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Shoprite is piloting a Mastercard debit card linked to its money market account, but the group says it has no intention of becoming a bank.CEO Pieter Engelbrecht said Shoprite would continue building financial products through partnerships with established financial institutions rather than taking on the regulatory and compliance burden associated with a banking licence.“We’re not going to be a bank,” Engelbrecht said. “I believe I must stick to what I know. That’s why I say the compliance part and the regulatory part we leave up to the bankers.”The debit card is being piloted alongside Shoprite’s money market account, which was launched three years ago in partnership with African Bank. The account charges a flat R5 fee for withdrawals and no transaction fees. The new card is intended to give customers additional ways to transact and access funds.The money market account has become a significant payments platform for the group, processing more than R1bn in transactions every month.Engelbrecht said: “Despite the growing competition in the financial services market, especially relating to money transfer offerings and other value-added services, our money market offer in Checkers as well as Shoprite stores has seen an increase in activity, especially our contribution and the growth that we have seen within payouts relating to government grants.” We are trying to select as many items or businesses as possible that fulfill everyday needs— Pieter Engelbrecht, Shoprite CEOThe retailer’s financial services ambitions form part of a broader strategy to capture a greater share of customers’ everyday spending by expanding beyond grocery retail.“We are trying to select as many items or businesses as possible that fulfill everyday needs,” Engelbrecht said. “We’d like to be the everyday store.”That strategy has driven expansion into adjacent categories and services, including pet products, outdoor and braai items, clothing, pharmacies, airtime, electricity, insurance and mobile products. It recently bought coffee franchise Vida e Caffè and the airtime and electricity vending machine business R&A Cellular. “The R&A Cellular acquisition forms part of our intended growth in the financial services space, of which cellphones have become crucial,” Engelbrecht said. “Most of these transactions are now being done on a cellphone. We have fallen behind a bit in terms of penetration and market share in the cellular market.”He said the deal would help Shoprite improve its position in the payment market, where it had lost ground, while providing access to R&A Cellular’s network of more than 15,000 payment terminals. It was still too early to estimate what share of the broader payments and financial services market the group could ultimately secure, he added.The financial services expansion comes as Shoprite continues to deliver strong growth across its retail operations.Sales for the year to June increased 7.2% to R270.8bn, while total income rose 7.8% to R70.7bn. The group opened 262 stores in South Africa during the year, taking its footprint to 2,839 outlets, and it plans to add a further 211 stores.Its on-demand grocery platform Sixty60 continued to gain momentum, with sales rising 34.7% to R25.5bn. The platform now accounts for 11.1% of the group’s supermarket RSA division sales.Big brother on the prowl (Nolo Moima) Analysts say growth is being driven by multiple business segments, not just Sixty60. Stephan Erasmus, investment analyst at Anchor Capital, said: “While Sixty60 is still growing strongly, it is no longer the only answer to the question of where growth comes from. Liquor, pet and pharmacy are all running ahead of the group.”He noted that Shoprite has gained market share every month for more than seven years, although an increasing portion of that growth is being generated through store expansion rather than higher sales from existing stores.Erasmus also questioned management’s recent criticism of like-for-like sales as a performance measure, arguing that investors still need the metric to assess underlying growth trends.“Shoprite’s CEO has dismissed like-for-like sales as archaic, arguing that the group now deliberately shifts trade between its own stores. I haven’t quite wrapped my head around this statement and its implications for monitoring future Shoprite performance, particularly since the company still discloses like-for-like growth of 2.7%,” he said.“That said, on balance, I think Shoprite is the 800-pound gorilla in the room, and I would happily own it.”‘Room to grow’Lebeko Shai, portfolio manager at Abax Investments, said the retailer still has room to expand despite its already dominant market position. “While market share gains inevitably become harder from a larger base, we still believe Shoprite has room to grow,” he said.“The group continues to attract customers across multiple formats, from Usave through Shoprite to Checkers. Importantly, recent growth has remained volume-led rather than price-led, suggesting gains are still being driven by customer acquisition and execution rather than inflation.”Business Times
