Stocktake: From strikes to seasonal deals

The year-end festive season is in full swing with Black Friday deals, company results, strike action, consumer predictions and supply chain fears.

Massmart claims “indifferent” support for strike

SACCAWU national leadership has reached out to Massmart toward resolving the strike, which is a “constructive development”, reported Brian Leroni, Massmart senior vice president, group corporate affairs, on Monday. In a series of daily updates on the strike by SACCAWU members, Massmart is pushing the narrative that the strike is a failure in its statements; and questioning the union’s sphere of influence: “Staff attendance at our stores over the weekend, was even higher than Friday and picketing activity was generally subdued. We estimate that less than 23% of SACCAWU membership participated in the strike action on Friday with further reduction to around 11% over the weekend. For example, strike participation at Builders, where SACCAWU has 2,500 members, dropped from 640 to 250 staff members. All estimates are based on store absenteeism. Indifferent support for this strike does bring into question the membership mandate that SACCAWU leadership claims to have for the current action which is occurring at a time when families generally have higher household expenses.” Leroni further said on Friday, that all Massmart stores were operating smoothly, as support for the strike was “sporadic”, with pickets at only 36 stores out of the 413 stores nationwide in the group.

However, the union announced on Monday that it had Cosatu backing and called for a consumer boycott of the retailer in support of the workers. SACCAWU accuses Massmart of not paying workers the correct remuneration for weekends and public holidays; and also wants clarity on why Massmart reduced working hours from 195 hours per week to 120 hours, directly impacting workers’ pockets. It is demanding a R500 increase across the board for employees. Massmart is offering R350.

Heineken’s focus is on Africa with the Distell deal

Heineken has put R40.1 billion on the table in its bid for Distell (at R180 a share). Now its up to the shareholders to approve the deal, which includes Namibian Breweries. Heineken is interested in the African market, where Distell has been making steady inroads. The younger and female market in Africa are embracing ciders and flavoured alcoholic beverages. Savanna, owned by Distell, is the world’s fastest-growing cider. Other popular brands in the Distell stable include liqueur brand Amarula and wines, including well-known labels such as Nederburg. In a statement last week, punting Heineken as a “partner for growth”in Africa, Distell informed shareholders that:

• The Transaction comprises a scheme of arrangement and certain initial steps. These initial steps will only be implemented if the transaction receives all required regulatory and other approvals. One of these initial steps entails an internal restructuring of Distell to create two separate businesses, one containing the cider, ready-to-drink beverages, and spirits and wine business and the other consisting of Distell’s remaining assets, including its Scotch whisky business which will be housed in a Distell subsidiary named Capevin.
• As part of the scheme, Distell Shareholders will receive simultaneous offers from Heineken and one of its wholly owned subsidiaries, referred to as Newco, to acquire their Distell Shares and also their Capevin shares which Distell Shareholders will receive as part of the scheme.
• The cider, ready-to-drink beverages, and spirits and wine business will be combined with Heineken’s interests in Southern Africa, including Namibia and select export markets in East Africa held by Newco, which will result in a world-class, unlisted, Southern-African focused, alcoholic beverages entity with a leading international beer and cider portfolio, combining the complementary brands, talent and skills of Distell, Heineken and Namibia Breweries to better serve consumers across the Southern Africa region. The combined entity will also have a significant presence in adjacent African markets.
• Strengthened route to market, reaching more consumers and customers with a strong multi-category portfolio, led by iconic brands including Heineken, Savanna and Windhoek.
• Newco will participate in projects and partnerships with proven impact on behavioural change and reducing alcohol related harm, alongside investment in responsible consumption campaigns and ensuring that consumers always have a choice, through broadening the availability of zero alcohol beverages.

Richard Rushton, Distell CEO said, “Together, this partnership has the potential to leverage the strength of Heineken’s global footprint with our leading brands to create a formidable, diverse beverage company for Africa. We will have a stronger route-to market with a unique multi-category portfolio, furthering our sustainable growth trajectory and ability to compete on scale. I am excited for what lies ahead as we look to combine our strong and popular brands and highly complementary geographical footprints to create a world class African company in the alcohol beverage sector. Our combined entity will grow our local expertise and insights to better serve consumers across the region.” Heineken’s CEO and chairman of the Executive Board, Dolf van den Brink, said, “We are very excited to bring together three strong businesses to create a regional beverage champion, perfectly positioned to capture significant growth opportunities in Southern Africa. Distell is a highly regarded, resilient business with leading brands, a talented workforce and a strong track record of innovation and growth in Africa. With Namibia Breweries Limited, there are exciting opportunities to expand premium beer and cider in Namibia and grow the iconic Windhoek brand beyond its home market. Today’s announcement is a vote of confidence in the long-term prospects of South Africa and Namibia and we commit to being a strong partner for growth and to make a positive impact in the communities in which we operate.”

