The Finance Ghost: Shoprite still the checkout champion in retail wars

Daily Maverick

10 hours ago

While there are opportunities to make money in the South African economy, you have to be pretty selective about where you look.
It's not news to you that South Africa's economic growth has been less than inspiring, leading to South Africans becoming poorer by global standards. Nedbank's recent results are evidence of lacklustre economic activity, with the bank struggling to get enough loans out into the wild to offset the impact of a dip in interest rates.
In the retail sector, The Foschini Group put forward some fascinating arguments at their Capital Markets Day about the shocking trend in the average South African's real income (ie adjusted for inflation) over the past decade and why this is forcing the group to see its value offerings as the best local growth engine.
These corporate nuggets are a useful reminder that while there are definitely opportunities to make money in the South African economy, you have to be pretty selective about where you look. One of the most interesting ways to see this play out each year is in the retail sector, a competitive bloodbath of companies trying to compete for some of the most price-sensitive consumers in the world. There's no rising tide that lifts all boats here. Instead, there are boats that can get past the challenging waves and there are others that are getting smashed into the harbour.
Last week in this column, I covered Boxer vs Woolworths Food as an excellent example of the power of having a focused model in a difficult economy. It's amazing how the clothing retail sector is filled with executives who find themselves drawn to offshore opportunities (traps?), with Woolworths continuing to suffer an Australian hangover. The Foschini Group is unfazed by this, with a clear message to the market that they will continue to pursue an international strategy despite reporting disappointing numbers in their UK and Australian businesses.
The grocery sector has also seen some truly ugly offshore expansion stories. Spar is the standout example, with the group still reeling from its European exposure. Closer to home, even a grocery giant like Shoprite has learnt some hard lessons from trying to grow in Africa.
For better or worse, the local market is where the best money is to be made by our retailers. This is where they understand their customers and can execute sensible strategies around store formats, supply chains and acquisitions (where those opportunities are still available in the market). The success that Shoprite has seen through focusing on South Africa rather than Africa is lovely to behold, while even Pick n Pay is starting to see the benefits of a turnaround strategy that has simplification at its core.
This brings us to this week's corporate updates, with important financial news coming in from market leader Shoprite and laggard Pick n Pay. Before digging into these numbers, it's worth noting that the year-to-date performance is poor for both stocks, with Shoprite down nearly 10% and Pick n Pay down 15%.
Before the latest results came out, Pick n Pay was actually 'ahead' this year, ie less negative than Shoprite. The share price performance can tell a different story from the underlying business performance because of the expectations baked into the share price. The market has incredibly high expectations for Shoprite, with Pick n Pay seen as a much more speculative play.
We'll start with Pick n Pay, before ending off with Shoprite at the top of the food chain.
Positive momentum at Pick n Pay – unless you're a franchisee
There's an incredibly odd situation at Pick n Pay that goes against conventional wisdom. The corporate-owned stores are showing a faster turnaround than the franchise stores, despite the latter typically benefiting from being owner managed. Although this sounds great in theory, the problem is that Pick n Pay has a vast base of franchise stores. For the turnaround to be successful, they need both corporate-owned and franchise stores to pull their weight.
In the past three reported periods (being the first and second halves of FY25, as well as the first 17 weeks of FY26), corporate-owned stores grew turnover by 3.1%, 3.6% and 4.0% respectively. In stark contrast, franchise supermarkets managed -1.4%, 1.1% and 0.2% respectively. It's not hard to spot the more consistent story with positive momentum.
As encouraging as the corporate-owned story is, Pick n Pay's efforts to shrink into profitability have led to a situation where total sales growth is non-existent. Essentially, the store closures are offsetting the growth in other stores. While this is the right decision in terms of the turnaround, it doesn't exactly tell a story of growth.
Pick n Pay Clothing remains the gem, with an astonishing 12.5% increase in like-for-like sales in the latest 17-week period. While the timing of winter has played a role here and this isn't indicative of sustainable growth, this store format's consistently strong performance shows that Pick n Pay can still win when they get the model right.
Lots of wagging tails at Shoprite
Shoprite's latest update covers the 52 weeks to 29 June 2025, so it's not directly comparable to Pick n Pay's release. Still, it tells an incredible story of a group that just doesn't stop winning, with HEPS from continuing operations expected to be 9.4% to 19.4% higher. This was driven by sales growth of 8.9%, with Supermarkets RSA leading the charge with growth of 9.5%.
Digging deeper into Supermarkets RSA reveals that Checkers and Checkers Hyper delivered growth of 13.8%, while Shoprite and Usave were far more modest at 5.2%. Boxer is giving Shoprite a proper go when it comes to lower-income shoppers, whereas higher-income shoppers have flocked to Checkers at a time when Pick n Pay has been shedding customers.
It's not all good news, though. There's a concerning trend in sales momentum from the first half to the second half of the year, with Supermarkets RSA growing 10.4% in the first half and 8.5% in the second half. There's certainly nothing wrong with 8.5% growth, but Shoprite is trading on a demanding earnings multiple and any slowdown in growth will be a concern for the market.
Unlike Pick n Pay, which must shrink into profitability, Shoprite is expanding in key verticals. They love the pet opportunity for example, with Petshop Science opening 60 new stores to take the total footprint to 144 stores. Interestingly, the worrying trend in the birth rate is on full display at Shoprite, with just one new Little Me store opened in this period, taking the total to 11 stores.
With the furniture business being sold to Pepkor and with a decision to further reduce the exposure to certain countries in Africa, Shoprite's focused grocery strategy is working beautifully. They are experimenting in other categories, but they understand what the core of the business must be in order to continue being successful.
The risk, as always, lies in overpaying for the shares. Based on the guided range for HEPS with a midpoint of R13.57, the price/earnings (P/E) multiple is just below 20x. My observation of retail stocks on the JSE is that they start to run out of puff at a P/E above 20x, so there's not much room for multiple expansion here. If Shoprite can maintain this kind of growth in HEPS though, investors won't need multiple expansion to be rewarded. DM