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Shoprite zeroes in on Woolworths shoppers

By Katherine Child

Shoprite is gunning for Woolworths shoppers as its strategy to sell premium food gains momentum.The strategy under CEO Pieter Engelbrecht is part of a diversification effort by the retailer renowned for its low-income market focus and will inevitably pit its Checkers outlets against Woolworths, which has made the high-end consumer its bread and butter. Checkers stores, including its premium FreshX stores and Checkers Hyper, are slowly making inroads in the premium grocery market, growing sales 11.2% in the six months to end-December and making the division one of the best-performing of Shoprite’s businesses.

"Our assault on premium food retail is gathering pace," Engelbrecht said in his investor presentation of the company’s annual earnings report that showed basic headline earnings per share — the widely watched measure of profit — falling 2.6% to 372.8c. The turf war comes as the mainstay customers of Shoprite, which runs discount outlets of the same name and ultra budget-conscious chain Usave, battle high personal debt levels, job losses and record low wage increases in an economy trapped in low growth. The high-end consumer has largely escaped the downturn, helping Shoprite’s rival Woolworths to counter weak consumer spending at its clothing business and the costs of its ill-fated David Jones acquisition in Australia. Woolworths’ food business remains the best-performing part of the group, bringing in R16.6bn in half-year sales.

Shoprite’s Checkers outlets, a handful of which have been refurbished to serve well-heeled consumers, delivered R23.4bn in sales. "Our group strategy to capture a larger share of SA’s premium food retail segment continues to be one of our drivers of growth," Engelbrecht said. "We are attracting more affluent customers than we used to. We have 31% market share in the SA market and Checkers is only about 10%. We are under-represented in Checkers."

Its higher-end refurbished FreshX stores, which have sushi bars and coffee stations, are "leading the pack". The 28 newly launched stores have brought "uninterrupted gains for us in sales of liquor, fresh food and convenience [meals]," Engelbrecht said. Shoprite plans to open a total of 80 FreshX stores in two years. Shoprite said FreshX customers visited the shop 3.5 times more than the average Checkers customer and spent 1.5 times more."It’s a very, very lucrative market. I wasn’t sure you thought the discounters from Brackenfell can play in that market," Engelbrecht joked. Although Checkers stores grew 11.25%, this was off a low base and Woolworths Food grew 8% in the same period, off a higher base of 8% in 2018.bGryphon Asset Management analyst Casparus Treurnicht said: "There are no numbers available to support an opinion that Checkers is taking market share from Woolworths Food. Woolworths Food also performed better in this period. My best guess is that Checkers is taking sales from somewhere else."

Treurnicht said they could be stealing other food retailers’ growth or just eating into the restaurant or food takeaway market. "People are also dining less. Checkers premium food might very well gather momentum. Woolies have a very loyal following and breaking this barrier means quality will need way more improvement. "Shoprite, quoting market research agency Nielsen, said it had 31% of retail market share, gaining R2.2bn or 1.1% in six months. But Engelbrecht admitted it had lost R1bn in market share in 2018.Rest-of-Africa sales were down 3.4% in rand terms partly due to major currency devaluations in Angola and Zambia, while Nigeria lost 59% of customers in two months, due to "retaliatory protests" in response to xenophobic attacks in SA. The government needs to work on diplomatic relations with Nigeria, as it is "such a big economy we cannot ignore it", Engelbrecht said.

This article first appeared on Business Day.

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