Tag: Shoprite

Shoprite to vote on Whitey’s R1,7bn share sale

Shoprite shareholders will vote on whether to approve a proposed repurchase of about R1.7bn of shares from former chief executive officer Whitey Basson.

Basson exercised a put option on May 2 that meant Cape Town-based Shoprite would buy 8.58 million shares from the ex-CEO, who stepped down as head of Africa’s biggest food retailer at the end of last year.

The original sale price of R211.01 a share was later reduced to R201.07, the 30-day weighted average price up to when Basson decided to use his put option. At least 75% of voting shareholders have to be in favour of the repurchase for it to be approved.

Shoprite shares fell 0.5% to R222 at the close in Johannesburg on Monday, valuing the company at R133bn.

Billionaire Christo Wiese, Shoprite’s largest shareholder and South Africa’s fourth-richest person with a net worth of R72.6bn, said August 22 he wasn’t expecting significant opposition from investors.

The put option, agreed to in 2003, ensured Basson didn’t “flood the market” with shares while he worked for the company and was also part of an incentive to retain him in the role, which he held for almost four decades, Wiese said at the time.

If the deal isn’t approved, Basson should have no difficulty selling the shares to money managers over the next few months, Syd Vianello, an independent retail analyst in Johannesburg, said by phone. The stock has risen since the put option was triggered, meaning Basson could get even more cash if he sells independently.

Wiese owns about 15% of Shoprite’s ordinary listed shares and a further 30% in voting rights. The Public Investment Corp, which looks after state pensions and is the continent’s biggest money manager with assets of R1.6trn, holds about 10% of the company and is its second-largest shareholder.

By Janice Kew forBloomberg News

New venture may shake up shopping malls

Steinhoff Retail Africa, along with partner Shoprite, is set to disrupt the retail market, if they implement plans to own shopping centres.

Shoprite CEO Pieter Engelbrecht said this week: “If you look at all the brands that are currently in the company [Steinhoff] and you add ours, they could be opportunities in real estate where we could open shopping centres just with these brands on their own.

“Once we’ve combined we’ll make such a decision. But it could be a possibility because the combined value of real estate is huge between Shoprite and all these brands within Steinhoff Africa,” said Engelbrecht.

The creation of Steinhoff Africa Retail, known as STAR, will include Steinhoff’s African assets such as Ackermans, Poco South Africa, JD Group, Timbercity and men’s apparel retailers Dunns and John Craig, Pepkor South Africa and rest of Africa, and Tekkie Town, to name a few, and will result in Steinhoff acquiring a 22.7% stake in Shoprite.

Lucrative opportunity

Given the close relationship between Shoprite and Steinhoff, a move to combine the two groups’ own shopping centres could also mean Shoprite’s grocery brands, such as Checkers, Usave, Liquorshop and fast food brand Hungry Lion, could take up space in these shopping centres.
Engelbrecht added that because there was quite a big mix across the two groups, including furniture, food, liquor, pharmacies and electronics, this could be “quite a lucrative opportunity to explore”.

Earlier this month Steinhoff announced the details of the listing of its African and European assets into two companies, which would be listed separately.

This deal comes after a previous attempt to merge the two groups had failed. Under the new transaction, Engelbrecht said, it had panned out that Shoprite would stay “autonomous” and separately listed.

“For us that’s also more exciting as we as management believe that we should operate independently.”

But combining their brands in shopping centres could be one way to extract synergies and savings for Shoprite.

Keillen Ndlovu, head of listed properties at Stanlib, said “rental as a percentage of turnover and sales has been going up particularly in the bigger shopping centres. The bigger centres have been able to attract higher rents over time but unfortunately, the higher rental growth has not been catching up with sales and turnover growth.”

Slowing sales

This meant the cost of occupation for retailers had been rising with the average cost of occupation at 10% of sales as at the end of December 2016 from 8.5% as a percentage of sales between 2004 and 2016, Ndlovu said.

“Given the slowing sales and economic environments in general, this is likely to make it harder for landlords to bargain for rental increases from retail tenants. Therefore, rental growth is likely to slow down,” he said.

For Shoprite’s full year to end-July 2017, the cost of new operating leases rose 9.6% to R3.8-billion from the R3.5-billion in the previous quarter, “mainly due to a net 109 new corporate outlets opened during the year”, the company said.

And for the group that is focused on letting every rand fight for its life, a reduction in costs in the current trading environment will be welcome.

“We must drive our own strategic focus to create value for shareholders, but wherever there are synergies or saving or opportunities that we can share with the STAR group we will not be adverse to it at all,” Engelbrecht said.

Source: Business Live

Inside Shoprite’s giant new distribution centre

The Shoprite Group’s new Cilmor distribution centre in Brackenfell, Cape Town, spans 123 000m² and is described by the group as one of the most technologically advanced distribution centres on the African continent.