Tiger Brands results: ‘Pressure on the consumer will remain’

Tiger Brands’ results for the year ended 30 September 2021 reflect steady progress against the company’s strategic priorities with an improved underlying performance from the core business, offset by once-off costs amounting to R732 million (pre-tax) related to the canned vegetable product recall and civil unrest in July 2021. “The year under review can be characterised as a year of two halves, with a solid first half result, driven primarily by a strong first quarter, offset in part by slower top-line growth in the second half. Despite revenue challenges, our focus on cost savings and improvements in production efficiencies resulted in positive operating leverage for the full year,” said Noel Doyle, Tiger Brands CEO. “This year, Tiger Brands joined a select group of South African companies that have celebrated their centenary. We’ve come a long way since starting as a small family business in Newtown, Johannesburg. While the past few years have presented particularly high levels of volatility, uncertainty, change and increasing social, economic and environmental pressures, exacerbated by the COVID-19 pandemic, our longevity reflects the company’s resilience, the inherent strength of our brands and the quality of our people. Our focus now is on accelerating strategy execution.”

“The challenging economic climate and pressure on the consumer will remain. We have made progress in strategically positioning the company for the future, becoming more consumer and shopper-oriented with a sharper focus on meeting consumers’ needs. Our priority has been on delivering value for the consumer, with plans for additional innovation in the value space,” says Doyle. In the past year, Tiger Brands launched 46 innovation projects, an increase of 31% on the previous year, tapping into areas that are becoming critical drivers for consumer buying habits, including value, health and nutrition, and the growing trend to snack. Since the launch of the Tiger Brands Venture Capital Fund in May 2021, over 500 expressions of interest were received. The company is in the final stages of making an offer for a business that is closely aligned to its health and nutrition strategy, with a further nine opportunities being assessed. In the medium to long term, the venture capital fund will provide the company with inorganic growth opportunities. Through its agriculture aggregator model, the company further increased the number of black smallholder farmers participating in its value chain, successfully onboarding two black female-owned aggregators and expanding the number of farmers supported to 157. Projects to the value of R28,6 million were approved in the last year, with a total of eight black aggregators cultivating white beans, wheat, groundnuts, and tomatoes.

Pepkor results: 247 new stores opened in past year

JSE-listed Pepkor group, which includes well-known brands such as PEP, Ackermans, Tekkie Town, The Building Company and Incredible Connection, delivered a 115.2% increase in headline earnings to R5 billion and succeeded in not only restoring, but comfortably surpassing pre-Covid 2019 profitability levels. Pepkor entrenched its position in the discount and value sector of the market with 93% of its sales generated in cash. Its latest annual results for the financial period up to 30 September 2021, highlight the following: 9.2% growth in revenue to R77,3 billion; 40% growth in operating profit to R9,3 billion; cash generated from operations totaled R11 billion; dividend of 44.2c per share declared. The group operates in 10 countries with a significant retail footprint of 5,470 stores spanning just over 2.4 million square metres. Employing 47,000 people, Pepkor sold 1 billion physical products and 1,7 billion virtual products during the past year. Commenting, CEO of Pepkor, Leon Lourens said, “Our business model and market positioning – the group owns more than 30 brands across the value retail landscape – allowed us to entrench our position as the top discount and value retailer in the South African retail market, providing unparalleled value to our customers.”

The clothing and general merchandise division remained the biggest contributor to overall revenue (64%) and operating profit (84%). Improved full price merchandise sales and a reduction in markdowns strengthened its gross profit margin. The retail group had significant market share gains across most of the categories that it trades in. Since 2019 the group has gained 201 basis points of market share in the clothing, footwear and homeware (CFH) categories that it trades in, according to the official Retail Liaison Committee.

