South Africa has been rocked by news that it has slipped into a recession after its GDP declined 0.7% during the first quarter of 2017. Economic activity contracted over varied sectors, including construction, transport and manufacturing. However, few sectors made a positive contribution to output growth. The decreased market activity will likely see various SA cities experiencing property price stagnation or even reduction, but in the meantime Cape Town may prove to be the exception to the rule. It is said that despite the economic downturn tearing at the fabric of the nation, these are vibrant period for the SA supermarket sector.
Impact on Supermarket sector
While the effect of economic crisis may be different this time around, Pick n Pay, the well-known supermarket chain store in South Africa has announced a considerable increase in earnings during a period of sharp competition in the industry, whereas Shoprite sustain its average growth with overseas expansion. Pick n Pay declared a 17% hike in earnings in its annual year results to R2.58 a share for the year. Beside from being the second largest supermarket chain in SA, the company also runs across Anglophone SA, with the exception of Malawi a landlocked country, trading in Zimbabwe as TM Supermarkets. Even though its results were below the expectations, the company declared a 7% rise in sales to R77.5bn, signifying a reasonable performance.
A major factor in the performance of supermarket has been deep seated economic recession. The South Africa’s economy is stagnating, inflation has touched 6% and unemployment rate stands at 27%, while many more are underemployed and work in the informal economy. All this means that customers are seeking lower price retail options, such as shop in markets and spending less. The company has reacted by presenting far lower cost lines in an effort to retain consumers. It is also growing its channel of Express stores: it will soon open 120 stores, up from just 60 in the year 2015. As in other most demanding and sophisticated supermarket sectors, big SA chains are financing heavily in local and small shops. Similarly, more supermarkets, counting Woolworths, are opening a retail chain in highway service stations.
In terms of customer satisfaction, Pick n Pay seems like in the middle. The current SA Customer Satisfaction Index (CSI) for supermarkets put Woolworths, a grocery store chain in the spotlight. Almost three thousand consumers were interviewed by analysts, Consulta with the reaction give each outlet a mark out of 100. Woolworths had a big lead with 82.2 for the rest, which were all comparatively packed. However, Checkers took 2nd position with 77.2, followed by Pick n Pay (76.5), Spar (75.2) and Shoprite (75.5). For the uninitiated, Woolworths is a higher cost, high quality, supermarket alike Marks & Spencer in The United Kingdom.
Adré Schreuder, the CEO of Consulta, said in tough economic times, the goods price is likely to influence consumers’ loyalty though they are satisfied consumers. However, price- motivated ‘loyalty’ is not stable so while customers may display low brand trust now, supermarkets can’t afford to stop investing in great shopping experiences.
Growth & Expansion Plans
Shoprite has become the largest retailer in African countries, partially because it offers low costs, but also by launching its brands at the proper market areas. In short, it has opened stores in parts of SA that were formerly unserved, while competitors constantly focus on prosperous zones, retail parks and shopping centres. It has also progressively expanded into the other parts of the continent and now outlets operate in 15 African countries. It has 2,600 and more shops, only a quarter of which function under the Shoprite brand. It also owns Usave, Checkers and a numerous other niche retailer, such as OK Furniture and LiquorShop.
The chairman of Shoprite, Mr. Christo Wiese is reported to be keen to expand the business more quickly. He owns a 16% stake in the company and in addition 18% in Steinhoff International (furniture retailer). He is also focused to merge the two businesses, not simply to benefit their operations in African countries, but to expand in North America and Europe.