Usave and Boxer battle
Shoprite’s Usave plans to double its store footprint in the next five years as it sees a big opportunity in the township and informal retail markets.
This expansion will also stave off competition from Boxer, which is set to get an independent listing on the JSE as its parent Pick n Pay aims to stabilise its balance sheet and raise capital for growth.
The informal retail market, made up of spaza shops and mobile traders, provides millions of South Africans with easy and cheap access to basic goods.
Crucially, these shops and traders are much closer to South Africans’ homes than traditional shopping malls or hypermarkets.
As this market has grown rapidly, it has attracted the attention of formal retailers looking to tap into its strong growth in comparison to the stagnant formal economy.
Chief among these retailers has been Shoprite, which has been a player in the sector through its Cash & Carry stores and Usave since 2001.
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. It increased sales by 13.2%, making it the fastest-growing supermarket brand in Shoprite’s stable.
Usave’s primary focus is growing Shoprite’s presence in townships and ‘forgotten’ towns in rural parts of South Africa.
These areas are not conducive to a fully-fledged Shoprite store, as there is inadequate infrastructure to sustain such an operation.
To accelerate its expansion into this market, Shoprite has launched Usave eKasi, a small-format store made of shipping containers.
These stores enable Shoprite to grow its presence in previously underserved markets and, importantly, move its products closer to consumers’ homes.
CEO Pieter Engelbrecht said the company’s data shows that many of its customers travel long distances at month-end to purchase products from Shoprite stores, while during the month, they frequent Usave stores that are closer to their homes.
To tap into the growing informal economy, Shoprite aims to double the number of Usave stores it currently has in the next five years.
Engelbrecht said there is space in South Africa for 1,000 Usave stores and singled out the brand for its impressive performance in the company’s most recent results.
Pick n Pay was the first traditional retailer to move into the township market in the late 1980s and early 1990s, identifying a significant opportunity as South Africa developed.
However, as political uncertainty ramped up in the 1990s, it decided to withdraw from these areas and abandoned its township expansion project.
It has tried to break into the market more recently by launching its ‘Traders Welcome’ campaign in 2016 to get informal shopowners to source stock from its stores.
It offered bulk deals to informal retailers but has been outcompeted by Shoprite’s Cash & Carry stores and independent wholesalers.
The only real success the retailer has had in the informal economy has been through its Boxer stores, which have shown tremendous growth in recent years.
The Boxer brand has been Pick n Pay’s best-performing business unit over the past few financial years as the areas it serves prove to be more resilient to economic shocks than more traditional retail market segments.
Pick n Pay expects to list Boxer separately on the JSE before the end of 2024 as the struggling retailer looks to shore up its balance sheet.
Boxer is an impressive business in its own right, with 477 stores in South Africa and has plans to double this in the next six years. This is expected to keep its turnover growing in the double digits.
Like Usave, Boxer is focused on lower-income South Africans in townships and rural areas. This has enabled it to ride the wave of the informal economy’s resilience, growing turnover at an annualised rate of 19% for the past three years.
It made R37.4 billion in sales in the last financial year and R2.1 billion in profit.
Boxer has a particularly strong presence in KwaZulu Natal and the Eastern Cape but has yet to tap other areas of the country as significantly.
It has also admitted the company’s performance is sensitive to social grant payments, which it expects to grow significantly in the coming years.
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