JSE-listed retailers expect ‘far tougher inflationary environment’ due to Russia-Ukraine conflict
With the Russia-Ukraine conflict expected to bring pricing pressure to bear on commodities such as wheat and edible oils, JSE-listed SA retailers such as Shoprite and Walmart-owned Massmart are steeling themselves for a far tougher inflationary environment.
As it is retailers are already dealing with rising fuel prices, with the oil price rocketing up to trade in the region of $130 (about R1,988) per barrel.
Speaking during an investor conference call on Tuesday after the release of results of the 26 weeks ended January 2, Shoprite CEO Pieter Engelbrecht said “inflation is always a question”, adding “none of us would have expected the Ukraine-Russia war” which is anticipated to have an effect on commodities such as fuel, wheat and edible oils.
“Russia provides 10% of the world’s oil and Ukraine is a big exporter of commodities like wheat and edible oils so we are definitely going to have some pressure,” he said.
Engelbrecht said the group had already experienced direct impacts to its logistics chain due to the conflict. He said the group has had to cancel 34 containers, 11 of them coming directly from Ukraine.
“Ukraine is a big exporter, especially of wheat, and that will have an effect on the global market.”
While SA has had a record maize season, price remains a challenge, with Engelbrecht saying the maize price is dictated by the international futures market. This means that while there is no scarcity of maize in the country, it is subject to rising prices because of international markets.
As SA retailers contend with higher inflation, Shoprite has vowed to continue subsidising essential foods such as bread.
Engelbrecht told the investor presentation that through its Xtra Savings Rewards programme, Shoprite had given its customers about R4.5bn in savings in the six-month result period and it remained the “lowest price retailer”.
“We will continue to subsidise essential foods. For example, we have been selling a loaf of bread for R5 since 2016 and we will continue to do so, selling 1-million loaves a week. We will continue to take retail to the people, whether that is through organic growth or by acquisition as far as possible or by expanding on our home delivery system.”
Shoprite reported a 25.5% growth in headline earnings per share from continuing operations for the 26 weeks ended January 2, while its core SA supermarket business, representing 79.5% of group sales, increased sales by 11.3%.
“The extraordinary growth in sales and profits reported by the group for the first half of our 2022 year is testament to the capable people of Shoprite, united in their commitment to the group’s millions of customers throughout SA and Africa.
“The execution strength demonstrated throughout our supermarket, furniture and franchise businesses during what can only be described as some of the most difficult times SA has seen for many years was unsurpassed.”
In an interview with Business Times, also on Tuesday morning, Massmart CEO Mitch Slape said inflationary pressure on commodities because of the conflict between Russia and Ukraine was weighing “heavily on our minds”.
“Inflation on commodities without a doubt is going to impact pricing in the market and it is going to impact the price of products. I don’t know to what extent it is going to run and for how long, and it is also very dependent on what happens in the conflict and what happens with global supply chains.
“What I can tell you and what we are trying to do is work as hard as we can to hold the line on costs in the business,” said Slape
He said Massmart had over the “past few years developed some muscle around this to keep costs and costs of goods sold down as much as we can”.
“Philosophically, I don’t want to pass any price increases onto consumers if I don’t have to. If we were under a level of pressure where we did have to, I certainly would want to be the last retailer to do that, so we are looking at it very hard.
“Inflation is a terrible tax on the consumer. It’s painful and we consider it our job in all of this to try to help the consumer as much as we possibly can to fight inflation. But there certainly are headwinds in front of us, there is no doubt about that.”
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