OUR CUSTOMERS ARE AT THE HEART OF OUR BUSINESS - INTEGRATED REPORT 2017 - Shoprite Holdings
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OUR CUSTOMERS ARE AT THE HEART OF OUR BUSINESS INTEGRATED REPORT 2017
Table of Profile
Contents Shoprite Holdings Limited is an investment holding company whose combined
subsidiaries constitute the largest fast moving consumer goods (FMCG) retail operation on
the African continent. We operate a total of 2 301 corporate (owned) and 388 franchise
stores and 19 trusted brands. We provide employment to 143 802 people across our
Business Overview
operations in 15 countries from Cape Town to Accra and the Indian Ocean islands.
Profile 1
While the Group’s primary business is food We achieve this by pursuing efficiency in By setting the conditions for enduring
About this report 2
retailing, our offering extends to a broad range everything we do. Our advanced distribution success, we can continue to provide
Distribution of operations 4
of goods and services including household centres and sophisticated supply line affordable food to our communities, invest in
The Group 6 products, furniture, pharmaceuticals and infrastructure give us greater control over our social upliftment and contribute to the African
Our mission and performance highlights 8 financial services, amongst others. At the operations. This empowers us to overcome economy − all while creating value for all our
Our business model explained 10 heart of our offering is an unwavering economic challenges without compromising stakeholders.
How we add value 12 dedication to providing the lowest prices to on quality.
Financial highlights 14 people of all income levels across Africa.
33
Stakeholder engagement 15
2 689 143 802
Operating context and strategy 19
distribution
Management Reports
stores staff centres
Board of Directors 26
Chairman’s Report 28
Annual turnover
31.9% Almost
Chief Executive’s Report 30
40 years
Three-year Financial Review 34
Financial Report
Operational Review
Nurturing our Capitals
35
38
41
R141 bn market share in South Africa
Corporate Governance
Corporate Governance Report 56
More than More than
26 years
Nominations Committee Report
Social and Ethics Committee Report
Remuneration Report
60
61
62
1 billion 35 million outside of
transactions p.a. shoppers p.a. South Africa
Summary Consolidated
Financial Statements 74
Pro Forma Information 98
“On our journey towards Africa’s largest fast-moving
becoming the best retailer in
Investor Information the world, it is going to be consumer goods retail company
Shareholder Analysis 101 important for us to c ontinue Shoprite Holdings Ltd comprises the following brands:
Notices to Shareholders
Forms of Proxy
103
121 building trust with our better and better
Administration
Shareholders’ Diary
Inside back cover
Inside back cover customers, by always giving
them what they need at prices
they can afford.”
Pieter Engelbrecht
Chief Executive
Freshmark
Shoprite Holdings Ltd
Integrated Report 2017 1
Business Overview
About this report
Shoprite Holdings Limited (“Shoprite” or Frameworks and assurance Subsidiaries of Shoprite Holdings Ltd
“the Company”) is pleased to present its 2017 The information included in the Integrated
Report has been provided in accordance with
Integrated Report. the International Financial Reporting Standards
(“IFRS”), JSE Listings Requirements, the
International Integrated Reporting Council’s
Scope and boundary been no changes in the structure of the (IIRC) framework (“the Framework”) and The
100% 100% 100% 100%
This Integrated Report covers all the operations Company during the current reporting period, King Code of Corporate Governance (King III).
