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South Africa Food and Drink Report Q1 2010
Business Monitor International, Dec 2009, Pages: 54
South Africa Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's food and drink industry.
Without doubt Africa’s most dynamic fast-moving-consumer-goods market, South Africa integrated economy has felt the force of the global downturn much more than many of its fledgling Sub-Saharan neighbours. Despite an improvement in its near-term macroeconomic outlook (BMI has raised up its 2009 forecast from a 2.2% GDP contraction to a 1.8% contraction), consumer confidence continues to lag the broader economy (retail sales slipped 5.1% year-on-year (y-o-y) in September), South Africa’s leading MGR chains have not been as adversely affected by weakened consumer confidence as had been initially feared as discussed in BMI’s recently published South Africa Food & Drink Report for Q110. Low-mid range Shoprite performed strongly once more in Q409, reporting a 15.3% y-o-y increase in first quarter turnover (three months to September 30 2009). South Africa’s largest retailer by scale (Shoprite operates close to 700 supermarkets and more than 250 franchised outlets), Shoprite is particularly well placed to take advantage of a forecast 40.8% strengthening in headline supermarket sales to ZAR222.7bn (US$29.5bn) through to 2014. Its share of the MGR market is estimated at about 30%.
Once the economic downturn kicked into gear, Shoprite’s firm focus on the low-mid end of the market led most commentators to believe it would comfortably outperform its closest rivals. While premium focused Woolworths (BMI estimates its market share at about 11%) has ceded market share to lower value rivals, leading MGR Pick ‘n’ Pay has performed valiantly.
Despite a firmer focus on higher-end segments of the market than Shoprite, Pick ‘n’ Pay does not appear to have yielded significant market share to Shoprite (we estimate it to also stand at about 30%). Earlier in the quarter, Pick ‘n’ Pay reported a 35.9% y-o-y increase in operating income to ZAR927.8mn (US$31.2mn) for the six months to August 31 2009, while turnover strengthened 12.3% y-o-y to ZAR26.6bn. By tightening prices and providing more shelf space to low-cost private label substitutes, Pick ‘n’ Pay has by-in-large kept hold of its consumer base.
South Africa’s third largest MGR Spar Group (market share estimated at 26%) continued the positive the tide, just missing out on double-digit year-end (to September 30 2009) earnings growth with net income increasing 9.3% y-o-y to ZAR745.2mn (US$100.2mn). Spar operates about 850 stores across the convenience, hypermarket and supermarket segments.
Competition between Pick ‘n’ Pay, Shoprite and Spar in particular is increasingly focused on low-income townships like Soweto, with the franchising out of stores an increasingly common and effective means of pursuing rapid organic growth. Although their price margins are likely to suffer as the emphasis of competition tilts more towards the low end of the market, the weight of opportunities on offer should soften the blow. All three retailers will be encouraged by an expected 43.1% increase in headline MGR sales to ZAR342.2bn (US$45.3bn) to 2014.
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