On the impact of the civil unrest, Lourens said, “549 stores, which make up 10% of our retail base, were impacted by the looting during the civil unrest. Our teams showed remarkable resilience and more than 75% of these stores were re-opened within three months. Our comprehensive insurance cover will mitigate the impact of the R1,9-billion loss from the unrest.” On supply chain challenges, Lourens said supply and merchandise teams were working hard to control price increases and to ensure minimal disruption in the supply chain, keeping in mind the impact of production capability in China, local port challenges, international supply chain disruptions, as well as the civil unrest in South Africa in July of this year. However, regarding the year ahead, Pepkor expects customers to be further under pressure. “We will be faced with challenges such as supply chain interruption, load shedding, and unprecedented levels of unemployment. However, Pepkor is the value retailer that gives our customers value-for-money products and services at the lowest prices, and at their convenience. We have set up the business for growth and are determined to succeed.”

Iconic Canal Walk celebrates 21^st birthday

Canal Walk shopping centre, Cape Town, celebrated 21 years of retail excellence in October. When Canal Walk opened 21 years ago, it was billed as the most ambitious retail development in Africa, opening in October 2000 with an estimated build cost of R1.3 billion and, at the time, the mall spanned 125,000sqm retail space and 9,600sqm office space. It was acquired by its current co-owners Hyprop Investments (80%) and Ellerine Bros Ltd (20%) in 2003. Several new stores have opened this year, including the Adidas Women’s Store, Birkenstock, Trecastelli, Vuse, Calamari Fisheries, Under Armour, De Jagers, and Nicci Boutique. In addition, Diesel, Foschini, Fabiani, Seattle Coffee Company, Crocs and @home all opened in new locations in the mall. Keeping pace with the latest trends, Tread+Miller, Superga, Sportscene, Bargain Books and Samsung introduced their latest store concepts to the centre, Shesha extended to introduce a Hoops Lounge to its store, and Birkenstock opened in a pop-up store. Highlights to come, include Clicks Baby opening, Total Sports getting bigger, Exact relocating and Rochester joining the Boulevard stores to complement the offering of stand-alone flagship retail. Zara will be opening at Canal Walk in early 2022, offering its women’s, men’s, and kids’ ranges.

INTERNATIONAL NEWS

Amazon has announced that it will be dropping Visa cards as a payment option for its operations in the UK, due to excessive card fees. It is a deliberate step by the online retailer to drive open banking on its platform. Going forward, bank-to-bank payments will be the primary way for people to transact on Amazon. Other international online retailers are expected to follow suit in ditching cards for open banking to keep prices low for consumers, especially in Africa. Ozow reported that it was seeing merchants prioritising alternative payment options, which are significantly cheaper and allow them to reach a wider net of consumers.

Technology retailers warned that they may have insufficient stock to meet Black Friday demand due to delays in the supply chain. The IMRG, the UK’s Online Retail Association, said the industry had seen delays to stock arriving. Shortages of drivers and warehouse staff to send out purchased goods are also a worry for businesses, according to the IMRG.

The cost-of-living squeeze is set to worsen with global food price rises lasting until 2023, experts predict. Economists at BCA Research forecast that global food prices – which are already at their highest levels since 1975 in real terms – will increase next year and remain elevated into 2023. The BCA said higher freight, fertiliser and fuel costs will be passed on to shoppers through higher food prices next year.

*Additional sources: Total Retail Report, Kantar, Pymts.com.

This week in numbers

30 million

Reuters reports that TFG wants to locally manufacture 30 million pieces of clothing a year within four years as it increasingly turns away from global supply chains. Today, TFG, formerly known as The Foschini Group, sources 72% of its clothes locally, with offshore accounting for 28%, down from just over 40% four years ago, most of it from China.

QUOTE of the week:

“Great loyalty programmes aren’t focused on their transactions. They rather reward engagement and demonstrate shared values, offer convenience and exclusive experiences, and build a community that exists beyond discounts,” said Richard Mullins, managing director EMEA, Marketing, on Retailing Africa this past week.

Main image credit: Canal Walk.

*Stocktake is a weekly roundup of current FMCG retailing and brand news, curated and edited by Retailing Africa Publisher & Editor, Louise Burgers. Keep the industry updated and send your announcements and news to: news@retailingafrica.com.

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