South Africa’s favourite retailer
Shoprite is South Africa’s favourite retailer among consumers and investors. Its latest results showed why it deserves its position.
Shoprite is the largest South African retailer in terms of market capitalisation, sales, profit, and number of employees and customers.
It has 160,000 employees working at its thousands of stores and a network of distribution centres across Africa.
On Tuesday, 3 September 2024, Shoprite released its financial results for the 52 weeks that ended on 30 June 2024.
The group’s revenue increased by 12.0% to R246 billion, and its core business, Supermarkets RSA, increased sales by 12.3% to R195 billion. Trading profit increased 12.4% to R13.4 billion.
Inclusive of a net new 73 OK Franchise stores, the Shoprite Group opened a net of 292 stores and created 6,490 new jobs.
Shoprite CEO Pieter Engelbrecht said their 12.0% increase in sales equates to their core South African supermarket customers spending R21.4 billion more.
“This is the greatest reward for our efforts, which result from our best-in-class execution, innovation, and unwavering dedication to serve,” he said.
“Growth of this nature, in a highly competitive market and from a high base, can only be achieved as a result of across-the-board commitment.”
As part of its results announcement, Shoprite said it had signed an agreement to dispose of its furniture business, including the OK Furniture and House & Home brands.
Shoprite is also in advanced discussions to purchase the remaining 50% shareholding in its last-mile logistics provider, Pingo Delivery.
Engelbrecht explained that it found itself at a crossroads with its furniture business’s future growth and profitability.
It was hamstrung by investment needs that required Shoprite to redirect capital and project management resources away from its food retail operations.
“We believe the best outcome for OK Furniture and House & Home is to operate in an environment where its required infrastructure and credit management expertise exists,” he said.
Shoprite’s excellent performance
Shoprite’s excellent performance is clearly seen when compared to its biggest competitors, Spar and Pick n Pay.
Shoprite is the favourite food retailer in South Africa and has delivered the highest share price returns of all other listed food retailers for one, five, and ten years.
A R100 investment made in 2010 in Shoprite, Spar and Pick n Pay would deliver wildly different results.
The Shoprite investment would be worth R472.64 today, Spar would be worth R179.94, and Pick n Pay would be worth R57.24.
These figures only account for price appreciation and not dividend payouts.
| Total Share Price Return | Shoprite | Spar | Pick n Pay |
| 1 Year | 21% | 18% | -39% |
| 5 Year | 113% | -32% | -64% |
| 10 Year | 87% | 1% | -61% |
Shoprite revenue and profitability
Shoprite has consistently delivered growth to shareholders. Over the past 20+ years, it has never had a year when its revenue declined.
From 2002 to 2024, Shoprite’s average annual revenue growth from continuing operations was 11.73%.
Shoprite’s profitability has also been a strong driver of share price performance. Since 2002, Shoprite has only had three negative net income growth periods.
This consistent performance is music to shareholders’ ears, which is why Shoprite has outperformed its peers.
Strong segments and innovation
Originally, Shoprite catered only to the lower LSM (living standards measure) market with the Shoprite and USave brands.
However, the company expanded and changed its strategy to capture a much bigger portion of the food retail market.
Over the past decade, Shoprite has focused on aggressively growing and capturing the higher LSM market.
Checkers, and lately the revamped Checkers FreshX stores, is focussed on serving the higher end of the market.
With this move, the retailer has been able to compete with Woolworths, delivering similar quality goods at lower prices.
Checkers has delivered exceptional growth. Its revenue has long exceeded and is now almost double that of Woolworths Food.
In the past year, Checkers’ revenue has even exceeded that generated by Pick n Pay stores.
Shoprite, through its Checkers brand, used its innovative Sixty60 online grocery shopping platform to dominate the online shopping market.
Checkers launched the app in November 2019. The timing was perfect for quick delivery and non-contact shopping.
As the first food retailer to adopt this scooter delivery system, Checkers became the market leader and experienced significant growth in its online sales.
Daily Investor estimated that Checkers Sixty generates around R10 billion per year in sales.
Cost management and profitability
Over the past ten years, Shoprite has significantly improved its cost of sales. It decreased from 79.19% of revenue in 2014 to its current level of 74.16%.
Tighter controls and bargaining power on supplier goods had a direct positive improvement on the group’s gross profit margins, which increased from 20.81% in 2014 to 25.84% in 2024.
However, since 2022, operating profit margins have started to suffer due to increasing operating expenditures, resulting in an operating margin of 5.43% in 2024.
Like operating expenditures, Shoprite’s net finance costs and tax expenditures increased as a percentage of revenue.
This is mainly due to Shoprite using more interest-bearing debt as a percentage of its total assets to finance its assets.
Higher current interest rates also put more upward pressure on finance costs.
Increased operating expenses and borrowing costs have put downward pressure on Shoprite’s net profit margin. It dropped from 3.65% in 2014 to 2.53% in 2024.
Despite the reduction in net margin, Shoprite still generates significantly more net profit per unit of revenue than either Pick n Pay or Spar.
| Net Profit Margin | Shoprite | Spar | Pick n Pay |
| 2024 | 2.53% | 0.27% | -2.84% |
Solvency and liquidity
Since 2002, Shoprite’s average debt ratio has been 0.67, meaning that, on average, 67% of its assets were funded by liabilities.
Shoprite’s latest debt ratio was 0.75, which indicates a slightly less solvent position than the average.
Compared to its competitors, Shoprite is in a much better position, being more solvent than either Spar or Pick n Pay.
| Metric | Shoprite | Spar | Pick n Pay |
| Debt Ratio | 0.753 | 0.834 | 1.004 |
Shoprite is also in a strong liquidity position, which refers to its ability to cover its short-term liabilities.
Since 2002, Shoprite’s average current ratio has been 1.13 times. Its latest current ratio is 1.21 times – stronger than its average.
This means that Shoprite can cover its short term liabilities 1.21 times with only its short term (liquid) assets.
Shoprites’ current ratio is also significantly stronger than that of its competitors.
| Measure | Shoprite | Pick n Pay | Spar |
| Current Ratio | 1.21 | 0.79 | 0.94 |
An even stricter liquidity measure is its cash ratio. This is how much of its short term liabilities could be covered by only using cash and cash equivalents.
Shoprite’s cash ratio is currently 0.28 times, meaning it could cover 28% of its short term liabilities with only cash.
Compared to Spar and Pick n Pay, Shoprite is in a healthier liquidity position.
| Measure | Shoprite | Pick n Pay | Spar |
| Cash Ratio | 0.28 | 0.21 | 0.06 |
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