Shoprite is struggling post-Whitey
When Pieter Engelbrecht was appointed CEO of Africa's biggest grocer more than two years ago, he had mighty big shoes to fill. The outgoing Shoprite CEO, Whitey Basson, at the helm for almost 40 years, had been heralded as a retailing genius.
Basson established and led the company from 1979, grew it from eight stores and expanded its footprint into major economies on the African continent. The chain now has more than 2,840 stores in 14 countries.
Taking over from a legend was never going to be an easy task for Engelbrecht, Basson's former personal assistant for a number of years. His task was made all the more difficult by unfavourable economic environments in the various geographies in which Shoprite operates.
Since peaking last March, Shoprite's shares are about 33% weaker.
Last year, the retailer reported a decline in earnings for the first time in 18 years. It has had to deal with a strike that has hampered sales. Against a strong US dollar, there's been heightened volatility in the currencies of some African countries it operates in, such as Angola.
Though representing less than 18% of its overall revenue, the African business accounts for a significant chunk of the company's future growth.
For the six months to end-December, the grocer this week said sales grew 2.6% in SA, compared to 7.8% the previous period. Turnover outside the country plunged 13.3% in rand terms, due to currency depreciation in the major African countries.
The report card released on Tuesday shook the market, sending Shoprite's shares down more than 5%.
When Engelbrecht "came into Shoprite, things were going extremely well for the company . conditions at the time were favourable for retailers," said Lester Davids, a trading desk specialist at Unum Capital.
At the moment, the conditions aren't conducive, he added.
"He's seen what Whitey Basson has done and obviously they are not going to change their operation if it's a winning operation."
Though economic factors outside of the grocer's control have affected its customers in the same vein as its rivals, Shoprite did run into some management problems. It endured some product-availability challenges, mostly stemming from its distribution centres in Gauteng, which account for 53% of total centralised food distribution for South African supermarkets.
There was also protest action over a new warehousing system, which hampered sales. Shoprite implemented changes in its IT systems in an attempt to improve competitiveness, but conceded that even though its migration had been concluded, "the timing was inopportune".
Independent analyst Syd Vianello said the grocer ran the risk of losing its customers forever because of the lack of stock, as well as losing market share to rivals such as Pick n Pay and Spar.
"There's no doubt that a lot of sales have been lost . It's clear that a lot of replenishment hasn't been done. It's just clear looking at the shelves; some of the shelves were nearly empty, nearly depleted. I don't think they're over their problems yet."
Pick n Pay, long regarded as the "sick man" of SA's grocers, reported a 6.4% sales increase over its six-month period to end-August. Spar reported 5.9% sales growth for the year to end-September.
"Different management teams do things differently," Vianello said.
"I didn't expect Pieter Engelbrecht to be Whitey Basson the second, and clearly he is Pieter Engelbrecht the first."
With just over two years steering the Shoprite boat, it is difficult to ascertain what Engelbrecht has done differently, but an area of growth for Engelbrecht and his new team could be the Checkers and OK franchises, Vianello said.
"This is the first time they've ever really spoken about OK. They are telling us that the OK franchise is going to get a lot of effort from them. It's clear that they want to grow OK franchises."
With regards to its African operations, Vianello said the new leadership team may be thinking about reassessing the risks they could be exposed to in those markets.
"Watch their focus on Africa; it could change. They may deliberately slow it down," he said.