THIS ISSUE: 31 Aug - 06 Sep
YOUR NUMBERS THIS WEEK
RETAILERS AND WHOLESALERS
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SPAR The luck of the Irish
Top of the morning to yez! Tose BWG results ye were after (OK, you can drop the accent now): Ahead of SPAR’s forthcoming results, and as conditions tighten here at home, it’s time to remind ourselves of why diversifying offshore can be such a solid hedge for a business. Pre-tax profits at the Irish outifit owned 80% by our very own SPAR South Africa were up 23% to a more than tidy €29.8 million last year, on revenues that climbed marginally to €1.39 billion, with much of it generated on the Emerald Isle itself and Just €175-odd million in the UK. BWG runs the Spar, Spar Express and Eurospar franchise in Ireland and the south-west of England and the the Mace, Londis, and XL brands in Ireland, together with 21 Value Centre cash n carries, and a couple of DC’s to keep everyone supplied and happy. Of interest to you weather nuts out there is the fact that panic-buying ahead of Storm Emma last year drove sales through the roof.
Comment: No, it would not be appropriate to talk about any “silver linings” here.
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Shoprite Going, going…
It’s long been the habit of certain smart-alec analysts to spout the nonsense that “Shoprite is not a retailer, it’s a property business.” Of course Shoprite is a retailer, a very good one, but one that also happens to make some fairly impressive coin off its ownership of retail properties across the Beloved Country and beyond. And this week we get an insight into just how much, with the news that the Big Red One is to auction no fewer than seven non-core retail centres across SA, five of them in the Western Cape, and all of them handsomely endowed with anchor tenants from the Shoprite stable. Shoprite recently flogged a commercial building in Paarl for upwards of 25 bar, also on auction, so in a market which shows undiminished appetite for retail property, the business is likely to do quite nicely out of the upcoming sales, thanks very much.
Comment: Don’t mention it. Anyway, another doubtlessly canny move from a business which basically defines the term.
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Independent Retail Strangers in a strange land
Last week’s outbreak of xenophobic violence against Somali and Pakistani retailers in Soweto was the result of a devil’s brew of factors. There was the shoplifter allegedly killed by a trader. There was the statement by ANC mouthpiece Pule Mabe, on the topic of unscrupulous foreigners selling expired or otherwise illicit goods, which may endanger the health and wellbeing of consumers. And finally, there were the social conditions of poverty and unemployment which lead people to form mobs and thence to loot the businesses of hardworking entrepreneurs providing a vital service to the communities with which they generally enjoy mutually beneficial relationships. One of the positive results of this shameful and tragic event is the launch by the National Consumer Commission (NCC) of a national clampdown on illicit goods and expired foods. Another has been the generosity of local wholesalers who have allowed shopkeepers to store their stock – and even their fridges – in their warehouses until the unrest passes.
Comment: These positives aside, xenophobic outbreaks are a stain on our national character, and produce only losers.
MANUFACTURERS AND SERVICE PROVIDERS
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RCL Foods Tastes like chicken
A couple years back, you will recall, RCL Foods – formerly Rainbow Chicken – announced that it would be rationalising operations with the sale of underperforming assets, a move that cost it an almost immediate R200m off the bottom line. Even as our economic circumstances have straitened, it would appear that the bold and rational move has paid off. While revenue was down -2.1% to R24.4bn for the year through June, earnings were up 17% to R2bn, with chicken volumes up and the unit delivering R450m in EBITDA. The diversification into groceries has also proved a good move, providing the highest contribution to the business this year and Nola margarine, Yum Yum peanut butter, Canine Cuisine and Catmor all taking market leadership in the segments during the year. Sugar was of course the downer, with operating profit declining 44% on the back of sluggish global demand and dumping by importers.
Comment: Welcome back, RCL, you had us worried for a moment there. Not really. But maybe a little.
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Sea Harvest Piracy on the high cheese
Shaking off its aquatic chains this week is Sea Harvest, with the shock announcement that they’re diversifying into dairy through the acquisition of Ladismith Cheese Company for R527m. Bet ya didn’t see that coming. The idea of Sea Harvest is to diversify into a bigger, black-owned food company; this on the heels of earlier attempts in the frozen vegan and vegetarian meals space, and their earlier acquisition of Aussie outfit Mareterram, which also distributes non-seafood products. Last year, Ladismith brought 9,000 tons of cheese and butter and 7,500 tons of dairy and non-dairy powder to market, to the value of R681m in revenue. Sea Harvest is, as you know, in an acquisitive frame of mind lately, having recently bought the entirety of the Viking Fishing Group for R885m, together with 50% of Viking Aquaculture.
Comment: Cows and fish are very different creatures, separated by at least 2 billion years of evolutionary biology. But Sea Harvest have no doubt factored this into their equations.
TRADE ENVIRONMENT
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GDP Growth Drawn and quartered
It’s official: the dear old South African economy is once again in a state of recession, for the first time since 2008, and this time no economists are going to jump out of the woodwork brandishing an extra half a percentage point of growth to say that technically we’re fine like they did last time. No: having declined by -2.6% in the first quarter, economic output dropped another -0.7% in the second, surprising economists who thought that we’d grown slightly. Agriculture was hardest hit this quarter, with a decline of -29%. Household consumption was also down, by -1.3%, the first quarter-on-quarter decrease since the Q1 of 2016. This extremely bad news is compounded by the dip in the Purchasing Manager’s Index (PMI) which dropped from 51.5 points in July to 43.4 in August, indicating a decline in manufacturing activity for the next couple of months. And the knock-on effect was immediate – the rand dropped sharply, punching through R15 to the dollar in short order, even as Brent Crude continued its inexorable rise.
Comment: This is not business as usual. While Jacob Zuma’s disastrous tenure also began with a recession, we weren’t in the hole to the tune of nine straight years of Zumanomics at that stage.
IN BRIEF
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International Retailers Get a life. Or buy an online fashion brand. Whatever.
Over in Blighty, the competition authorities are fast tracking an exploration of the likely effects of an Asda/Sainsbury’s merger on both suppliers and consumers. Together, the two would own a fair whack of the UK’s grocery market, which is worth around £190bn annually, and they’d have a serious chunk of purchasing power too. In the US, in the war for a constrictive monopoly on online retail, analysts are advising Walmart to snaffle up a bunch of specialist online retailers, already beloved of Amazon’s core customer, like Warby Parker (nerdy frames) and Allbirds (precious, precious shoes), adding to acquisitions they’ve already made, like Bonobos (clothes designed specifically for men who wouldn’t be seen dead in a Walmart).
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Pick n Pay Scratch that…
After the suspiciously small number of winning scratch cards in Pick n Pay’s recent promotion, last week the Big Blue dished out a R20 voucher with every R200 worth of merchandise purchased. They underestimated, apparently, the high esteem in which South Africa holds its scratch cards, particularly winning ones, and you don’t mess with a national institution, as outpouring of grief and rage on twitter testified.
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