By Tannur Anders and Nqobile Dludla
JOHANNESBURG (Reuters) -Shoprite plans to spend about 8.5 billion rand ($443 million) to increase supply chain capacity, add stores and strengthen its digital capability, South Africa’s biggest supermarket group said on Tuesday after posting a 9.6% rise in annual profit.
The retailer has been swallowing market share from rivals Pick n Pay and SPAR, while pushing into the higher-margin upmarket niche dominated by Woolworths.
But rivals have been innovating and expanding capacity in a fiercely competitive grocery market, forcing Shoprite to step up a turf war for both budget and affluent shoppers.
The company is adding 200,000 square meters in new distribution centres over the next two years to support growth at its over 2,100 South African supermarket stores and additional 314 new stores planned in its new financial year, which started on July 3.
With its one-hour grocery delivery service Sixty60 dominating the on-demand grocery delivery market, the company will launch a 99 rand per month subscription model, a first for grocery retailers, to help snatch more than the 15% market share currently held by its affluent Checkers brand.
“The fact that there is currently no economic growth… doesn’t mean we can stop investing. Because if you stop investing, to start again in the future is a slower start,” Chief Executive Pieter Engelbrecht told investors on Tuesday.
Shoppers flocked to its stores for bargains, with customer visits up 13.2% in the year, while volume grew by 4.9%. This boosted Shoprite’s market share growth by 1.4% and contributed to overall sales growth of 16.9% at 215 billion rand.
Its headline earnings per share from continuing operations grew to 1,166.2 cents in the period even as it spent 1.3 billion rand on diesel for back-up power generation, as state utility Eskom struggles to keep the lights on.
The company’s share price fell 5.73% by 1217 GMT.
“When investor expectations are too high, as was the case with (Shoprite), some level of disappointment creeps into the price once the CEO starts talking,” Casparus Treurnicht, portfolio manager at Gryphon Asset Management told Reuters.
“This was a classic example of the share getting ahead of itself,” he added.
($1 = 19.1670 rand)
(Reporting by Tannur Anders, Editing by Louise Heavens, Nqobile Dludla, Alexander Smith and Nick Zieminski)