It consolidates the activities of five different distribution centres spread throughout Cape Town and provides jobs for about 3 500 people at the facility and a further about 500 people indirectly. The centre consolidates about 500 suppliers and it is anticipated that about 20 000 products will be stored there.

Construction of Cilmor began in February 2016. Its name is derived from farmer Cecil Morgan (Cilmor) who formerly owned the land.

The distribution centre consists of three different sections, namely ambient (operational since August 2017), frozen and chilled (both operational in 2018).

The ambient section includes a “chocolate box” where temperature-sensitive items such as chocolates are stored.

According to Photy Tzellios, general manager of supply chain at Shoprite Checkers, the company looked at various methods all over the world in order to develop Cilmor.

“It is not about four walls and inventory, but about how things are put together,” he told Fin24 during a tour of the facility on Tuesday.

“We looked for solutions for the flow from suppliers to the centre and from the centre to our stores. It is about anticipating what our customers need without the stores having to store stock. It is all about inventory management.”

This means warehouse space is not needed at stores and more stores can be “mushroomed” over a greater area.

Source and images: Supermarket and Retailer

South Africa’s recession means households had less and less to spend, but the number one supermarket group in the country, Shoprite, is adopting an unlikely strategy: targeting upmarket shoppers.

Lower-income families who formed Shoprite’s core customer base were cutting back on spending, but the wealthy remained undented by the economic downturn.

In a bid to retain its leading industry position, the discount retailer’s new boss was driving business hard into the higher-margin niche dominated by rival Woolworths.

The stage was set for a turf war to win the hearts, minds and wallets of South Africa’s richest two million households — and ultimately, pre-eminence in the supermarket sector.

Shoprite CEO Pieter Engelbrecht told Reuters that growth lied in affluent areas and customers.

“A lot of those (wealthier) customers, two million of them, actually frequent our stores already, but not exclusively,” he said in an interview.

“Our job is to get a better share of their wallets when they are in our stores and then impress them so that they come back again.”

Shoprite was doubling its offering of the kind of high-end convenience foods that Woolworths built its reputation on – from gourmet lamb shanks and oxtail stew to teriyaki-and-ginger basted pork ribs.

Its range would reach around 500 products by the end of this year, Engelbrecht said.

These products typically cost about R200 for a meal for four — 10 times the minimum wage of R20 an hour as set by new labour laws making their way through Parliament.

As part of the drive to expand its range, Engelbrecht said Shoprite had upgraded its food technology and development facilities, and gone on a hiring spree for food developers and technologists.

The company planned to open 23 new outlets of its higher-end Checkers chain of stores, mostly in wealthy suburbs such as Waterfall City north of Johannesburg.

New Checkers stores and established ones that had been refurbished resembled Woolworths outlets with sparse lighting and wood-panelled sections boasting extensive wine and gourmet coffee selections, as well as counters selling quality selections of cheese and meat.

‘I love Woolies’

But how will Woolworths defend a market that delivered handsome profits for the company?

When asked about Shoprite’s push into upmarket convenience food, Woolworths said that it had an “incredibly valuable emotional connection” with its customers.

“Retail is a dynamic environment and the competition in the grocery and food market category means that we will always keep a watching brief on our competitors’ activities,” it added.

“We conduct weekly basket checks against the prices of competitors to ensure that our prices are comparable.”

It was a tall order for Shoprite to break Woolworths’ stranglehold.

“They (Woolworths) have been good at introducing new products and other innovations in line with consumer trends and feedback,” said Old Mutual Invest food retail analyst Kaya Nodada.

If Shoprite was to prevail, it would have to win over shoppers like JF Fourie.

“I love Woolies. The microwave meals are a bit overpriced, but they are tasty,” the 28-year-old who works in marketing said in the Woolworths branch in eastern Pretoria as she added shimeji mushrooms to the baby brinjals in her basket.

Fourie – a big fan of Gordon Ramsay – said she would need some convincing about the quality of Shoprite’s products, but would give it a go because Checkers adverts feature the British celebrity chef.

“I like the chef and he hates airplane food,” she adds.

“He’s fussy and I am too.”

 

http://www.supermarket.co.za

Hush-hush Shoprite deal stuns investors

Back in 2011, when critics got into a flap about the R595m that former Shoprite CEO Whitey Basson made when he exercised a chunk of the share options he’d received as part of his remuneration package, chairman Christo Wiese told the Financial Mail: “I would pay R1bn in the middle of the night for another Whitey.”

At Shoprite’s AGM in late October 2016 Wiese again jumped to the defence of Basson’s remuneration package. This time he told testy investors, who’d questioned the R100m (including a cash bonus of R50m) paid to Basson in 2016, “I would have been happy to pay him much more”.

