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The Shoprite brand is one of the leaders in South African food retailing and is$,$ according to independent

market research, the brand of choice of the highest percentage of South African consumers. Since

starting out as a small chain of supermarkets in $1979,$ the Shoprite brand gained valuable experience

selling to the emerging market. Today, the Shoprite chain remains the core business of the Shoprite

Group of companies and its main brand. Over the years it has also become one of South Africa$$s most

trusted brands. Shoprite$$s winning philosophy is to offer customers a convenient shopping experience

in clean stores where they can be assured that they are paying the lowest prices for their basic food

and household requirements. Shoprite customers also benefit from value added services offered in

store such as the Money Market counter comprising Computicket and various third$-$party account

payment options. There are also MedRite pharmacies and a growing number of Liquor Stores in close

proximity.

SHOPRITE is planning to withdraw from the Uganda and Madagascar markets, the company said after

announcing an $8\mathrm{.}1\%$ increase in total merchandise sales in July $2021.$ Shoprite, Africa$$s retail giant, is

adding to its list of exits after selling its Nigerian business of $15$ years and closing Kenyan stores in

March. The group operates $10$ stores in Madagascar and has five branches in Uganda, employing $300$

Ugandans. $$In line with the group$$s non$-$RSA review process, our operations in Madagascar and

Uganda have been classified as discontinued,$$ said Shoprite.

Commenting on the exit, Peter Hirst, senior analyst at Euromonitor International, said Shoprite was

leaving Uganda in line with the company$$s review of its long$-$term ventures across Africa over the past

year as currency devaluations, lower commodity prices and high inflation have impacted household

disposable incomes negatively. Furthermore, the exit comes as footfall has decreased significantly in

Shoprite outlets as Ugandans reverted to $$buying local$$ in $2020,$ resulting in under$-$performance in the

five outlets across the country. $$This trend benefited traditional grocery retailers, which boast lower

average unit prices, providing relief to a struggling consumer base,$$ Hirst said. He said the rise of online

shopping, which drove shoppers away from traditional brick$-$and$-$mortar outlets like Shoprite, and the

significant costs incurred by the company to adhere to the Covid$-19$ pandemic may have been the final

nail in the coffin. $$Sources suggest operations will be acquired by Majid Al Futtaim, franchise holder of

hypermarket chain Carrefour, which launched its first outlet in Uganda in late $2019$ and has shown

strong growth since,$$ said Hirst.

A year ago Shoprite began a review of its supermarket footprint outside South Africa, saying it would

close stores and negotiate rent reductions as currency devaluations and tough trading conditions

outweighed benefits from the continent.

Equity analyst at Noah Capital, Zinhle Mayekiso, is of the view that the company$$s non$-$RSA operations

are demanding a lot of management$$s time, especially given the various challenges in frontier markets.

$$In our view, Shoprite$$s centralised and streamlined capital allocation decisions will help it achieve a

better operational momentum as it increases focus on its core South African business and ensures a

renewed focus on returning cash to shareholders,$$ Mayekiso said$\mathrm{.}3$

Shoprite, which operates the Checkers, Usave and Shoprite retail outlets, said South African

supermarkets, excluding LiquorShop, achieved sales growth of $9\mathrm{.}7\%$ during the period. It said Checkers

and Checkers Hyper reported sales growth of $10\mathrm{.}9\%,$ notwithstanding the high base reported for the

second$-$half period last year. Shoprite said the furniture segment, made up of OK Furniture and House

& Home, increased sales by $24\mathrm{.}6\%.$ Shoprite and Usave reported sales growth of $8\mathrm{.}8\%$ during the

period and the group$$s LiquorShop sales increased by $4\mathrm{.}4\%.$ Shoprite said growth in the liquor business

was significantly impacted by the mandated liquor trade closures forming part of Covid$-19$ lockdown

regulations. South African supermarkets opened a net of $87$ stores, while non$-$RSA supermarkets

continued to operate in regions challenged by macro$-$economic and consumer affordability constraints,

exacerbated by the impact of Covid$-19$ restrictions.

Shoprite acquires Massmart$$s non$-$core assets

In other news, Shoprite said that it would acquire Massmart's wholesale and retail chains for R$1\mathrm{.}4$ billion,

beating rival Pick n Pay to the deal, and bolstering its leading position in the discount retail market.

Shoprite said the transaction comprised $56$ Cambridge Food business and Rhino Cash and Carry

business, including $43$ adjacent liquor stores, the Fruitspot business and MassFresh Meat business

with a total of four facilities, and $12$ MassCash Cash and Carry stores.