and performance of the Shoprite Group, other than through ongoing store openings and
incorporating Shoprite Holdings Limited and all closures, as part of normal operations. No external assurance has formally been
its subsidiaries for the year ended 2 July 2017. sought, other than from our external auditors
Changes in disclosure PricewaterhouseCoopers Incorporated for the
Subsidiaries of Shoprite Readers should take note of the following annual financial statements, summary Shoprite Shoprite Checkers Shoprite Insurance Shoprite
Holdings Ltd changes in accounting policies and disclosure consolidated financial statements and pro International Ltd (Pty) Ltd Company Ltd Investments Ltd
See subsidiary breakdown on opposite page. practices: forma financial information. Aspects of our
J During 2017, the Group changed its information are however assured through the
The information in this report has been selected accounting treatment of advertising rebates, following sources: Has operations in: Has operations in:
to cater for the interests of stakeholders who with certain rebates relating to advertising J B-BBEE scorecard verification – Shoprite is J Zambia J South Africa
require a broad overview of Shoprite, but with now being deducted from the purchase verified on the Amended Codes of Good J Mozambique J Namibia
specific emphasis on investors and funders. price of goods. Where historical data has Practice, Gazette No. 36928 and obtains its J Botswana J Swaziland
been adjusted in this report, the relevant certification from AQRate Verification J Madagascar J Lesotho
We believe the report will provide stakeholders numbers have been annotated and a brief Services (Pty) Ltd, a SANAS accredited J Uganda J Mauritius
with an overview and better understanding of explanation included at the bottom of the B-BBEE Verification Agency. J Angola
Shoprite’s business model, our operational and tables. J Shoprite's International Trade Department J Ghana
financial performance, our governance J The Group discloses pro forma information (ITD), responsible for imports and exports, J Nigeria
practices and strategy, as well as the risks and in the Integrated Report related to: has achieved a certificate for ISO J Malawi
opportunities that manifest as the leading – constant currency sales performance for (International Organisation for J Democratic
FMCG retailer in Africa. Non-RSA operations; Standardisation) 9001 Quality Management Republic of Congo
– 52-week results for the 2016 financial System awarded by Dekra, which is
Materiality year to facilitate comparisons against the accredited by IAF.
The selection of issues to be covered in this current financial year which consisted of
report was informed by inputs from our
stakeholders, including capital providers and
regulators, and was further refined through
52 weeks, since the published 2016
financial year incorporated trading for
53 weeks; and
Forward-looking statements
This report may contain forward-looking
statements with respect to Shoprite’s future
100% 100%
engagement with the executive management – like-for-like comparisons, to remove the performance and prospects. While these MediRite (Pty) Ltd Computicket (Pty) Ltd
and board of Shoprite. impact of store openings and closures. statements represent our judgements and
future expectations, several factors may cause Has operations in: Has operations in:
Reporting comparability These changes and their impact are actual results to differ materially from our J South Africa J South Africa
There has been no change in the scope and discussed in detail in the pro forma expectations. J Angola J Botswana
boundary of this report relative to the 2016 information on page 98. J Swaziland J Mozambique
report, although the current report has been For further information, please contact J Namibia
expanded to include a wider range of Sarita van Wyk on 27 (0) 21 980 4269. J Zambia
information about the Company. There have
How to navigate our report Our Capitals
Throughout our Integrated Report, the following
icons are used to provide linkages to relevant Intellectual Capital Our brands, experience and know-how
aspects, or indicate where further detail is
available.
Human Capital Our people Approval of the Integrated Report
The board of directors of Shoprite acknowledges its responsibility to ensure the integrity of this report and confirm that this Integrated Report addresses all
Financial Capital Equity and funding from our shareholders and debt providers material matters and provides a balanced overview of the Company and its prospects. The board has therefore approved the 2017 Integrated Report for
publication.
This icon signifies related
Manufactured Capital Our stores, distribution centres, fleet and manufactured products
information elsewhere in On behalf of the board
this report.
