R2.4 billion bill for South Africa’s biggest retailers

South Africa’s biggest retailers have spent over R2.4 billion to mitigate the effects of load shedding.

Although the severity of load shedding has decreased since the beginning of June, South Africa has still faced its most intense bout of load shedding over the last several months – with President Cyril Ramaphosa even declaring a shortlived state of disaster.

Intensified load shedding has increased the costs for many retailers across the country, whether it be the need to buy diesel for their generators or via investments in backup power systems.

For instance, Travis Coppin, CEO of Food Lover’s Market retail division, told BusinessTech that the group had spent R50 million in the last six months on backup power systems.

Coppin told News24 that the group’s energy bill is now higher than its rental bill.

Crucially, these costs, especially for food retailers, are often passed onto the consumer, with South Africans seeing the cost of everyday goods increase significantly.

BusinessTech looked at just how much some of South Africa’s largest retailers were forking out to cover the cost of alternative power supplies in the face of load shedding.

It is important to note that the data used relates solely to backup power solutions such as the diesel spend for backup generators at Spar and Shoprite.

Although The Foschni Group and Mr Price estimated that they lost R1 billion due to the overall effects of load shedding, such as customers avoiding retail environments, we have solely looked at the direct costs of getting backup power solutions.

Overall, South Africa’s biggest retailers have spent over R2.4 billion on direct load-shedding-related costs.

The above figures, except for that from Food Lover’s, were provided in reports dated between December 2022 and March 2023, ultimately meaning that the actual cost of load shedding could be higher.

Although backup power solutions, like solar, may have mitigated the effects of load shedding, they also incur high costs for retailers. Although load shedding has been slightly eased this winter, Shoprite still expects that the cost of diesel will likely remain high for the rest of 2023.

Another concern for retailers is that fuel prices will likely increase in 2023, with July already expecting to see a jump in diesel prices, despite petrol being expected to decline.

FNB senior economist Koketso Mano recently told BusinessTech that the price of fuel is likely to increase marginally over the next few months.

She said that the rand – which has rebounded after hitting an all-time low last month – may still depreciate in the coming months, which will increase fuel prices.

“The concern is that there are several risk events in the near term that could weigh on the rand, such as the BRICS summit and 2024 elections. In addition, although load-shedding has been less intensive in June, there are still risks that it could intensify beyond stage 6 as winter progresses,” Mano said.

Moreover, the prices of international products may also increase over the next year.

“Despite cumulative cooperative and voluntary output cuts by oil producer group and allies, OPEC+, expectations of weaker global activity this year have weighed on oil prices, especially with China’s recovery appearing to falter,” she added.

“However, an intensification of the ongoing driving season in the Northern Hemisphere and/or better news out of China would support demand in the coming months, while some improvement in economic activity should support higher prices going into 2024.”

“Over the longer horizon, prices are generally supported by supply constraints given the shift towards cleaner energy that has resulted in lower investment in oil production capacity.”

Moreover, although the U.S. Federal Reserve ending its rate hiking cycle will probably strengthen the rand, it will also increase the prices of international oil prices.

Thus, load shedding-related costs for retailers, especially diesel, will likely remain high even as they continue to roll out backup power systems.

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