South Africa: Costs Are Dwarfing SA Retail Profits

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analysis

South Africa's big food and consumer goods retailers are in trouble and will remain in that position until costs come down or volumes go up.

The arithmetic is pretty simple: if you are running a business, the route to profitability is to ensure that you sell at a cost that is high enough to cover all your expenses. Simple? Judging from Shoprite's results released this week, not so simple.

The problem in a very tiny nutshell is that costs are rising faster than sales -- and retailers are in a bind: they cannot increase prices because SA's competitive food retail sector means that one cannot simply push up prices to make the top line look more attractive. If you do, customers will jump ship faster than the captain of the Costa Concordia.

Cost vs expense growth at SA retailers

Retailer

Turnover

Operating expense growth

Pick n Pay

(Financial year to March '19)

7.1%

7%

Shoprite

(Financial year to June '19)

4.9%

7.7%

Spar - SA stores

(Half year to March '19)

7.6%

5%

M/mart - SA stores

(Trading update for half year to June '19)

4.9%

12%

Source: Company annual reports

At Shoprite, sales at its core Supermarket RSA business...

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