Social Capital Our customers, suppliers, communities and other s takeholders
Natural Capital Our environment
This icon signifies related
information available online at: The icons above signify each of the capitals employed by Shoprite to effectively execute our business model. CH Wiese PC Engelbrecht
www.shopriteholdings.co.za Chairman Chief Executive Officer
Where cross referenced, the icons signify information that is relevant to an understanding of the impact of each
capital on our business. 21 August 2017
Shoprite Holdings Ltd Shoprite Holdings Ltd
2 Integrated Report 2017 Integrated Report 2017 3
Business Overview
Distribution of operations
Ghana Nigeria
Africa’s leading 6 Ghana
DRC Uganda
retailer, importer
and exporter of
Gross domestic
product, constant
prices (% change)
Inflation, average
consumer prices
(% change)
4.041
17.455
1
Gross domestic
2
Gross domestic
Nigeria
product, constant product, constant
prices (% change) 2.400 prices (% change) 4.673
Population (millions) 27.573
grocery products
23
Inflation, average Democratic Uganda
Inflation, average
consumer prices consumer prices
22.430 Republic of Congo 5.464
2 301
(% change) (% change)
Population (millions) 84.130 Population (millions) 41.087
Gross domestic
Mauritius
product, constant
prices (% change) -1.541
Zambia Mozambique
63 3
Inflation, average
26
consumer prices
(% change) 15.699
Population (millions) 183.636
Gross domestic Gross domestic
product, constant Gross domestic product, constant
prices (% change) 2.967 product, constant prices (% change) 3.600
prices (% change) 3.400 Inflation, average
Inflation, average
Angola consumer prices
17.900
Inflation, average consumer prices
(% change) 0.978
51
(% change) consumer prices
Angola (% change) 19.199
1.268
Population (millions) 16.717 Population (millions)
28.751
Total corporate stores
Population (millions)
Zambia
Gross domestic
product, constant
prices (% change) — Mozambique
Inflation, average
consumer prices
(% change) 32.378 Malawi
Contribution per operating segment Population (millions) 27.360
Botswana Malawi
4%
6% 2% 2%
Namibia 39 7 Madagascar
106
17% Gross domestic Gross domestic Mauritius
18% product, constant product, constant
2.270
prices (% change) 2.864 prices (% change)
Inflation, average Inflation, average
consumer prices consumer prices
Botswana (% change) 2.810 (% change) 21.683
2.154 18.632
Contribution
Gross domestic Population (millions) Population (millions)
Contribution
product, constant
prices (% change) 0.100
Madagascar
to trading Namibia
9
to sales
Inflation, average
consumer prices
profit (% change)
Population (millions)
6.727
2.300
Swaziland
Swaziland
26
Lesotho Gross domestic
product, constant
79% 4.138
72% prices (% change)
South Africa
Lesotho
Inflation, average
South Africa
consumer prices
23
(% change) 6.737
1916
Gross domestic
product, constant Population (millions) 24.916
Q Supermarkets RSA Q Supermarkets Non-RSA Q Furniture Q Other prices (% change) -0.426
Inflation, average
consumer prices
(% change) 8.033
Supermarkets RSA: represents all Shoprite, Usave, Checkers, Checkers Hyper and LiquorShop Gross domestic
Population (millions) 1.132
Gross domestic product, product, constant
stores in South Africa; constant prices (% change) 0.279 prices (% change) 2.866
Supermarkets Non-RSA: represents all Shoprite, Usave, Checkers, LiquorShop and certain Hungry Inflation, average consumer Inflation, average
6.341 consumer prices
Lion stores in countries outside of South Africa; prices (% change)
(% change) 7.000
Furniture: represents all House & Home, OK Furniture and OK Power Express stores; Population (millions) 55.909
Population (millions) 1.937
Other (these businesses operate in South Africa as well as Non-RSA): represents all Transpharm, Source: International Monetary Fund, World Economic
Checkers Food Services (CFS), MediRite, OK Franchise and Computicket outlets/operations. Outlook Database, April 2017
Shoprite Holdings Ltd Shoprite Holdings Ltd
4 Integrated Report 2017 Integrated Report 2017 5
Business Overview
The Group
Store count Store count
Target Non- Target Non-
Brand Summary market RSA RSA Total Brand Summary market RSA RSA Total
Affordable and accessible, Shoprite caters to the mass middle- LSM 4 – 7 Located inside Shoprite and Checkers stores, MediRite is well- Same as Shoprite
income market by providing its lowest prices on basic goods, positioned to meet the growing need for easily accessible and Checkers
613
including groceries and household products. As the Group’s and affordable healthcare to customers across all income
162
original and flagship brand, Shoprite owns the most stores in levels. Many MediRite pharmacies are located in previously
South Africa, and is the main spearhead for growth into Africa. 458 155 disadvantaged communities where few pharmaceutical
services are available. 146 16
The chain’s simple philosophy – “When we save, Usave” is LSM 1 – 5
backed by a strategy of small-format stores offering a limited LiquorShop offers a full assortment of wine, beer and spirits at Same as Shoprite
range of basic foods at everyday low prices to lower-income affordable prices to Checkers and Shoprite customers. and Checkers
consumers. The small-format stores are an ideal vehicle for the
Group’s expansion into Africa and allow far greater penetration
into previously underserved communities in South Africa. 302 65 367
Positioned near Group supermarkets, outlets feature separate
entrances and also appeal to passing trade.
