Shoprite cuts margins on basic food

[Necuno]

...wonder if other retailers will follow suit

http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A797497


LISTED Supermarket group Shoprite said today that it has cut margins on basic foodstuffs.

"The group’s success in a tough consumer spend environment has been driven by management’s strategic decision to cut margins on basic foodstuffs in an attempt to alleviate the impact of worldwide food price increases on consumers," it said in a trading update.

For the 12 months to end June 2008, the Shoprite Group increased total turnover by 22,3% to R47,7bn.

Growth on a like-for-like basis was 18%.

During this period internal food inflation rose to 10,6% compared to less than 6% during the corresponding 12 months in 2007.

The 100 supermarkets Shoprite operated outside the borders of SA increased turnover by 38,2% from the previous year.

The growth achieved on a like-for-like basis was 30,5%.

"As elsewhere, food inflation in these countries in Africa also put upward pressure on prices," the company said.

The Franchise Division, trading mainly under the OK banner, managed a turnover increase of 17,0%. Unlike the food divisions, the Furniture Division continued to operate in a near deflationary environment.

"Despite lower consumer spending on durable goods and the introduction of the National Credit Act, the division still succeeded in growing turnover by 5,6%.

 

[Deenem]

I doubt they cut margin's to benefit the consumer, more likely they cut margins to increase revenue and benefit their shareholders.

 

[Devill]

O well dont care, cheaper for the consumer either way...

 

[Turiko]

Shoprite might be doing it, but I seriously doubt you can expect this from the likes of Pick n Pay. Now that they have Discovery on board I am sure they will not even dream of doing this.

 

[Moederloos]

I doubt they cut margin's to benefit the consumer, more likely they cut margins to increase revenue and benefit their shareholders.

Well, yes.Goes without saying.
The whole point of capitalism is that the benefit of the many translates into the enrichment of the few.

 

[sox63]

I doubt they cut margin's to benefit the consumer, more likely they cut margins to increase revenue and benefit their shareholders.

Wit their CEO taking home R 58,9 Million, second only to Steven Ross in 2006, I'm more inclined to agree with you.

 

[Pixie22]

People need this, I like!

 

[Moederloos]

Wit their CEO taking home R 58,9 Million, second only to Steven Ross in 2006, I'm more inclined to agree with you.

Why?
What better way to make fat profits AND develop loyalty to your brand than this way?
People are way to used to the "Telkom" business model.

 

[DJ...]

This is a sign that corporate SA believes that the downturn in the economy is going to be a relatively short-lived one. It is good news all around IMO...

 

[Turiko]

Indeed it might be a sign and good news I agree, but at whose expense? I am dreadfully sorry but I don't trust corporate SA.

 

[Moederloos]

Indeed it might be a sign and good news I agree, but at whose expense? I am dreadfully sorry but I don't trust corporate SA.

Again - Trust them to look out for their best interests.
By lowering their margins, they lose a few rands here and there, but get people into their stores and win customers.
In this case, their obvious greed for customers is also in the customer's interests.
Win-Win.

 

[DJ...]

What it does mean is that corporate SA is prepared to accept certain inflationary pressures as they obviously dont see the recession lasting long term. If the recession were long term, they would have to pass on all inflationary pressures to the consumer...

 

[Turtle]

Well, yes.Goes without saying.
The whole point of capitalism is that the benefit of the many translates into the enrichment of the few.

Not really, the "point" of capitalism is only that private individuals such as you and me and wealthy shareholders be allowed to control the means of production, within a framework of individual liberty, private property rights and free trade. That's all. Whatever happens thereafter is almost incidental.

If a retailer cuts costs I just don't see how any sane, rational person can immediately whine about shareholders rather than customers benefiting. There are times where the knee-jerk whining is appropriate, this is not one of them. Provided this increases their market share - which is probable - then what's good for the customer here is also good for the shareholders, everybody wins.

DJStealth, not necessarily, I hope you're right, but it could also just mean that they're shifting their loss leaders to basics.

 

[DJ...]

DJStealth, not necessarily, I hope you're right, but it could also just mean that they're shifting their loss leaders to basics.

True, but lets watch PPI figures in a few months to make a determination. Will be interesting to see what Indi and Manufacturing do in the coming months. The move by retailers is interesting though and I reckon other retailers have no choice but to follow suit. What worries me about my prediction is that they have only publicly stated that they will cover inflation on basic food items. This seems more in line with shifting losses than taking on inflation - but I live in hope. PPI figures this month and next will be interesting and decisive about their expectations IMO...