Checkers teaches Woolworths a lesson

Checkers has gained market share from Woolworths Food for years thanks to its excellent retail strategy and successful Sixty60 grocery delivery app.

Woolworths’ full-year results for the 2024 financial period revealed that its turnover increased by only 4.3%, from R72.3 billion to R76.5 billion.

The retailer’s bottom line came under even more pressure. Net profit decreased by 49% from R5.1 billion to R2.6 billion.

Woolworths’ poor profit performance was caused by increasing operating costs and interest on debt.

The group’s operating expenses increased by 11.2%, which was mainly driven by significantly higher store costs.

The group also experienced a 19.4% increase in its debt interest expenses, which totalled R1.7 billion for the financial year.

Woolworths Food is the group’s best-performing segment, with an average revenue growth of 7.9% over the past 5-year period.

It has also seen steady increases in its profit before tax, with a 15.4% increase from its previous financial year.

CEO Roy Bagatinni said that the 2024 financial year proved to be much more challenging than they expected.

The Australian market was particularly difficult, and financial pressure on Australian consumers impacted Woolworths’ results in the region.

Shoprite, which owns Checkers, reported strong results for its 2024 financial year, which saw the retailer’s revenue up 12%.

The company’s trading profit grew by 11.7% to R13.40 billion, and profit for the year grew by 4% to R6.22 billion.

The largest part of this growth was driven by the group’s Supermarkets RSA division, which saw its trading profit grow by 11%.

Checkers and Checkers Hyper saw 12.3% sales growth, opened 26 new stores and underwent 12 store upgrades.

Shoprite CEO Pieter Engelbrecht said the company’s increase in sales equates to its core South African supermarket customers spending R21.4 billion more with the retailer.

“This is the greatest reward for our efforts, which result from our best-in-class execution, innovation, and unwavering dedication to serve,” he said.

Checkers versus Woolworths Food

Over the past decade, Shoprite has focused on capturing a larger share of the high LSM market in South Africa.

It used its Checkers, and lately, the revamped Checkers FreshX stores, to target richer South Africans through high-end products.

Increasingly, Checkers competes with Woolworths Food by delivering similar quality goods at lower prices.

The retailer’s successful Sixty60 grocery delivery app has also helped it capture market share in the high-end segment.

Daily Investor estimated that Checkers Sixty60 generates around R10 billion in sales per year. Even more impressively, the platform is profitable.

Checkers has delivered exceptional growth. Its revenue has long exceeded and is now almost double that of Woolworths Food.

For the past five years, Woolworths Food has lost market share to Checkers, dropping from 43.1% in 2019 to 37.8% in 2024.

The chart below shows the change in market share, with Checkers rapidly taking market share from Woolworths Food.

Shoprite’s lesson to Woolworths

One reason Woolworths Food is losing market share is that its parent company has too many balls in the air.

It had to address its failing Australian retail venture, David Jones, which took a lot of time and resources.

Woolworths purchased David Jones in 2014 for R21.4 billion and sold it for R1.1 billion eight years later. It was one of the worst corporate blunders in the retail sector.

The company is also spending a great deal of resources on other segments of the business which are struggling.

Wayne McCurrie from FNB Wealth and Investments said Woolworths should learn from Shoprite by selling unprofitable business units.

Shoprite recently signed an agreement to dispose of its furniture business, including the OK Furniture and House & Home brands.

Shoprite CEO Pieter Engelbrecht explained that selling their furniture business made sense to them as it hurt its ability to grow other parts of the business.

This part of the business forced Shoprite to redirect capital and project management resources away from its food retail operations.

Shoprite, which owns Checkers and Usave, is primarily a food retailer. It has deep expertise in this field and generates most of its revenue from food.

The furniture business did not contribute much to the Shoprite Group and was diverting attention away from its core business.

McCurrie explained that Shoprite’s furniture business was small compared to its food business, and it did not have the prospect of big profits.

“This is not a thriving operation. It is clearly not making big money because Pepkor is paying next to nothing for hundreds of stores,” he said.

He said Woolworths can learn from Shoprite. “They are not good at selling furniture, so they simply get rid of that business. They are sticking to what they know,” McCurrie said.