376 14 390
Transpharm Pharmaceutical Wholesalers distributes a wide Targets pharmacies,
Convenience, quality and freshness define the Checkers LSM 8 – 10 vetenarians, clinics,
range of pharmaceutical products and surgical equipment to
brand. Time-pressed upper-income consumers in search of a hospitals and
pharmacies, hospitals, clinics, dispensing doctors and dispensing doctors.
world-class shopping experience enjoy great value on a wide
better and better veterinary surgeons across South Africa. The Shoprite Group is
selection of groceries, household products, fresh and
expanding this dynamic company to improve its existing
convenience foods and speciality lifestyle ranges of wine and
national distribution network.
coffee. Located in shopping malls and other convenient
209
premises across South Africa and some neighbouring
countries, the brand caters to discerning shoppers in affluent The OK Franchise Division franchises three different types of retail The various store
residential areas. 202 7 formats (OK Foods, OK MiniMark & OK Express), a liquor outlet formats, with their
different identities
(OK Liquor) and a wholesale outlet (Megasave). Each of these and facilities,
formats has its own identity and personality and offer shopping cater to the needs of
Checkers Hyper offers the same speciality food selections LSM 8 – 10 the community in
facilities appropriate to the market in which they trade. This
and great value as Checkers, but within large-format stores which they are
includes a wide range of fresh and non-perishable food items, as
that encourage bulk rather than convenience shopping. The located.
well as general merchandise. The OK Franchise continuously
general merchandise ranges are far wider in Hyper stores,
388
strives to cement the brand as a retailer that can be counted on,
focusing on categories like small appliances, pet accessories,
and today they have 388 stores in neighbourhoods and
garden and pool care, outdoor gear, home improvement,
communities across South Africa, Namibia and Swaziland. 336 52
37
homeware, baby products, toys and stationery. Checkers
Hyper stores operate in South Africa only and are found in
areas with high population densities. 37 — Hungry Lion prides itself on sharing MORE with its customers LSM 4 – 7
by delivering tasty fried chicken with MORE flavour and MORE
197
value. Operating in seven African countries, the brand strives
The OK Furniture chain brings affordable quality to homes LSM 5 – 7
to provide high-quality fare at affordable prices in a modern
across Africa. With its vast geographic spread of stores, the
brand offers a wide range of furniture, bedding, loose
fast-food environment. 130 67
carpeting, electrical appliances and home entertainment
407
products at the lowest prices, cash or on credit. Choice quality Checkers Food Services is the business-to-business (B2B) brand Targets a range of
goods and exceptional service define the ‘no problem’ of the Shoprite Group delivering a wide range of quality products businesses in the
shopping experience. 338 69 at the lowest prices to the hospitality and catering industry. hospitality and
Leveraging off the Group’s bulk-buying power and centralised catering industry.
distribution network, Checkers Food Services distributes to its
This chain of small-format stores sells a carefully selected LSM 5 – 7
customers in South Africa (Gauteng and Western Cape
range of white goods and home entertainment products, as
provinces) through dedicated warehouses and logistical fleets.
29
well as bedding and loose carpeting. Located mainly in high-
density areas, shoppers can choose to pay with cash or take
advantage of competitive credit options. 24 5 Computicket is the largest provider of ticketing services in LSM 4 – 10
South Africa with a footprint in key countries across Africa. Bus: LSM 4 – 7
Travel: LSM 7 – 10
House & Home offers upper-income consumers quality LSM 7 – 10
Computicket covers a wider variety of things to do, ranging Events: LSM 4 – 10
homeware at affordable prices. Goods include a large selection
from theatre, concerts, festivals and sporting events; to travel,
of exclusive and well-known ranges of furniture, bedding,
which includes bus and flight tickets, car rental and
52
appliances, home entertainment and floor covering products.
accommodation both nationally and internationally.
Stores are located throughout South Africa, Namibia and
Botswana. 49 3 In addition to enabling experiences, Computicket also facilitates
a range of business solutions which are geared towards making
the most of its offerings to its business partners. These business
solutions include stadium management, capacity management,
travel management and access control.
