Shoprite – Africa’s largest food retailer

Shoprite Holdings
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Shoprite Group of Companies is Africa’s largest food retailer, which operates in over 14 countries with more than 2,892 stores all across Africa. And as of 2021, the Shoprite Group employed more than 140,000 people in their stores across Africa. Shoprite is considered the largest food retailer in the continent for many reasons, including the fact that it holds up to 32% market share of the overall grocery shares.

About Shoprite

Shoprite Holdings Limited is an investment company that was established in 1979. The company is a food retailer and wholesaler. The company operates through four segments: supermarkets RSA, supermarkets non-RSA, furniture, and other operating segments.

The supermarkets RSA section answers all problems because it includes retail operations under the Shoprite, Checkers, Checkers Hyper, and U-Save brands in South Africa, retailing products, such as food and clothing, general merchandise, cosmetics, and liquor.

The supermarkets’ non-RSA section includes its retail operations under the Shoprite, Checkers, Checkers Hyper, U-Save, and certain Hungry Lion brands outside of South Africa.

The furniture section includes all the retail operations under the OK Furniture, OK Power Express, and House & Home brands retailing products, such as furniture, household appliances, and home entertainment systems. Other operating segments include trading in franchise operations and retail. Along with this, wholesale of pharmaceutical products is also one of the company’s initiatives.

Shoprite Holdings Limited is a public company listed on the Johannesburg Stock Exchange. The secondary listings can be found on the Namibian and Zambian stock exchanges.

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Shoprite Investments

Shoprite’s South African supermarket division is the game-changer. It generates just more than 83% of total trading profit in the field and has continued to shine and dominate the country’s food retailing business in terms of the trading area, number of outlets, and of course, the loyal support from its customers who buy their products and refuse to use any other brand. One reason why the brand has gained so much popularity is its simplicity and appeal to the public.

The company has 2387 stores running corporately under various brand names, and it has investments in the following companies:

1. Checkers

Shoprite owns checkers. It is an FMCG retailer that operates in Southern Africa. The company currently has 37 Checkers Hypers and 202 Checkers supermarkets operating all across Africa, including Botswana, South Africa, and Namibia.

2. U-Save

U-Save Centre, located in Umzinto KwaZulu-Natal, South Africa, is a part of the Home Centers & Hardware Stores Industry.

These numbers do not include the 145 MediRite pharmacies because they are located within the stores. The company also has ownership of franchising brands through its OK Franchise Division. This includes various retail formats (Foods, OK Grocer, OK MiniMark, OK Express & Sentra), a liquor outlet (OK liquor), and a wholesale outlet (Megasave), with a total of 505 outlets in Eswatini, Namibia, and South Africa.

Shoprite business strategy

Shoprite’s business model is based on the idea of achieving more but at a lower-than-market price. Constant improvements are being made in the company to improve its efficiency, which includes improvements of its centralized distribution network, supply chain, and sourcing models, drive scale, growth, and enhance margins. All of which contribute to a successful business. The company’s business approach is centred on six fundamental pillars: to increase its LSM 8-10 share of wallet by improving Checkers’ brand perception.

The company is achieving this by improving the fresh food offering, expanding its wellness and convenience proposition, and driving innovation. Other opportunities to improve include expanding its private-label offering as its penetration is relatively low versus peers, capitalizing on the recent rollout of the new SAP retail franchise system, and also achieving scale in its main African operations.

When we consider human and social capital, Shoprite is doing really well. With 147,478, the company is South Africa’s largest employment, having increased by 75,000 in the last decade.

The company invests heavily in learning programs and bursaries for its employees and being active in various Corporate Social Investment (CSI) projects, such as fundraising and donating excess food to charitable organizations. One source of concern is that the organization is only a level 8 B-BBEE contributor, but it is growing its expenditure on black-owned suppliers and has a diverse workforce, with 65 percent female and 97 percent black employees.

Shoprite IPO

As it was mentioned before, Shoprite Holdings Limited is a public company listed on the Johannesburg Stock Exchange, with secondary IPO listings on both the Namibian and Zambian Stock Exchanges. The Shoprite Group aims to generate long-term sustainable growth for equity investors through their food retail businesses and operations all across Africa.

Shoprite had a pretty productive year. Sales were up to a solid +4.7% to R83.4bn for the year through December, and trading profit an impressive +18.3% to R4.7bn. Here in the Beloved Country, sales increased +5.6%, with Checkers, the star performer, growing sales +11.1%. This points to a growth in market share on the part of the group’s posher outfit that must surely be putting the wind-up competitors Pick n Pay and Woolworths – particularly in the light of Checkers’ very successful Sixty60 delivery offering.

Checkers added a further ten FreshX concept stores during the period, for a total of 38. Another highlight of the year was the continued growth of the bare-bones Xtra Savings rewards program, launched just over a year ago and now boasts 17 million members.

CH Wiese, Government Employees Pension Fund, and Shoprite Checkers are its major shareholders.

Shoprite stock analysis

Shoprite Holdings Ltd (SHP) is currently trading at ZAR 154.18 per share. The SHP stock completed its latest trading day on the Johannesburg Stock Exchange at 154.18 ZAR per share, a 0.08 percent decrease from its previous closing price of 154.30 ZAR. SHP started the year with a share price of 140.00 ZAR and subsequently gained 10.13 percent.

The formal food retail sector in South Africa is an oligopoly, with four major players (Shoprite, Pick’ n Pay, Woolworths, and Spar) competing throughout the LSM wealth spectrum. The market is estimated to be worth around R710 billion and is likely to rise over the next four years, providing opportunities for investors.

Bottom line

The retailing and food distribution sector has grown during the pandemic in South Africa, and Shoprite has gained plenty from this. Shoprite provides an attractive investment opportunity, which also drives inclusive growth in the South African economy.

Though Shoprite provides good overall investment opportunities, investors need to study the overall market before investing in Shoprite.

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