Shoprite’s recent shocking Sens announcement about Basson’s Put option is proof that Wiese was not exaggerating. Far from it. It seems Wiese actually understated the generosity he (on behalf of his shareholders) was prepared to heap upon Basson, who retired from the group in December. The Sens announcement released last Friday revealed the existence of a remarkable and hitherto unheard-of employment agreement that obliged Shoprite to repurchase any shares put to it by Basson.

A few days earlier, on May 2, Basson notified Shoprite that he was exercising the put option at the middle market price of R211. It turns out this was a five-year high for the share.
If shareholders approve the transaction, Shoprite will have to repurchase 8.7m of Basson’s shares at this price, which means handing over R1.8bn to the man who is largely responsible for building the group into the largest food retailer in Africa. Wiese’s comment about being happy to pay Basson so much more will come back to haunt shareholders as they face an eye-popping R144m/year in additional interest costs to fund his generous gesture.

Some analysts have expressed concern that Basson’s decision to sell all but 400,000 of his Shoprite shares is an indication that he believes the group is now ex-growth. Others say it’s an appropriate move for someone who must walk away and let a new executive team put their stamp on the business.

At this stage, despite Wiese’s 45% voting bloc, it’s not a dead certainty the transaction will get the necessary 75% shareholder approval. It’s difficult to see why shareholders, particularly the Government Employees Pension Fund with a 16.3% holding, would vote in support. It’s not as though Basson will ever do another full day’s work for the group. A R144m/year interest bill is a hefty thank you and not the sort of gesture hard-nosed investors are inclined to make.

If it is blocked, it is unclear what happens to Basson’s right in terms of the employment agreement. Presumably he could pursue the matter through the courts.

It wouldn’t be the first time this year Wiese failed to get his way with a controversial deal. In February a plan to combine Shoprite with Steinhoff’s African brands was called off when key shareholders were unable to reach agreement on the share-exchange ratio to be applied.
While there’s little debate about the contribution Basson made to Shoprite during his 37 years in the driving seat, there is huge debate over the nature and origins of this little-known employment agreement. It’s a debate that will grow in the weeks between now and when the shareholders get a chance to vote on it.

Jean Pierre Verster of Fairtree Capital says the issue is not about how much value a CEO creates: “This put obligation leads to a misalignment of interests between the company and its executives.”

Verster says inevitably, if it is in the interests of the executive to sell the shares, it will not be in the company’s interest to buy them. “R211 isn’t extremely expensive but it is close to full value, which means it’s in [Basson’s] interest to sell — but would the company be buying if it weren’t obliged to?”

Perhaps even more disturbing is that no-one outside the company seems to have been aware of the employment agreement giving Basson the extremely lucrative put option. There was certainly no sign of it back in 2011 when Basson sold the approximate 10m shares in the high-profile R595m deal.

The company says the agreement was concluded in December 2003 but analysts have been unable to find any trace of it, either as a note to subsequent remuneration reports or as a contingent liability. Analyst Syd Vianello said he was unaware of any such agreement anywhere in the past 15-20 years.

Amazingly, given the money and the parties involved, shareholders might never have been any the wiser were it not for the JSE’s listings requirements. The JSE’s Andre Visser says because it is a specific repurchase and involves a related party, shareholders have to give approval.

In addition, because the repurchase price is at a premium to the average price at which the share traded in the previous 30 business days, Shoprite must obtain a fairness opinion.

Shareholders will be provided with this opinion, full details of the repurchase and the date of the meeting “in due course”, says the company. This means shareholders will have plenty of time to mull over the latest controversial agreement involving SA’s wealthiest businessman — and to wonder how many other similar employment agreements are waiting to be detonated.

By Anne Crotty for Financial Mail

Shoprite, Steinhoff deal called off

South Africa’s Steinhoff’s and grocery retailer Shoprite have called off a potential deal to create an African retail giant.

In a joint statement, the two firms said “the fact that the relevant parties could not reach an agreement in respect of the Share Exchange resulted in the negotiations being terminated.”

As a result both companies saw a notable increase in their respective stock prices with Steinhoff’s shares in Johannesburg rising more than 7% since the announcement, while Shoprite’s stock jumped more than 6%.

The deal was the idea of retail magnate Christo Wiese, who owns 16% of Shoprite and 23% of Steinhoff, and would have given Steinhoff a major interest in the R110-billion Shoprite.

According to the Global Powers of Retailing list published in Janaury 2017, Steinhoff International, a manufacturer and retailer of mostly furniture and household goods, is currently the biggest retailer in the country and 72nd in the world.

Shoprite Holdings is the second biggest retail brand in the country, ranked 110th.

Source: www.businesstech.co.za

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