Pick n Pay’s crown jewel gunning for Shoprite’s Usave

Boxer has emerged over the past four decades to become one of South Africa’s largest discount retailers, aiming to double its store footprint over the next five years. 

While the growth is rapid, it is also deliberate, with the company playing to its strengths by focusing on a core offering that is a quarter of the size of Shoprite’s. 

Camissa Asset Management associate analyst Katlego Dinake recently outlined the drivers behind Boxer’s strong growth and the potential pitfalls of its rapid expansion. 

Boxer was founded over four decades ago in the Empangeni region of KwaZulu-Natal, growing from small beginnings to holding 6.4% of the formal domestic grocery market. 

It operates over 500 stores across the country, with the company historically leveraging Pick n Pay’s balance sheet to grow after the retail giant bought Boxer in 2002. 

Pick n Pay recently sold part of its stake in Boxer as part of its separate listing on the JSE in 2024 to raise R8.5 billion. This made it the largest listing on the JSE since 2017, with Pick n Pay retaining a 65% stake in the company.

Boxer primarily targets middle- to lower-income consumer segments through its Superstores, Liquor, and Building Materials businesses. 

Dinake explained that Boxer is significantly smaller than its main rival, Shoprite, but has compensated for this by focusing intensely on a curated offering. 

Boxer offers a range of 3,000 stock units, compared to Shoprite’s 11,000. This gives it a core offering built around shelf-stable essentials such as maize meal, rice, oil, and beans. 

These products can be stored at ambient temperatures, negating the need for complex and costly cold-chain logistics. 

This narrower product range also enables Boxer to place larger order sizes from suppliers, boosting its purchasing power and keeping a lid on price increases. 

The retailer is built upon passing on these savings to consumers, Dinake explained, resulting in Boxer holding a higher market share than Shoprite in some key product lines despite its competitor’s size. 

However, in recent years, the rapid rollout of Shoprite’s smaller-format Usave stores has encroached on Boxer’s sphere of dominance. 

These smaller stores from Shoprite focus even more intensely than Boxer, having only 1,900 stock units and a very high private-label penetration. This gives Shoprite close control over the price of goods in these stores. 

The graphic below from Dinake and Camissa compares Boxer against its largest competitors in South Africa. 

Boxing clever

Boxer plans to double its 525-store footprint over the next five years, while Shoprite also plans to reach 1,000 Usave stores in the same period. 

This rollout intensifies competition for prime sites and increases the risk that Boxer might cannibalise its own network, particularly in saturated areas. 

Dinake said these are real threats to Boxer, with the retailer leaning heavily on its commitment to minimise costs to win this battle. Boxer already has the lowest costs-to-sales ratio in the industry due to four key factors –

• Low-cost, no-frills store layouts designed for high footfall and maintained with simple, scalable IT systems
• Lower store rental costs owing to non-premium but high-traffic store locations
• Distribution centres that function as warehouses, without the need for expensive cold chain infrastructure
• Fresh produce sourced directly from farmers, or nationally from fruit and vegetable markets, and transported directly to stores, eliminating the need for specialised storage.

Due to these factors, a Boxer store is relatively cheap to open, costing around R17 million for a full Superstore and just R1.6 million for a liquor store. This enables Boxer to fund most of its store rollout itself. 

Boxer is also doubling down on lower-income consumers, who make up around 52% of South Africa’s formal grocery spend and are the fastest-growing segment in the market. 

Dinake explained that within this demographic, rising population growth and increased living costs result in a larger number of consumers shopping at discount retailers. 

Boxer already has strong exposure to this segment, with around 60% to 70% of its monthly sales occurring at month-end, which is consistent with social grant disbursements and paydays. 

In contrast, Shoprite’s Usave sees peak trading mid-month, mainly from top-up purchases, with consumers preferring the experience of a full-service Shoprite store at month-end. 

Boxer is also looking to grow its private-label brands, which lag those of its competitors as a share of revenue. These brands currently account for 19% of Boxer’s sales. 

On average, private labels are 17% cheaper than branded alternatives, making them highly attractive to discount retailers. 

However, the success of these brands relies heavily on consumer trust, which is something that takes years to build. The benefits can be immense in the form of greater savings for consumers and wider margins for Boxer.

Challenging for the crown

Question marks still remain about whether Boxer can compete with the heavyweights, with continued growth depending heavily on it expanding its market share and store network. 

It has to do this in an environment where Shoprite is firing on all cylinders, with the giant looking to open over 500 new Usave stores in the next five years. 

At the same time, SPAR is looking to double the footprint of its SaveMor brand and continue rolling out new Tops liquor stores across the country. 

Boxer’s management team has identified R106 billion worth of expansion opportunities in South Africa, which is just less than three times its current revenue. 

There are some markets where Boxer has little to no presence, but where demand for discount retailers is strong. However, these are increasingly few and far between. 

Boxer aims to double its turnover in the next six years, continuing its immense 23-year track record of 19% average annual sales growth. 

Dinake said there are plenty of challenges, particularly in the regions already well-served by entrenched competition in the form of Shoprite. 

Shoprite’s brand familiarity, extensive logistics network and early-mover advantage give it a solid foothold that will be difficult to dislodge. 

This is especially evident in the Western Cape – Shoprite’s home base and stronghold – where Boxer operates around 15 stores. Conversely, Shoprite and Usave together have more than 150 outlets in the province.

A hidden threat to Boxer is the rise of South Africa’s informal grocery retail market, which is expected to grow to R494 billion by 2027 at an average annual growth rate of 7%. 

Boxer believes it can win market share from these traders by offering proximity, scale, and affordability. This is far easier said than done. 

Incumbents remain formidable, benefiting from deep community ties, an in-depth understanding of local demands and needs, as well as extreme proximity to consumers. 

The graph below, courtesy of Dinake and Camissa, shows Boxer’s immense growth over the past 23 years, since it was acquired by Pick n Pay.