BUSINESS NEWS - If it has not arrived yet, a fierce pricing battle brought on by South Africa’s unending electricity supply crisis is brewing among grocery retailers.
South Africa’s largest retailers are spending millions daily to keep their stores running. They face mounting pressure to recover the additional, and at times unexpected, costs related to growing diesel bills and the ramping up of energy equipment – all of which is escalating the cost of doing business.
Pick n pay’s ‘permanent reality’
In its latest trading update, retailer Pick n Pay lamented confronting a “permanent new reality” and said it spent nearly R350 million in the 10 months to 25 December 2022 on diesel, to keep its stores operational during load shedding.
Similarly, its closest rival and Africa’s largest retailer Shoprite, said it had to cough up an additional R560 million for diesel to operate generators across its South African stores for the six months ended 1 January 2023.
Retailers opt to increase prices due to inflation
For Syd Vianello, an independent retail analyst, there is no chance that retailers will not pass on the cost pressures to the consumer.
“The costs will be passed on to the consumer … probably not initially, it’s a slow process. But you [can] bet your bottom dollar … they [retailers] will quietly and slowly raise their margins so that within a year from today, it will be embedded in extra margin and higher prices,” Vianello tells Moneyweb.
Retailers have already reacted to the pressures, with Pick n Pay reporting 10% internal inflation, while Shoprite said its price inflation measures 9.4%. Upmarket retailer Woolworths in its trading statement for the 26 weeks ended 25 December 2022, said it has passed on a 6.8% increase in selling prices to its shoppers.
While all retailers are under pressure to pass on additional costs to consumers, they will not be able to do so fully, as they are already operating in an environment with sticky inflation, says Casparus Treurnicht, research analyst and portfolio manager at Gryphon Asset Management.
“The consumer at the end of the day is going to basically pick up the tab for this … and the consumer can’t.
“[If] there was no inflation, and not to the extent we’ve seen, then they [the retailers] would have been in a better position to pass those costs on. At this point in time, consumer disposable incomes are under a lot of pressure, predominantly because of inflationary pressures,” says Treurnicht.