Shoprite chief executive Pieter Engelbrecht said that the group wanted to combine organic and

acquisitive growth as part of the focus on its low$-$price leadership position. $$The rationale for this

transaction is not just premised on the fact that, as a result of our operational expertise, we believe we

can profitably run these operations; it also gives us immediate access to opportunities that were on our

medium term to$-$do list. We are well positioned to integrate and grow these businesses, and as a result,

Shoprite can ensure the sustainability of employment of the staff within these businesses,$$ Engelbrecht

said.

Shoprite said the target businesses' turnover for the $52$ weeks ended December $27$ last year was

R$10\mathrm{.}8$bn$.$The transaction has been structured in a manner that ensures the sustainability of jobs in the

target businesses, with all applicable staff of the target businesses becoming group staff following the

conclusion of the transaction,$$ Shoprite said.

Massmart, a subsidiary of US retail giant Walmart, said on Friday that the proceeds of the sale would

be used to pay down drawn bank facilities. $$The disposal adds a cash injection into the group,$$ said

Massmart, adding the disposal would also be effected in a responsible manner to preserve jobs via

Section $197$ of the Labour Relations Act No $66$ of $1995.$

Massmart said it expected the transaction to become effective early next year once all the conditions

become unconditional. The transaction remains subject to conditions including regulatory and

competition approvals$\mathrm{.}4$

Previous Pick n Pay chief executive, Richard Brasher reportedly said at the right price the group would

acquire the assets. Pick n Pay operates food and grocery chain Boxer, which serves the lower segment

of the market and has continued to gain market share.

US retail behemoth Wal$-$Mart Stores originally bought a $$2\mathrm{.}4$ billion $($currently R$37$bn$)$ majority stake in

South African retailer Massmart, in $2011,$ with an eye on the potential of the continent's burgeoning

consumer class. However, in March, Massmart placed its Masscash, Cambridge and Rhino businesses

up for sale, after classifying them as noncore assets.

Shoprite will sacrifice profits

The CEO of Shoprite, Whitey Basson, continued to say the company is prepared to sacrifice profits to

remain $$the cheapest food retailer in South Africa$.$We can$$t afford to let that area of our branding slip$,$

said Basson, who was speaking at a presentation of the company$$s results.

Growth in trading profit outpaced the $27\mathrm{.}3\%$ growth in turnover to R$29\mathrm{.}6$billion, with trading profit up

$38\%$ to R$1\mathrm{.}4$ billion. Shoprite said the fall in gross margin from $20\%$ for the first half of the financial year

to $19\%$ was due to a $$sacrifice$$ of R$170$million; this was to $$support customers trying to cope with higher

food inflation$,$ said Basson. A R$27$million saving on fuel costs following reductions in the prices of diesel

and petrol in the $3$rd quarter of the year was also passed on to consumers.

Retailers have been the focus of negative consumer sentiments towards high prices of food. In late

April, Pick n Pay CEO Nick Badminton sent a letter to $30$ of that company$$s biggest suppliers urging

them to $$exercise serious restraint$$ with their increases. After a meeting between the parties in May,

suppliers blamed their own suppliers in turn for persistently high prices and suggested there were areas

of monopolistic practices in the packaging, tin, paraffin wax, glass and fertilizer sectors$.$

Asked whether Shoprite had taken similar action with its suppliers, Whitey Basson told Fin$24.$com, $$We

have been controlling our suppliers for $30$ years and not just in the last month when it became nice to

talk about it$.$ He said Shoprite had written formal letters to all its suppliers in March asking for reasons

why prices were being increased and imploring them to keep costs down. $$The problem is that SA has

too few suppliers. It$$s probably not very difficult just to read two or three supplier prices and match prices

in that way. The base of suppliers and products in SA is just too small by world standards$.$

Citing figures released by consulting firms Nielsen, Shoprite said it was witnessing an increase in the

perceived value of its brands $$ the Shoprite, USave and Checkers formats. For the six months to

December, Shoprite gained $1\mathrm{.}6\%$ points in market share while other competitors had seen declines.

At Checkers, Christmas sales in the past year grew by over $15\%,$ Basson said $$When bad economic

news stories hit the market, Checkers was there to take customers in$.$ It$$s gaining customers at the top

end and losing customers at the bottom end $($lower income$)$ which is exactly where we want to be$.$

CEO of Gryphon Asset Management, Abri Du Plessis, says Shoprite results are excellent. Du Plessis

attributed Shoprite$$s performance to its positioning at the low$-$income end of the market. $$That helpedShoprite when people were buying down due to high food inflation. Consumers cut back on

durables and semi$-$durables to buy food and liquor for Christmas parties$.$ He said food inflation

helped Shoprite as there is high inflation at the lower end of the market. Another facilitator in

Shoprite$$s success was government roll out of social grants over the past year, $$This spending

assisted the retail sector$,$ says Du Plessis.

Perform a comprehensive macro$-$enviromental analysis on Shoprite based on the information in the case study using PESTIE