Food giants and discount stores adapt to a weaker consumer

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SIMON BROWN: I’m chatting now with Dhersan Chetty, equity analyst at Foord Asset Management. Dhersan, appreciate the time today. Consumer confidence – in the recent note you put out – has been negative for seven years. I hadn’t realised it had been that long.

I know it’s tough being a South African consumer, but we’re talking like back, sort of pre-pandemic, that we’ve seen the squeeze on consumers. We haven’t stopped spending, but we’ve certainly had to get smarter about how we spend our money.

DHERSAN CHETTY: Yes, we definitely do. I think it’s been a very resilient segment, because food is essential. But what’s amazing about food is that it only had four years that volumes were negative – and food retail sales have never been negative.

They do pass on food inflation in the retailers, but we are going into a much weaker consumer going forward, and you can see the signs of that pressure – even at the high end. And you can see it for the low end also.

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SIMON BROWN: That’s a good point, because I mean it’s around we’ve been shopping smarter, we are using promotions. I imagine a lot of brands are switching at the same time as well to sort of try and keep things on the table, but there is less money to go around.

DHERSAN CHETTY: Yes. It’s interesting to see how the consumer behaves, because the brand perception is what drives sales and the instant promotions and the consumer has to be a bit savvier.

I think there’s going to be more a rotation into different retail brands and those that have that cheaper perception. Those are already cheaper or using their scale. So it’s going to make it a little bit harder for some of the other retailers, especially with the weak consumer and protecting GP [gross profit] margins to remain competitive.

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SIMON BROWN: Is it as simple, then, almost to say the winner here is broadly Shoprite, narrowly Checkers and especially Sixty60?

DHERSAN CHETTY: Yes, I also think Boxer. Boxer will do very well. So they are leading from the front in terms of their model, in terms of differentiation and lower SKUs [stock keeping units] to get deeper promotions, and they already have a lower price point than their peers.

So I think they are also included in that mix of downtrading from consumers.

SIMON BROWN: Let’s delve into Boxer because, as you said, they do it differently from perhaps the others. It’s very much their discount model. There’s less product range but it’s high volume, sort of low price – in a sense classic discount retail.

DHERSAN CHETTY: Yes, I think the key here is in the categories that they do play and their very high market share, and because they’re growing volumes at such a strong pace, the suppliers want that volume.

And as they grow into more space, that volume grows even further. So they can actually get some really good promotional pricing if they can deliver on those volumes.

And then on top of that, they’ve a very low cost model, very simple DCs [distribution centres]. And then that just creates more sustainability in terms of your margins.

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SIMON BROWN: And that comes back to Shoprite/Checkers, where they’ve got DCs by the dozen, they’ve got the suppliers, they do the volume.

They’ve got data on the customers as well. They are never out of stock. The formats work. They’re the other side of the equation, but doing it as well in many ways.

DHERSAN CHETTY: Yes, I think they’ll continue to do well. I think the most important thing is being able to execute and to use those promotions and use the data from the loyalty card, and then the strong private-label retail. In retail you have to do a lot of things well to be competitive.

SIMON BROWN: That’s a great point. It’s not just any one box, it’s many of them. But where does this leave Pick n Pay and Spar? The convenience – Pick n Pay used to be about price. The older listeners will remember sort of the Raymond Ackerman days of Pick n Pay.

They seem to have kind of got a little bit left on the wayside, particularly Spar, in terms of convenience, when I can now sort of get it delivered via a Sixty60 scooter.

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DHERSAN CHETTY: Yes. I think Spar – there are a lot of internal issues that they have had also. That also compounds it. And then with the franchise model, sometimes it can be harder to execute, because the Shoprite management team can make a decision and it’s executed at all the stores very quickly. So there is a bit of a leakage there.

But some of the franchisees in Spar are very good and obviously some are not. And then the convenience side on Sixty60 did definitely hurt that model.

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SIMON BROWN: What about Woolies? They are obviously a bit of a top end. They’ve also got the fashion. The beauty side has been struggling a bit. Where does Woolies sit in all of this?

DHERSAN CHETTY: Woolworths has grown like-for-like sales quite strongly. It has slowed down like everyone else, but I think they do have a differentiated model in terms of their fresh offering, ready-to-eat, high-quality products. But I think they can definitely improve their online offering.

SIMON BROWN: Yes, I was going to say their online and perhaps their delivery is a weak experience.

A question around food is private label. I always am surprised, perhaps, and maybe I’m just not a good shopper. I always expect to see more private label in our stores. It seems an obvious way to try and help the consumer on price. Where do we sit as private label for consumers?

DHERSAN CHETTY: It’s actually amazing. I think private-label penetration [in this] country is starting from a high base. So we are sitting at, I think, around 23%, 25% of sales already private label, and I saw some stats that the global average is 15%.

But what’s interesting is when you look at Shoprite, which is one of the best players in private label; they only grew sales in private label 6.6% in 2025, which is lower than their group sales.

So I think one factor is that you do have a lot of good food producers that are also lowering their brand premiums. They are also lowering their cost of manufacturing, value engineering, launching cheaper variants.

And then also private label needs capacity, and there isn’t that much food manufacturing capacity out there. That also restricts some of the private-label growth.

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SIMON BROWN: I take that, and, as I’m saying, private label – I’m sort of thinking back to the anonymous milk carton. But, for example with Checkers, the Forage and Feast fits in there, I would imagine as well, which is kind of middle to upper.

DHERSAN CHETTY: Yes, I would think that their secret is similar to what Clicks has done with private label – you buy a brand of private label that you might not even realise is private label, or if you know it’s private label you trust it more because of the branding around it.

So Simple Truth and Forage and Feast have created very good private-label brands.

SIMON BROWN: Yes. I know about them as private label because I’m in industry – but I’m not sure everyone does. Moving away a bit and thinking about clothing for a last question. This is obviously a tough area. It is more discretionary. It has brutal Chinese competition.

But is it simple to say that the sort of lower cost and sort of cash base – which is maybe Mr Price – are the better positioned here?

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DHERSAN CHETTY: No. I think in a weaker consumer environment that we’re going into, discretionary items will be impacted. The like-for-like sales of the retailers have been quite tough – around zero to flattish.

So with the Pick n Pay today it was it was down one [1%]. I think if you’re under pressure then you kind of reduce your non-discretionary spend – and the competition is tough.

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SIMON BROWN: And I can probably wear that shirt for, I don’t know, another season perhaps before replacing. It’s not food that I need to eat.

We’ll leave it there. Dhersan Chetty, equity analyst at Foord Asset Management, appreciate the time.

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