How much R1,000 invested in Pick n Pay, Woolworths, and Shoprite in 2024 is worth today
Despite a dismal financial performance, Pick n Pay is South Africa’s best-performing JSE-listed food retailer in the year to date, followed by Shoprite.
The share price performance of South Africa’s food retailers between 1 January and 20 June 2024 has been mixed.
Woolworths has suffered the most, with its share price down over 13% this year. Comparatively, South Africa’s other food retailers have performed well.
SPAR’s share price is down slightly by 0.74%, and Shoprite is up over 6%. Surprisingly, Pick n Pay has seen the best share price performance, up almost 19% year to date.
This comes as these retailers have been under significant pressure in 2024. Sasfin analyst Alec Abraham told Daily Investor that the key headwind for food retailers in South Africa is the economic malaise degrading consumer wealth.
Over the past few years, rising living costs have significantly impacted South African households’ wallets. Consumers struggle to afford basic necessities, including food.
FinMark Trust’s annual FinScope Consumer South Africa for 2023 found that food costs consume approximately one-third of South African residents’ income, and rising costs weigh heavily on consumers’ budgets.
Living expenses, which include groceries, energy, transportation and communication, account for around 85% of monthly income.
Specifically, groceries account for 30.4% of expenses, energy for 11.5%, transportation for 9.1%, communication for 8.8%, and routine household maintenance, rental, and rates for 8.5%.
This economic pressure has been reflected in the results of South African food retailers, as they have all suffered from the country’s weak economy.
Below is an overview of South Africa’s listed food retailers and their share price performances over the six months.
| Retailer | Initial investment | Share price growth YTD | Current investment value |
| Pick n Pay | R1,000 | 18.51% | R1,185.10 |
| Shoprite | R1,000 | 6.06% | R1,060.60 |
| Spar | R1,000 | -0.74% | R992.60 |
| Woolworths | R1,000 | -13.86% | R861.40 |
Pick n Pay
Pick n Pay has taken major hits over the past few years, thanks to strategic missteps. The failed Ekuseni strategy implemented by its former CEO, Pieter Boone, left the company in a dire financial situation that it needs to address urgently.
Last month, Pick n Pay released its results for the year that ended 25 February 2024, which revealed a company in serious financial trouble.
Its net profit was significantly impacted by a R2.4 billion interest expense due to rising debt and an R2.8 billion impairment loss on assets.
These factors contributed to Pick n Pay’s R3.2 billion net loss, the worst in the retailer’s 57-year history.
Apart from its poor operational performance, Pick n Pay also took on more debt than it could handle.
The significant increase in debt caused its total asset value to fall below its total liability value, creating a negative equity value – meaning the retailer is technically insolvent.
However, there is a plan. The retailer has announced a two-pronged approach to raising money to reduce its debt and strengthen its balance sheet.
First, it plans to implement a rights offer that will raise R4 billion from shareholders. Pick n Pay said the offer would “provide short-term liquidity.”
Second, it wants to list Boxer separately on the JSE, with an initial public offering (IPO) set for later in 2024.
The capital raised from the rights offer, Boxer IPO, and asset disposals from store closures could put the group into a healthier financial position.
The retailer’s new CEO, Sean Summers, has also implemented a back-to-basics strategy to turn the company around, which is already showing positive signs.
These turnaround plans have clearly resonated and sparked hope for investors, as Pick n Pay’s share price has performed exceptionally well in the year to date, up almost 19%.
SPAR
While SPAR has shown revenue growth over the past decade, the retailer’s earnings haven’t kept pace.
This is largely due to increased competition in the food retail space and the country’s economic hardships.
However, SPAR’s weak performance over recent years has also largely been due to self-inflicted challenges.
For example, one major weight on SPAR’s performance was its botched implementation of the SAP IT system at its KwaZulu-Natal distribution centre in early 2023.
Following the first regional launch of SAP ERP and warehouse management system at the KZN distribution centre in February 2023, the business experienced several integration issues.
These issues are estimated to have cost the retailer an estimated R1.4 billion in lost turnover.
Recently, the retailer released its interim results for the six months through March 2024 today, which revealed mixed results for the food retailer.
While turnover and revenue grew, SPAR’s earrings fell by around 7%, and the retailer’s total comprehensive income dropped by almost 100%.
This lacklustre performance is reflected in the company’s share price, which is down by 0.74% in the year to date.
Woolworths
Woolworths is set apart from other South African food retailers in that it targets the higher-income market. It also derives a large segment of its income from items other than food, including clothing and household products.
This has made it one of the more resilient retailers in South Africa, but some strategic mistakes in recent years have been costly for the company.
In particular, Woolworths’ 2014 acquisition of David Jones has cost the retailer billions. The retailer hoped to expand its business internationally and become a leading apparel retailer, but this plan turned out disastrous.
Woolworths invested heavily in David Jones, both for the initial purchase and for improvements over the years. This totalled at least R28.6 billion.
However, in the end, Woolworths sold David Jones in 2022 for a fraction of what they paid for it. This was a major loss for Woolworths and is considered one of the biggest corporate blunders in South Africa.
In its latest full-year results, Woolworths’ revenue and profits took a hit as consumers continue to find themselves under pressure in South Africa and Australia with little cash to spend.
Group turnover for the period was down 16.7% to R37.5 billion. However, the value of its continuing operations was marginally higher at 5.1%.
Profit from continuing operations took a heavy hit, declining by 14.2% before tax, while headline earnings per share declined by 7.4%. Woolworths cut its interim dividend by 6.6% to 148 cents per share.
Woolworths’ struggles are reflected in the retailer’s share price, which is down almost 14% in the year to date – by far the worst performance among South Africa’s listed food retailers.
Shoprite
Shoprite, which owns Checkers, is currently considered South Africa’s most successful listed food retailer.
In South Africa’s tough economic environment, Shoprite has emerged as the clear winner among local listed food retailers.
Abraham said Shoprite has been the winner for four key reasons –
- The retailer sharpened its strategic focus on South Africa and stepped away from the much more complex, risk-laden, for minimal financial reward, African expansion.
- It effectively leveraged its perceived price leadership position to gain market share.
- It leveraged its leadership to expand into other retail categories to capture growth in the low-growth South African economy and weak consumer landscape.
- All these factors also enabled the group’s early investment in an efficient distribution system.
“With such a commanding lead, it’s difficult to imagine that any other retailer could challenge,” Abraham said.
This means Shoprite will likely remain at the top for at least the next three to five years.
In its latest results, Shoprite reported making R219.53 billion in revenue and an operating profit of R12.34 billion.
Shoprite’s share price has remained relatively stable over the past year and is up 6% in the year to date.
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