Despite deteriorating local market conditions, increased competition and high levels of household cost inflation within South Africa, the current growth in turnover was better than the growth in the preceding quarter to June 2013.
The group’s core business, SA supermarkets, contributed around 80% to revenue and increased turnover by 8,3%, which was ahead of growth of the sector as a whole. Shoprite announced that they are on schedule to open 46 new supermarkets before 31 December 2013. The group expects an increased price ‘war ‘ amongst its competitors to put some pressure on the company’s performance, however their strategic plan to target a much wider consumer base in Africa should bode well in trying economic conditions.
Looking at their businesses outside of South Africa, they announced an increase turnover of 29.1%, supported by opening 14 new stores since October 2012. This is slightly lower than the previous comparable period which saw 20 new stores opened. There are exciting prospects and growth potential in Africa which will see an injection of investments from foreign market participates.
When investing in a company, as highlighted in my previous article on Pick n Pay, there are always risks when companies look at investment opportunities in Africa, as every country has its own set of regulatory rules. Just recently, Shoprite wanted to dismiss 3000 employees following an illegal strike action in Zambia. Despite being within their legal right to do so, the Zambian government stepped in and threatened to revoke the company’s trading license stating that the retailer should pay more than the required minimum wage because they are a foreign investor, thus required to pay a premium in-line with the wages offered to civil servants.
Shoprite Holdings is a quality company with a strong balance sheet and they have yet again reported good results. The weaker rand could possibly be a challenge to the business, which is outside management’s control, but the business is well placed compared to its competitors. As we head into the festive season, retailers will be in the spotlight as festive season consumer spending patterns have a considerable impact on second-quarter sales and profitability.