[TOP STORY] Reflections on Shoprite’s results and operations

SIMON BROWN: I’m chatting now with Mia Kruger, director at Kruger International. Mia, I appreciate the time. Shoprite, which is a chunky holding in my portfolio, [brought] results out yesterday: turnover not bad, earnings up 10%. This was also [for] one week less than the previous year. Obviously they had the riots in July in those numbers because it’s for the full year. SA operating margin 6.8%. I really liked the results.

Read: Mighty Checkers machine rolls on, Sixty60 sales up 150%

MIA KRUGER: I agree with you, Simon. Good morning. I think it’s baffling to see the market’s reaction. There was clearly someone who expected much more from Shoprite than we did. I think if you consider the numbers against even the peers, it was nearly double what we saw from Woolworths.

What I like about Shoprite – we’ve been saying this, you and I, for ages – is that it’s positioned in the right area of the market.

It’s really focused on the growth area of the market and it’s really focused on what an emerging market is all about, like South Africa is.

So we saw them on the Checkers side – which is just over 40% of the business really, which is the upper end of the business – take away quite a bit of market share from the other players.

MIA KRUGER: They’re also planning on opening quite a couple of new stores. I think they mentioned 275 new stores coming here. That will mostly be in smaller stores, neighbourhood stores, and will definitely place a lot of pressure on the Spars and even the Woolworths that are focused on those areas.

They have made a lot of money from selling alcohol, and that was mainly due to the fact that they had a lot more trading days where they were able to sell alcohol compared to the previous year, which was still part of the Covid shutdown [with] an alcohol ban.

And then of course they had a lot of new data that they could utilise towards their banking offering, where they mentioned that they have 25 million, I think it was, users that they could utilise the data from.

They’ve offered this new transactional banking account. They call it the Money Market account, which people can now ETF money into and pay their salaries into and pay from that. They actually use the same card that they use for their loyalty programme. And is has now been touted as the cheapest account in South Africa.

Read: Shoprite tackles TymeBank, Capitec head on with no-fee full bank account

So definitely it’s going to take some market share away, whether it’s only [from] the newer other players or even the existing bigger players; but they’ve picked up more than two million customers in less than a year.

So that’s significant. And the banking hours for people who like to shop at Shoprite, which is the majority of people in South Africa, are very lucrative because they even open on Sundays. Not a lot of emphasis placed on this yet, but I do think this could be an area of growth for them.

Even if it’s just an offering to their clients, that is beneficial to clients in a country like South Africa, I already like it.

SIMON BROWN: Yes. Of course I agree with … everything you say. I think it’s a top retailer globally [with] the market hating it. As a long-term shareholder, you kind of just shrug your shoulders. The market can do what it likes. Maybe it actually gives us some opportunity if we want to pick up more.

MIA KRUGER: Absolutely, I agree. So it’s not always clear – and I think that’s the important thing for listeners – it’s not always clear why the market reacts in a way it does, because these numbers clearly didn’t make me very upset when I read them. I was actually quite impressed. I also like the fact that they give a lot of data during their earnings announcements, and they mention how many jobs they create. They give clarity on how their platforms work.

They’ve invested now in a second delivery platform [Pingo Delivery] that they could possibly utilise to even make money off other retailers. We haven’t heard much from that either.

But I like the fact that they were quite clear about how their Sixty60 drivers’ remuneration works. It’s [with] driver-owned vehicles. So it’s much more like Uber, so those people don’t really work for Shoprite. I was surprised. That was the reason I went into that, because I couldn’t believe they’d created only 6 000 jobs from Sixty60 being so successful. And then I realised that the drivers actually don’t work for them, but only get remunerated for their services. So very interesting.

I think there’s a lot of data to go through, but I was definitely not one of the disappointed parties in the market.

SIMON BROWN: Me neither, and they are even going to pay us a dividend. I can’t complain.

Mia Kruger of Kruger International, I appreciate the time this morning.

Listen to the full MoneywebNOW podcast every weekday morning here.

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