Lower prices, a wider footprint and a leading on-demand grocery delivery offering have helped Africa’s largest supermarket chain Shoprite deliver a knockout sales performance for the 52 weeks to July 2023.

The JSE-listed retailer reported a 16.9% surge in the group’s merchandise sales to R215 billion, up from R183.86 billion in 2022 on Tuesday.

Shoprite CEO Pieter Engelbrecht said in a results statement that the success can be attributed to the group’s multi-year transformation strategy underpinned by the smarter Shoprite and core supermarkets segmentation strategies.

The group’s core operations, which include trading brands Shoprite, Usave, Checkers, Checkers Hyper and LiqourShop, helped deliver R173.6 billion in merchandise sales, 17.8% stronger than the R147.4 billion reported in the prior year.

Shoprite opened a record 340 net new stores over the last 12 months, bringing its total group store count to 3 326.

Higher prices in commodities saw Shoprite’s internal selling price inflation jumping 10.1% in 2023 compared to 3.9% in 2022.

Upper market supermarket chain Checkers, which focuses more on fresh foods, premium brands and contributes just under 40% to the group’s core sales, reported stellar growth of 18% in merchandise sales.

Checkers Sixty60 increased sales by 81.5% sales this period.

The Usave and Shoprite brands – which account for the majority of the group with a 51.9% contribution to core sales, together increased sales by 15.6%.

Load shedding bummer

Shoprite’s investment in ‘prices’ and backup energy solutions has however had an impact on margins. According to the retailer, its gross margins for the period came in slightly lower at 24.1% year-on-year, compared to 24.5% in 2022, particularly due to its investment in maintaining lower selling prices.

A total spend of R1.3 billion on diesel to keep generators running in the South African operations has cut into trading profits for Supermarkets RSA, which grew by 5.6% to R10.8 billion, translating into a trading margin of 6.2% compared to 7% in 2022.

“Similarly, our profit growth would also have resulted in a higher Shoprite Employee Trust distribution for our employees,” he added.

Diluted headline earnings per share (Heps) grew by 9.7% to 1 159.4 cents compared to 1 056.9 cents in 2022. Group Ebitda (earnings before interest, taxes, depreciation and amortisation) was up 13%, to R18.8 billion.

“The group’s financial position remains strong with a borrowings to equity ratio of 24.2%, below our target range of 25.0%-30.0%. Capital allocation remains a focus area with our return on invested capital [excluding IFRS 16 Leases] measuring 14.9% [restated 2022: 16.9%],” Shoprite said.

Shoprite’s board decided to declare a final dividend of 415 cents per share, which is 10.5% higher than in 2022.

Looking forward

The group is expecting consumer disposable income to remain under pressure over the next financial period. Shoprite has already reported lower sales growth in the first six weeks of its current 2024 financial year, compared to the relevant 2023 period.

“It is clear that our customers’ disposable incomes are under enormous pressure and there is an increasing need for us to sustain the lowest prices and best value across our various supermarket formats. Shoprite was founded on this ideal and we continuously refine our operating model to improve how we meet this need in the most efficient, accessible and convenient way possible,” it said.

“This translates over the medium-term to extensive plans that include continued store growth and refurbishments across all supermarket formats, a next phase multi-year supply chain expansion to meet our next decade volume and logistics requirements, further digital and e-commerce initiatives as well as growing our ancillary income from alternate revenue sources,” the group added.

Shoprite estimates that it will dedicate as much as R8.5 billion in capital expenditure across various sections of its business to achieve its future growth vision.

Shoprite’s share price slumped over 5.6% on Tuesday to close at R247.40 a share, following the group warning at the end of its results presentation about a cautious outlook for the current (2024) financial year.