The shops taking on Pick n Pay and Checkers in South Africa – and winning

The appetite for discount retailers like USave and Boxer in South Africans is gaining significant traction as consumers continue to look for ways to save in a challenging economy.

This was one of the key findings in McKinsey & Company’s 2024 State of Grocery Retail in South Africa report, which outlined that the country’s grocery market is showing early signs of recovery in 2024 after facing sustained pressure for several years.

Mapping some of the key trends shaping South Africa’s grocery retail market, a key finding is that discounters are experiencing rapid growth.

There is “a persistent emphasis on cost-conscious shopping, highlighting an evolving retail landscape that is adapting to meet the needs of budget-savvy shoppers,” said McKinsey & Company.

The report noted that in 2024, shoppers are increasingly focused on value and affordability, with the average monthly cost of household food baskets rising to R5,336—a 6% increase from the previous year.

Meanwhile, disposable income has only grown by 4% to 5%, prompting consumers to be more price-conscious.

According to the report, a notable 76% of shoppers are more inclined to purchase products on promotion, and 63% have switched to store brands to manage their budgets effectively.

This appetite for low-cost shopping has materialised in the country.

“South Africa’s discount retailers are growing twice as fast as the total market,” said McKinsey.

For example, Pick n Pay’s Boxer and Shoprite’s Usave grew at a combined compound annual growth rate (CAGR) of 12% between 2019 and 2023, compared with the 6% CAGR for the market as a whole.

Looking at some of these retailers, while Pick n Pay itself has been battling some headwinds, its low-cost Boxer business reported close to 20% sales growth from the second half of its financial year to the end of February 2024, and climbed 12% in the six months through August 25.

Recently, Pick n Pay said that it will list its low-cost Boxer business on the Johannesburg Stock Exchange by the end of the year and that the South African grocer will raise as much as R8 billion in the process, making it the continent’s biggest offering this year.

Pick n Pay wants to add 200 new discount grocery Boxer stores by 2026. It currently has 500 stores.

“The Boxer IPO remains pivotal to our strategy, and their remarkable performance continues to prove it is an exceptional business,” said Pick n Pay Chief Executive Officer Sean Summers.

“We are excited to see it thrive as a listed entity,” he added.

For the 52 weeks that ended 30 June 2024, Shoprite’s Usave saw a 13.2% increase in sales.

“Usave, our perennial achiever, in particular, is to be commended,” said Shoprite CEO Pieter Engelbrecht.

“Despite experiencing the lowest sell inflation of all our grocery businesses (2.3% selling price inflation at its lowest in May 2024) and its customers being the most stretched, Usave increased sales ahead of our other top performing grocery businesses, which in themselves all grew ahead of the market.”

“Whilst Usave reports from a substantially lower rand value base than Shoprite, its growth, from an established store base in a highly competitive market, is a testament to the role it plays in the communities it serves and validates both its positioning as well as our core supermarkets business segmented approach.”

Shoprite plans to have a total of 1,000 Usave discount stores over the next five years, stepping up a turf war for South Africa’s low-income shoppers.

These are not the only big retailers eyeing market dominance of the low-income segment, with SPAR Group also planning to enter the discount grocery space.

Damian Hattingh, Partner and Leader of McKinsey’s Africa Retail and Consumer Practice said that they expect discount formats to continue to grow faster than the market as a whole.

“South African consumers may have turned a corner, but they are still the most constrained consumers of all the markets we have looked at globally,” said Hattingh.

He added that South Africa’s market penetration of true discount retail formats, at less than 9%, is well below the average for more mature markets and “as a result, we believe the conditions are in place for continued rapid acceleration of discounters.”

“Beyond discount formats, we also expect the share of private label brands to grow as retailers expand their range of lower-cost alternatives for consumers.

“This is in line with trends we see elsewhere in the world, where non-discounters accelerate their private label ranges to more effectively compete with discounters,” added Hattingh.

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