Fin24

Retail competition to increase imports

2011-08-28 09:54

Johannesburg - Competition in the retail industry will force an increasing number of retailers to buy their products more cheaply overseas. But this can be to the detriment of local suppliers.

South African retailers currently buy around 97% of their food and grocery products in South Africa, but in recent years the trend has been to increase imports.

“The volumes of a supplier like Tiger Brands have shown slower growth in recent years than those of a retailer like Pick n Pay, indicating that Tiger Brands is losing market share compared with foreign suppliers,” said Abdul Davids, head of research at Kagiso Asset Management.

Local players will probably face an even tougher battle when Walmart is fully integrated into Massmart Holdings [JSE:MSM].

Walmart follows a global procurement model, which means that it buys products where they are cheapest. As the world's biggest retailer, it can spread its purchasing worldwide to get the most competitive prices. Davids reckons South African retailers are just too small to compete with the scale of Walmart.

This will naturally put pressure on them to source cheaper products elsewhere as well. Shoprite has massive distribution centres to shore up stocks, but Pick n Pay Stores [JSE:PIK]is lagging in this respect.

The rand's exchange rate also plays a large role in the procurement of foreign products. Buyers benefit from a strong rand when they buy foreign goods, but when the rand weakens it makes the products of local suppliers more competitive.

“If, for instance, you examine the stock levels on Shoprite’s balance sheet in its latest results, it appears that the company has used the strong rand to stock up,” said Davids.

In announcing its results in the past week, Massmart said it would focus much more strongly on house brands.

According to chief executive Grant Pattison the plan is to procure foodstuffs for these brands locally. “We will procure products not manufactured here offshore.”

Shoprite Holdings [JSE:SHP] chief executive Whitey Basson, in announcing the group's annual results earlier this week, said that Shoprite also wanted to expand its house brand offering, but that local procurement for house brand products was difficult.

According to Gilmour, local suppliers have limited capacity and ability to manufacture house brand products – largely because Woolworths, the largest house brand products retailer, has cornered this capacity.

More than 90% of this group’s grocery offering is locally sourced and the group has established relationships with local product manufacturers to meet its demand.

Comments
  • King Cheetah - 2011-09-03 09:59

    Whitey Basson's comment makes for extremely concerning reading. This has the Shoprite Checkers group have recently been faced with a immediate Governmental recall for a imported Baked Beans product.This product on the shelves of Checkers Outlets. Because it was not compliant with the minimum standards of the Legislation affecting this product. Not compliant with "MINIMUM STANDARDS"!!! and "Checkers gets better and better" as the marketing of the Checkers brand states??? And this is just one product found non compliant at this time. As much as they import hundreds of others....simply FRIGHTENING!!! To Whitey and his cronies at Shoprite Checkers....why don't you advise the public??? As it is going to be made public and there will be legal recourse initiated really soon!!!

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