Checkers is eating Pick n Pay’s lunch in South Africa
As the South African retail environment continues to evolve, some grocery stores have performed much better than others.
Checkers, including its Hyper branches, added 25 new stores during the year ending 30 June 2024, bringing its total to 321 supermarkets.
Woolworths also expanded its presence, increasing its Woolworths Food locations to 651 across Southern Africa, up from 479 in 2023, with 430 of these stores located within South Africa.
However, not all of South Africa’s retailers performed well this year.
Last week, Pick n Pay, which operates both Pick n Pay and Boxer stores, released a trading update for the 26 weeks ending 25 August 2024.
It revealed that while Boxer grew sales by 12% and opened twelve new stores, Pick n Pay’s performance lagged, with sales decreasing by 0.3% overall and only a 0.1% increase in Pick n Pay South Africa’s sales.
This decline is partly due to the closure of 24 supermarkets, including 10 corporate and 14 franchise stores, as part of a turnaround strategy aimed at shutting down loss-making stores.
CEO Sean Summers previously announced plans to close 35 underperforming stores and convert 70 outlets to the Boxer brand.
The South African retail environment has been changing for the last several years, and the stores that have been able to keep pace with changing trends, like Checkers, have reaped the rewards.
An increasing number of shoppers are relying on grocery delivery services, and preferring smaller, more convenient stores above large, “hyper” stores.
While Woolworths always dominated the upmarket grocery space in South Africa, retailers like Checkers and Pick n Pay have introduced their own premium ranges in the last few years.
Andrea Slabber, Insights Lead at Trade Intelligence, explained some of the key trends in South Africa’s grocery sector on the Kaya Biz podcast.
Even though 378 net new stores opened over the past half year in South Africa’s six major grocery retail companies, she said that this doesn’t necessarily translate to real growth.
“If you look at over the past five years, there’s been an average of one new store opening per day, seven days a week for the whole year, which really sounds staggering. And it is.”
“It also sounds puzzling, because where is this growth going on?”
“If you look at the numbers, there’s not that much real growth. It’s cropped by inflation.”
Slabber explained that there are two important trends in the FMCG industry at the moment.
First, there have been quite a few acquisitions of stores that were previously situated in the wholesale and independent retail space.
The Shoprite Group, in particular, has seen its store growth boosted by this strategy.
“So, it’s displacing the market share, I suppose, from one channel to another.”
“The other trend is most of the stores that the retailers open are smaller, more convenience-focused stores.”
“And they’ve also intentionally reduced the size of their very large and their hyper supermarkets.”
As a result, Slabber explained that there is currently a “fragmentation of the trade”.
“The actual growth isn’t really as big as the number of the stores increasing exactly.”
This means that while there may be more stores, the measurable trading isn’t growing much.
She added that the competition in the FMCG (Fast-Moving Consumer Goods) industry is incredibly fierce.
“Everybody is trying to either protect their market share or grow their market share, and it costs money.”
According to Slabber, one reason Checkers has excelled this year, even outperforming Woolworths with an average turnover per store that is 2.6 times higher, is its variety of store sizes.
Checkers stores range from large, hyperstores, to small convenient shops, giving consumers plenty of options.
However, the biggest insight in her view is the demographic of Checkers shoppers.
“They’ve certainly been able to shift the focus of the shopper demographic visiting their stores, and they’ve been successful in inviting the higher income wallets into their stores.”
The retailer has achieved this by incorporating premium private label offerings, such as Forage and Feast, and revamping and upgrading their locations.
On top of this, the retailer offers plenty of discounts and offers that draw in bargain shoppers as well.
“Certainly, I don’t think it’s only shoppers that previously shopped at Woolworths that are now visiting Checkers stores.”
“What we see is that the average South African does their grocery shopping in a month over four to five different stores, so people shop around for what they want, where they want when they want.”
Unfortunately, though, “where they want” does not seem to be Pick n Pay.
“They’ve been really lucky as a group, with Boxer being one of the few retailers, along with Shoprite and Clicks, showing positive volume growth,” Slabber said.
However, this growth was still very muted.
Pick n Pay, on the other hand, didn’t even didn’t have the same success.
“The one thing that stands out significantly is the negative underlying volume growth. That has really been a big concern for the Pick n Pay stores, in particular on the food section.”
“So that is a big challenge.”
“I think to the extent Pick n Pay may have lost relevance with their shoppers from a grocery perspective, and I think their biggest challenge will be trying to get those shoppers back into their stores.”
Overall, Slabber said that Pick n Pay needs to do a lot of work to get their game back.
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