Retailers selling to the poor get poorer

2014-08-31 15:00

The miners’ strike and poor economy hit mining companies and microlenders first. The effects of these challeges, as well as cheap imports and high input costs, are now noticeable across the economy and results from SA’s major retailers this week bore this out. But those which sell to richer customers continue to keep ahead and gain market share. Mamello Masote unpacks the earnings


Woolworths’ clothing and general merchandise sales grew 9% and food sales by 14% as it continued to increase its market share in the sector.

It has been focusing on promotions and prices. CEO Ian Moir said Woolworths had outperformed the market as it had made a concerted effort to attract more customers.

“As my friend Whitey [Basson, Shoprite CEO] tells me, the only reason we grow is because we are so small and it’s easier for a small business to grow than a big business?–?we are only the size of his [Shoprite’s] northern division,” joked Moir.

“I will take that because if we keep outgrowing the market as we have in the past four years to the extent we have done, small becomes large quite quickly. So Whitey, we’ll get there.”

But Moir said he expected the local economy to continue to be constrained and the market to be tough for the next few years.


Shoprite, which released its annual results earlier this month, managed to increase its sales by 10%, but its earnings were just 3.3% up.

Its 21.7?million regular shoppers were affected by high unemployment and the lack of disposable income.

CEO Whitey Basson said costs, especially electricity and energy, continued to rise and consumers suffered from a lack of disposable income.

Interestingly, the problem is specific to South Africa. Shoprite has a significant presence in Africa where it opened 16 new supermarkets in the past year.

Sales in the rest of Africa increased by 26.8% (16.2% in constant currencies), the basket size was up by 16.8% and the number of customers increased by 7.8%.


Massmart, which owns chain stores such as Game, Makro and DionWired, indicated that Game stores had been particulary hard- hit. It only managed to grow sales by 0.4%. Builders Warehouse and Makro, which have a higher-income focus according to Massmart, fared better.

Makro increased sales by 12.3% and Builders Warehouse by 14.5%.

Massmart CEO Guy Hayward said the five-month strike in the mining sector, which had resulted in a significant sales decline in stores close to the affected regions, might have had a greater knock-on effect on the economy than was generally understood.

“The gradually tightening interest rate cycle will make things more difficult for middle-income customers and possibly those in the upper-income brackets.

“However, in the meantime, upper-income customers appear resilient.”

RCL Foods

RCL Foods, which owns Foodcorp, Rainbow Chicken and TSB Sugar, makes many of the products that make their way on to the shelves of retailers.

While RCL Foods plunged into losses (of R276?million) in the year to June, CEO Miles Dally said it was due to greater corporate activity, including the acquisition of TSB Sugar and the remaining interest in Foodcorp.

RCL Foods showed it was not only consumers who were under pressure, but suppliers who faced high input costs and were affected by the politics behind the scenes in the food industry.

Rainbow Chicken, which supplies retailers and restaurants, faced significant industrywide challenges.

“The first one is imports. It’s a fact that imports are being dumped in South Africa and that’s why the government applied the tariff,” said Dally.

Anti-dumping duties on imports of frozen chicken have been imposed on the UK, the Netherlands and Germany.

“Those anti-dumping duties have been put there on an interim basis until January next year, when we anticipate they will become permanent.

“That was only applied in July. We saw record imports in May and June in anticipation of this, and we haven’t seen those benefits yet,” said Dally.

He also said the rising prices of maize and soya had affected feed costs.

“This year, our feed costs were up 10%. However, the prognosis going forward is very good. The world stocks and the crop estimates are very positive.”

RCL’s consumer-facing brands have also traded below expectations. Foodcorp, which owns brands such as Nola mayonnaise, Ouma rusks and Yum Yum peanut butter reported an increase of revenue of only 6% to R7.8?billion.

“Yes, we are concerned. The consumer really is under pressure and for us it’s going to continue. Foodcorp is not immune to that,” said Dally.

“We are now entering a cycle of increased interest rates and if you look at it in simple terms, consumers are paying more for water and electricity. Fuel has gone up so they pay more for their fares and e-tolls. So, wherever you look, there is an extra burden on consumers.”

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