Shoprite’s big informal economy expansion

Shoprite plans to double the number of Usave stores it has in the next five years to tap into the strong growth of the informal economy in South Africa. 

The company revealed this expansion plan following the release of its results for the year to the end of June 2024. 

These results show that South Africa’s premier retailer continues to steam ahead, with revenue up 12% and trading profit growing to 11.7% R13.4 billion. 

This was driven by the company’s Supermarkets RSA division, which includes brands like Checkers and Usave. 

Shoprite is unique amongst South African retailers as it services nearly all income segments.

The company operates under different brands, store formats, and market segments in various regions, adding an element of defensiveness that Old Mutual Wealth expects will benefit the group’s margins over time.

Shoprite and Usave meet the needs of the company’s core customer base in lower-income segments. In the most recent financial year, these two brands generated sales worth R90 billion, up 10.7%. 

Usave, in particular, has shown strong growth as South Africans hunt for value, growing sales by 13.2% – the fastest-growing supermarket brand in Shoprite’s stable. 

The company aims to allocate additional capital to this brand, aiming to continue its impressive growth over recent years and stave off competition from Pick n Pay’s Boxer. 

Shoprite CEO Pieter Engelbrecht singled out Usave’s performance in the latest results, saying its growth is even more impressive considering its target customer base. 

“Whilst Usave reports from a substantially lower rand value base than Shoprite, its growth in a highly competitive market is a testament to the role it plays and validates both its positioning as well as our core supermarket business segmented approach,” he said. 

Prior to becoming CEO, Engelbrecht was the brain behind the Usave brand and drove its growth into the informal economy as well as rural parts of South Africa. 

The brand was first launched in 2001 as a way to tap into the burgeoning informal economy, with a primary focus on townships and ‘forgotten’ towns outside of major metros. 

It has grown rapidly since then, with the small-format stores coming to dominate township retail. The company now has 463 Usave stores across South Africa, opening 22 more in the past year. 

This Usave expansion is far from over, with Engelbrecht saying there is room for 1,000 stores in South Africa. 

The company often uses these stores where it cannot own the land it operates on, such as in areas where tribal authorities own the property or if there is limited infrastructure. 

This makes these areas unviable for a fully-fledged Shoprite store. However, this does not mean the two brands compete with each other in townships or rural areas. Rather, they complement each other. 

Engelbrecht explained that Shoprite’s data shows a strong interplay between Shoprite and Usave. At month-end, people flock to more formal Shoprite stores for groceries, but in mid-month, they frequent Usave stores closer to their homes. 

The company sees a big opportunity in the informal retail sector, which Trade Intelligence values at R197 billion. Shoprite also competes in the R259 billion wholesale cash and carry market, making the overall opportunity worth close to R456 billion. 

To tap into the growing informal economy, Shoprite aims to double the number of Usave stores it currently has in the next five years.

Key to this expansion is the brand’s relatively new offering, Usave eKasi, which is a container-store format which enables the company to open stores where they were not previously viable. 

These stores are often made up of only five or six shipping containers and are highly flexible, quick to open, and capital-light. 

Shoprite has also capitalised on mistakes made by some of its competitors, most famously Pick n Pay’s decision to withdraw from townships due to political uncertainty in the 1990s. 

This opened the door for Shoprite to expand rapidly into this market in the early 2000s. By the time Pick n Pay launched its ‘Traders Welcome’ campaign in 2016 to get informal shopowners to source stock from its stores, it was too late. 

Massmart also tried to compete in this sector through its Cambridge Foods cash and carry business. The company ended up selling these stores to Shoprite in August 2021. 

Shoprite has since turned the stores it acquired from Massmart into a mix of Shoprites, Liquorshops, and Usaves. The transaction also included a meat processing plant. 

It said the acquisition contributed R5.9 billion to the sale of merchandise and employed 4,480 staff members.