Shoprite CEO warns over VAT hike in South Africa

Shoprite CEO Pieter Engelbrecht has warned that food tax increases through a VAT hike would destroy any signs of recovery for South African consumers.

Last month, the nation’s budget was postponed after members of the coalition government rejected plans to raise the value-added tax (VAT) by two percentage points.

A revised plan will be presented to lawmakers on 12 March.

“I hope that it’s not going to be the case that we see that increase [VAT] because consumers just can’t afford it,” said Engelbrecht.

Engelbrecht also warned that businesses are equally unlikely to be able to absorb such increases on behalf of customers. 

This is because they’ve had to build their own power and water supplies after years of cuts and invest in new distribution centres to hold more stock because of poor local production capacity and port delays.

“The two things that really worry me are the incredibly high cost of food and high unemployment,” he said, with a few local businesses reporting that they’ve created net new jobs.

Consumer spending has only just started to recover, boosted by low inflation, interest-rate cuts, and the introduction of the two-pot pension system that allows savers early access to part of their retirement funds.

Still, Engelbrecht said the government has recently engaged with South African companies about food prices and possible tax increases.

He said Shoprite and other global retailers are trying to figure out how to ease food inflation by using sophisticated software, artificial intelligence, breaking down cost components, and possibly collective buying.

While the local inflation rate has declined and is helping Shoprite boost volume growth, the risks remain. “People are desperate,” he said.

For most South Africans, “it’s not like I’m buying less because I have less money. It’s the fact that my money doesn’t go as far anymore.”

Positive signs for Shoprite

In its financial results for the 26 weeks ended December 2024 (HY25), the food retailer noted a profit of R3.71 billion and opened 205 stores in just six months.

Sales increased by 9.6% to R128.6 billion, largely due to its core Supermarkets RSA segment, to which all supermarket brands contributed.

Shoprite’s revenue grew by 9.4% to R130.76 billion, while trading profit increased by 13.5%, resulting in a trading margin of 5.7%. The company’s basic earnings per share grew by 12.6% to 685.3 cents per share.

Profit for the period increased by 11.9% to R3.71 billion. This means Shoprite makes around R20.38 million profit per day.

As a segment, Supermarkets RSA achieved 10.4% sales growth to R107.7 billion, with like-for-like sales increasing by 6.1%. 

Checkers and Checkers Hyper increased its sales by 13.6% to R47.6 billion, constituting slightly less than half of the segment’s total sales.

Shoprite and Usave increased sales by 7.1% to R59.2 billion, making it the largest contributor to this segment’s sales at 55%.

Shoprite also recorded a sharp increase in store openings year-on-year, with 264 new stores opened across its segments in South Africa alone.

This includes 32 new Shoprite stores, 37 new Checkers stores and 81 new Shoprite and Checkers Liquor stores.

The group closed 16 stores over the 12-month period, but this was still a substantial net increase in 248 stores.

Shoprite has also confirmed 122 new store openings in the second half of its financial year. 43 new stores are being opened under its USave brand, which is a big focus area.

Shoprite’s expansion of its stores is notable, considering the group has shifted its business focus.

It sold its OK Furniture and House & Home brands recently, which led to the removal of 407 stores from its ongoing operations.

Additionally, the group is divesting non-core assets, including several shopping malls and retail centres it owns, as part of a sale and leaseback strategy.

The company stated that it will continue to explore similar opportunities as they arise.

Reported with Bloomberg. This article has been updated to clarify the CEO’s statements as a general warning on VAT.