South Africa’s unstoppable retail giant

In five decades, Shoprite has grown from a small family-owned grocer in the Western Cape valued at less than R1 million into a JSE-listed retail juggernaut worth more than R180 billion. 

Lieketseng Pitse, senior research analyst at Standard Bank’s Melville Douglas, said Shoprite is not your average company and still has room to grow. 

Pitse said the company’s strong performance within Melville Douglas’ portfolios has tempted some to consider exiting their investments in Shoprite, given its impressive returns in the past few years. 

However, the firm still believes Shoprite’s operational potential is far from being fully realised, with its investments in infrastructure and technology just beginning to bear fruit.

Pitse said these investments have placed the company well ahead of its competitors, who are now playing catch-up. 

In the past six years, Shoprite has steadily gained market share against its competitors, particularly Pick n Pay and SPAR, with its sales far outpacing its peers. 

Pitse explained that it is incredibly rare to see significant disruptions in South Africa’s retail landscape, with the industry largely evolving with substantial changes. 

Shoprite has blown this thesis out of the water with its use of ‘precision retailing’ and ShopriteX’s launch to drive innovation. The retailer has become a true disruptor in the industry. 

The company’s advanced analytics business was brought fully in-house in December 2023, enabling it to control the intellectual property behind ShopriteX. 

ShopriteX has been instrumental in the success of the retailer’s digital shopping channels, particularly through Sixty60 and its Xtra Savings rewards programme. 

Another key advantage the company has is its diverse customer offering, which allows it to sell across all major income segments in South Africa. 

The purchase of Checkers in the 1970s was central to this offering, expanding the retailer’s reach into higher-income segments. 

This acquisition transformed the company from a small 71-store chain in the Western Cape into a nationwide retail giant with over 200 stores. 

Checkers was successfully turned around, and today, it trades out of three formats – small convenience stores called Checkers Foods, Checkers and Checkers Hyper.

In the early 2000s, the retailer also launched its Usave brand, which offers a limited assortment of products in an extremely small store format close to customers’ residences. 

This brand, particularly focused on townships, informal settlements, and rural towns, has shown strong growth in recent years and now has over 460 stores. 

The graphic below, courtesy of Pitse, shows just how far Shoprite’s reach extends into the retail market in South Africa. This is followed by a graph comparing the company’s sales to Pick n Pay and SPAR. 

This strong growth has translated into impressive returns for Shoprite investors, with the company’s share price more than doubling in the past five years. 

Pitse said this may lead some to sell their stakes in the company as the returns have accumulated relatively quickly, and some may feel the horse has bolted from the stable. 

However, Melville Douglas believes the growth will continue for the foreseeable future as the company’s investments in ShopriteX and enhanced store infrastructure will bear fruit in the coming years. 

The company is not ‘ex-growth’ as some believe, with its strong market share, relentless innovation, and advanced customer analytics creating a solid foundation for continued growth. 

Its incredible analytics enable the company to meaningfully reduce costs and improve product availability, Pitse said. 

These investments have also not come at the expense of the company’s financial health and growth, distinguishing it from its peers. 

Shoprite’s ability to generate sustainable returns and compound growth over time sets it apart from most other companies, Pitse said. 

This consistent performance not only reflects the company’s strategic management and operational efficiency but also its resilience in navigating market challenges.

As the economy stabilises, the retailer is well-positioned to capitalise on renewed consumer confidence and spending. 

With competitors struggling to keep pace, Shoprite’s advanced systems and infrastructure give it a significant competitive edge. 

If the broader economic environment continues to improve, the retailer’s ability to adapt and innovate could further enhance its prospects, leading to new opportunities for growth. 

“As investors, our confidence in Shoprite is bolstered by its proven ability to deliver value,” Pitse said.

“Our investment strategy is not solely focused on short-term gains; we are committed to the long-term potential and stability that Shoprite consistently offers.”