Consumer Research Africa

Shoprite (SHP) – Taking Route Sixty60

Shoprite delivered strong FY23 results in a difficult trading environment. Checkers is making significant inroads in the middle- to higher-income segment, and we think it is the primary beneficiary of competitor Pick n Pay’s (PIK) market share losses. In this report, we show that Checkers has captured 52% of the market growth of the Top 4 food retailers in this segment over the past year, and is likely to surpass Pick n Pay SA in terms of sales this year. It has also extended its lead over Woolworths Food.

Its soon-to-launch subscription on-demand grocery delivery service could be popular with customers, but we note some downside risks to this strategy. We show that small basket values could have very low GP margins, and that more orders do not increase the margin of online sales. Higher basket sizes would generate higher GP margins, but there is the constraint of the limited storage space on delivery bikes. While this new offering is exciting, we think it could dilute margins.

SHP SA now accounts for 15.5% of the total SA retail market of R1.3 trillion. Management’s exploration of other retail segments, such as clothing, outdoor and other retail formats, could provide more growth opportunities that could increase its share of the total SA retail market to over 20%, in our view. However, the increasing diversity of chains and formats could make the business more difficult to manage, which could negatively impact its performance.

Its recent successes have emboldened management to ramp up capex, but we caution that SHP in the past had periods of extensive capital investment which delivered diminishing incremental returns and lowered its ROE.