South Africa’s biggest retailer is spending over R3 million a day to beat load shedding

South Africa’s biggest retailer Shoprite says it has spent R560 million over 26 weeks to keep load shedding at bay, which works out to over R3 million a day. This was an increase of R465 million versus the comparative period (up 490%).

Presenting its interim results for the 26 weeks ending December 2022, the group reported double-digit growth in its business despite the adverse economic conditions.

Group sales were up 16.8% to R106.3 billion, while earnings before interest, income tax, depreciation and amortisation (EBITDA) increased by 17.9% and measured R9.3 billion. Trading profit from continuing operations increased by 8.6% to R6.0 billion.

Diluted headlines earnings per share increased by 10.2% to 577.5 cents, and adjusted headline earnings per share were up at a similar rate – 10.1% – to 599.3 cents. The group declared an interim dividend of 248 cents per share.

Despite social unrest closing some stores, Shoprite opened 190 new stores throughout 2022, taking its total to 1,952 stores.

Supermarket operations created nearly four thousand jobs over the 26 weeks ended 1 January 2023.

Shoprite’s increase in revenue comes amid rising expenses – particularly due to load shedding – with total expenses growing by 17.8%.

The group’s electricity and water expenses increased by 30.3%, with Shoprite spending R560 million on diesel for generators across its stores due to load shedding. 

“In an operating environment marred by chronic power outages throughout South Africa, sales growth of this magnitude can only be achieved with expert planning, exceptional teamwork and seamless execution on all fronts,” Shoprite’s CEO Pieter Engelbrecht said.

“We are disappointed that as a result of the diesel expense, to mitigate the impact of load-shedding during the period, we are not reporting the level of profit and dividend growth normally associated with such a notable achievement in terms of sales growth.”

“The ongoing cost to our economy in terms of growth and investment is devastating, as is the impact on the everyday lives of South Africans, most of whom are already dealing with considerable hardship.”

Outlook 

Shoprite added that the operating context would likely remain challenging throughout the 2023 financial year but has several mitigation plans to deal with load shedding.

The group’s solar PV installation and extensive diesel generator infrastructure mean that supermarket operations have remained uninterrupted, even during load-shedding stages 5 and 6.

Although the group expects ongoing maintenance and replacement of its backup power infrastructure, it does not expect this to affect its planned investments in the business’s future growth projects.

However, the cost of diesel will remain significant, increasing operating expenses for the rest of the year.

Moreover, it said that sales growth in the core Supermarkets RSA segment in the first six weeks of 2023 had been sustained.

Despite major exposure to commodity lines which come with considerably higher selling price inflation, Shoprite’s South African supermarket selling price inflation of 11.8% remains below South African food inflation of 13.8% for January 2023.

After acquiring stores from Massmart, it expects to open 238 stores in the second half of the financial year, with 195 stores in South Africa.

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