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Comparable annual sales at Shoprite Holdings' Usave chain were up 30.5
percent, indicating that the group could stomach 1 000 of the no-frills
stores without eating into its core Shoprite chain, chief executive
Whitey Basson said.
Sales in the year to June at the bottom-end chain, including 17 new stores, were up by even more, growing 48.2 percent, Basson said. The group confirmed that another 16 stores would be added in the current year, for a total of 132.
Basson said the return on investment at Usave was more than 50 percent, after cutting selling price margins by 1.3 percentage points gave it a volume boost. This was partly achieved by the introduction of more own-label brands, which sold at a 15 percent discount to national brands, but with a 5 percent margin gain.
The chain is modelled on a limited-assortment discount concept, retailing fewer lines of only the fastest selling groceries. While selling price margins are lower, in theory this is more than made up for by the higher stock turn.
The group said annual stock turn at Usave had increased from 9.4 times a year ago to 12.6. Shane Watkins, the executive director of silkroad fund managers, said stock turn for the group was about 10 times.
Basson said Usave's market share had doubled over the year to 1 percent, admitting it was off a low base. While there was a long-term trend of bottom-end incomes rising, which benefited the middle-market Shoprite chain, the high unemployment rate, currently at 23 percent, would not disappear soon.
Watkins noted that even in Europe, where incomes were significantly higher, limited assortment discount retailers had grown market share, as shown by the success of the Aldi chain in Germany.
Management had recognised that a business with high stock turn, even if it had low margins, could be "extremely profitable".
With no direct competition for the model at the bottom, Watkins said it was "an extremely compelling" and well thought out strategy. Pick n Pay's Boxer brand lacked a national footprint, and while it probably offered greater product variety, some of these items were slower sellers.
Usave posed a threat to owners of Spar convenience stores in rural areas, which had selling prices above the national average, Watkins added. As Usave added higher margin house brands, without sacrificing discounted selling prices, profitability could be further boosted. Moreover, the Shoprite group, unlike Pick n Pay, had a mature centralised distribution system, enabling it to service a growing a growing store base of high stock turn outlets.
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