SHP delivered solid 1H24 results and cemented its commanding position in the SA food retail market. It is in an enviable position as both its main supermarket rivals, Pick n Pay (PIK) and Spar (SPP), are grappling with operational and financial challenges. The stability of SHP’s management is in contrast to its peers, both of which have had three different CEOs over the past three years.
We think the lack of formidable competition could allow SHP to grow its margins. However, its exploration of various initiatives and new formats could offset some of those gains. We think it is also emboldening management to take more risks, which may be contributing to the innovation evident in SHP in recent years.
Given its market-leading position, we consider the risks of being too dominant in the food retail market by drawing on the experience of the Australian market leaders, Coles and Woolworths, who are accused of price-gouging and anti-competitive behaviour in that market. However, SHP’s track record of being the low-price leader and its demonstrated social responsibility (for example, selling bread for R5 a loaf, a price unchanged for seven years), would invalidate any such claims, in our view.