotating your stocks, and that is a very important measure of how you are doing, so it means you are not stuck with stocks,” says Shapiro.
The future
The big question is whether the group will continue to maintain a positive balance and its newly won market as life returns to normal.
“That is a great challenge,” says Shapiro. “What happens now that things are back to normal? People are no longer forced to be at home, will consumers continue with e-commerce? “
Shapiro says this is something that should be closely watched over the next year.
