As Checkers continues to gain market share in the higher-income segment, we turn our attention to the Shoprite chain serving the middle and lower-income segments. Our analysis shows that this chain had the lowest turnover CAGR in the group over the past 12 years, with only a 2.7% CAGR in trading densities over this period. With internal inflation averaging 4.3%, Shoprite’s volume trading density may have declined at a rate of c.1.6% p.a. over the past 12 years, by our estimates. We are concerned that an accelerated store rollout by competitor Boxer after its listing may put further pressure on Shoprite’s trading densities. We also find that Shoprite’s private label is lagging, with a contribution of 19.9%. This is well below Usave’s participation of 33.6%, and also behind Checkers’ 20.9%.
We think the sale of the furniture business is a positive development, as it is non-core and does not fit in with management’s “Precision Retailing” strategy. The furniture business has become less significant, as its contribution to group trading profit dropped from 12.7% in FY07 to only 1.5% in FY24.
As management does not disclose the Sixty60 online sales, we estimate this contribution based on delivery recoveries and average basket sizes. We estimate that the 22.7 million deliveries in FY24 may have generated R5.7bn in online sales, contributing 7.3% of Checkers’ turnover. The online business is likely to receive a boost from the extension of the offering to include general merchandise. We believe online sales have lower margins, as the picking and delivery costs may not be fully recovered. As its sales contribution increases to double digits, online may become more margin dilutive, in our view.