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Shoprite Says Price Growth Pressures South Africa Buyers

Shoprite Holdings Ltd., South Africa’s largest retailer, said it would achieve “encouraging” profit growth this year even as competition intensifies to grab shrinking consumer disposable incomes.

The company said it would be “investing substantially” to keep prices low as rising inflation and a weaker rand hurt shoppers in its domestic market. South Africa’s inflation rate probably rose to 6.2 percent in July, according to the median estimate of 22 analysts surveyed by Bloomberg, compared with 5.5 percent the previous month. The rand has fallen 17 percent against the dollar in 2013, the worst performer of 16 major currencies tracked by Bloomberg.

Shoprite’s net income rose 19 percent to 3.62 billion rand ($355 million) in the 12 months through June, the Cape Town-based company said today in a statement. That was in line with the 3.63 billion rand average of 12 analyst estimates compiled by Bloomberg. Full-year revenue growth at the domestic unit’s supermarket operation weakened to 9.8 percent compared with 12.9 percent a year earlier, while furniture division sales grew 4.7 percent, down from 11 percent in 2012.

“Growth within South Africa was hampered during the year by widespread labor unrest, rising costs fueled by a weak rand, falling commodity prices and consumers’ lack of disposable income due to their high level of indebtedness,” Chief Executive Officer Whitey Basson said in an e-mailed statement.

Slowest Pace

South African retail sales rose at the slowest pace in eight months in June as flagging economic growth and rising joblessness curbed consumer spending. Massmart Holdings Ltd., the local unit of the world’s biggest retailer Wal-Mart Stores Inc., fell to its lowest share price in almost two years this month after saying first-half profit declined.

Shoprite’s South African market share gained for a seventh consecutive year to 35.4 percent, Basson said in a presentation in Johannesburg today. The grocer raised its final dividend 11 percent to 215 cents per share. The stock advanced 1.2 percent to 163.50 rand by the market close in Johannesburg, compared with a 0.7 percent gain in the FTSE/JSE Africa Food & Drug Retailers Index.

As food retail in South Africa is becoming more competitive, Shoprite is expanding in the rest of the continent. Sales climbed 28 percent to 11.7 billion rand in supermarkets outside its home market as the rand weakened against the dollar and some African currencies, making imports from South Africa more affordable. Supermarkets in the region contributed 14.2 percent to total sales.

Upmarket Products

“The non-South Africa operations are an opportunity to satisfy consumers’ appetite for upmarket products,” Basson said. The seven stores in Nigeria sold more Moet & Chandon champagne than all the liquor shops in South Africa last year, he said.

Shoprite has 153 stores in 16 African countries excluding South Africa, having opened 19 supermarkets in its last fiscal year. A further 20 stores are due to open by June next year and an additional 27 thereafter.

“The focus remained on the West coast of Africa, particularly Nigeria and Angola,” Shoprite said. The grocer didn’t enter any new markets, preferring to improve “economies of scale” in existing markets.

All but three of the African countries where Shoprite has a presence outside its home market have higher gross domestic product growth than South Africa’s 2.5 percent last year, Basson said.

“Africa’s growing middle class of 300 million people will drive consumption,” he said.

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