Shoprite Holdings Limited’s decision to sell some properties and lease them back is to free up cash to invest in technology, growing online sales and upgrading supermarkets to offer more fresh food.
These are the kinds of investments that give us very good returns, Chief Executive Officer Pieter Engelbrecht, said in an interview after Africa’s biggest grocer reported first-half earnings growth on Tuesday.
Global retailers are increasingly leasing rather than owning real estate because “the heavier your property portfolio gets in your total asset base, the lower your return on invested capital becomes,” the CEO said. “So eventually we become more of a property company than a retail company.”
According to Bloomberg News, Shoprite launched online purchase with one-hour delivery last year and is converting about 80 Checkers stores to its produce-focused FreshX format. With almost 30 outlets already upgraded, the remainder will be completed over the next two years.
“We can’t ignore where the world is going and customer data is critically important for the future of retailers,” Engelbrecht said. “We now know much more about our products, our margins and our customers.”
Shoprite has made big strides in its offering of more expensive specialist food, an area dominated in South Africa by Woolworths Holdings Ltd.
“In the premium fresh section of our business we’ve added 350 million rand ($23 million) in market share,” Engelbrecht said. “The customers that we’ve profiled as premium buyers in our fresh stores are growing 3 1/2 times faster than in the rest of our business, so we are certainly attracting a more affluent customer more often.”
Shoprite has an almost 32% market share of all food sales in South Africa, but Checkers — the brand that offers the most high-end products — has about 10%. “It has lots of runway still to grow its market penetration,” the CEO said.