Cape Town – The Shoprite group is slowly but surely expanding its financial services offering.
After all, its position as the biggest food retailer in Africa gives it more reach among lower income groups than most banks can boast.
The latest development on this front involves an agreement with Kudough Credit Solutions, which will supply credit reports at the Money Market counters in Shoprite and Checkers stores. This service, which will enable people to check their credit status, will be officially announced later this month.
Shoprite Checkers has already been registered with the Financial Services Board as a supplier of financial services. Its Money Market has since 1998 provided various financial services and in 2006 it started a money-transfer service in association with Capitec Bank.
It also offers various insurance products and home loans; and funeral policies and municipal accounts can be paid at Money Market counters.
The services are provided in agreement with groups like Old Mutual, Doves, Sanlam and Betterbond, giving these companies access to around 23.2 million shoppers filling their trolleys each month at the group’s stores.
A large part of Shoprite’s growth comes from its other revenue streams and will be key to its future growth.
In the latest results for the year to end-June 2012, about 90% of the growth in the group’s profits was contributed by revenue streams other than retail, says Abdul Davids, head of research at Kagiso Asset Management.
The group regards its divisions like MediRite, Computicket, the franchise division and the Money Market services as other revenue streams. Apart from bookings for cultural and sporting events, bus and airline tickets can be bought at Computicket and travel arrangements made.
Davids reckons that Shoprite could possibly obtain access to more financial services in the future.
Retailers are indeed increasingly competing with banks in terms of financial services to the lower income groups. There are many more stores than banks in the country and there is massive foot traffic through the stores. Shopping hours are often longer and more accessible than those of banks.
The banking environment is however highly regulated and only institutions with banking licences may take deposits; retailers may not.
The revenue value for retailers if they enter into agreements with banks is the commission they can earn on products sold and services provided on the bank’s behalf.
Absa Asset Management analyst Christopher Gilmour says retailers’ investments into other revenue streams is to bring diversification to the bigger company.
According to Shoprite the Money Market concept builds customer loyalty. The success of the financial services is, say analysts, not massive profits but certainly extending a retailer’s added-value offering to its market.
This is where the agreement met Kudough also comes into play.
“It's a responsible initiative because the number of defaulting accounts is still rising; people who however check their credit status are only a fraction of those.
“Shoprite potentially offers the service to people who do not necessarily have the resources to check their credit status themselves,” says Kagiso Asset Management analyst Simon Anderssen.
The trend of local retailer groups expanding their financial services is in keeping with foreign players like Tesco, which offers banking services.
Tesco Bank was launched in 1997 and is the UK’s biggest supermarket bank.
Services range from credit cards and loans to savings and insurance products.
Woolworths, which competes with the Shoprite group among higher-income customers, already offers credit cards and loans in association with Absa.
Shoprite’s big advantage in the market is however its access to a massive number of customers, a large part of whom fall in the lower LSM groups and use no formal banking services.
According to Gryphon Asset Management chief executive Abri du Plessis, Shoprite is a careful group that will not enter the loan terrain in a hurry. One is more likely to see investment initiatives like unit trusts.
Gilmour says Shoprite has everything working – and could quickly introduce processes for delivering banking services. “But this is something that will only happen in the long run.”
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