Shoprite Holdings Ltd Shoprite Holdings Ltd
6 Integrated Report 2017 Integrated Report 2017 7
Business Overview
Our mission
We are Our performance highlights
the largest Financial Intellectual Environmental
private sector highlights capital
performance
performance
employer in
J R141 billion turnover J 7 350 tonnes of plastic diverted
J R8.1 billion trading profit through recycled bags
J 19 trusted brands J Generated 1 102 MWh of renewable
J R5.6 billion headline earnings
J Gained 45 basis points market share in energy in 2017
South Africa
J Dividends distributed of R2.6 billion
South Africa to 31.9%, equivalent to R1.5 J Replaced more than 775 000 fluorescent
J Trading margin increased from billion in sales tubes and 80 000 control gear with energy
5.60% to 5.76%
J Smooth succession of key management efficient alternatives
J Saved 27 810 tonnes of CO2 valued at
and a leading
J Successful launch of Fresh Food category
Manufactured J Extension of Private Label R32 million
J Flagship new distribution centre aiming
capital for Green Star accreditation
employer in performance Social
capital
Awards in
the reporting
Africa.
J 2 689 stores in 15 countries
J Net 138 new stores opened performance period
J 5 new distribution centres opened
J More than 29 million shoppers across SA
Human
J 2016/17 Icon Brands Survey –
J Over 1 billion customer transactions in 2017
winner of the Grocery Food Retail
J Customer growth of 2.4%
performance
category
Our mission is to deliver low prices in We aspire to become the global leader ensuring the most affordable products
J 3.9% volume growth J 2016/17 Ask Afrika Youth Brands Survey
a world-class shopping environment in customer service, putting the available, lending a helping hand to
to customers across the African customer first in all things we do. Our those in need or feeding the most J Customer satisfaction at record levels – winner of the Food Retail category
continent. We bring choice, quality mantra is that no customer leaves the vulnerable in our society, we ensure J Employment for 143 802 people J More than 23 000 suppliers J 2017/18 Kasi Star Brands Survey
products and job creation to store unhappy and our employees are that we remain relevant to and trusted J More than 1 000 growers utilised, of which – winner of the Food Retail and Toy
J 6 027 new jobs created in 2017
communities in all the countries we empowered and have the full authority by the communities we serve. 295 are small enterprises Retail categories
serve. Our low-cost promise has been to do what is necessary to ensure our J 1 994 414 training hours invested in
J 3.6 million meals served by our mobile J 2016 The Times & Sowetan Shopper
the foundation of our business for customers are satisfied. Finally, we believe in treating all employees
soup kitchens Survey – winner of the Grand Prix Award
close to 40 years and we are relentless people, be it our colleagues or our J 46 000 employees trained on food safety and Best Grocery Store category
in our efforts to keep our business We are a business with heart, always customers, with respect and integrity, in 2017 J 3 000 bursaries awarded valued
at R130 million to date J 2016 Sunday Times Top Brands
efficient and our prices low. reminding ourselves that we are part keeping our promises and acting fairly
– winner of the Grocery Store category
of a broader community and in all our dealings. J Total CSI spend of R35.4 million
We have become the number one demonstrating to ourselves and our J Nielsen – Rated #1 in the world for ad
J R108 million in surplus food donations
retailer in Africa through a steadfast customers that we #ActForChange. recall on Facebook
For more detail about
commitment to the values we hold dear. Whether it is through job creation, our capitals, refer to the
section on Nurturing our
capitals, on page 41 – 55.
Shoprite Holdings Ltd Shoprite Holdings Ltd
8 Integrated Report 2017 Integrated Report 2017 9
Business Overview
Our business model explained
What
we need Our operating
model The result
to execute of what we do
1. Centralised
distribution
J
SA’s largest private
sector employer –
wages, salaries and
Strong brands Our outputs other staff benefits
of R10.8 billion
– benefits
2. Advanced
supply chain
to the
J
Significant job creation
– 55 000 new jobs
Great people customers since 2010
J
Development of
3. Sophisticated
J
Consistent value for
money – Shoprite
small suppliers
– R177.8 million
Loyal customers World-class contributed towards
Low sourcing
shopping
internal food inflation
of 5.9% vs official food
Enterprise and
prices
Supplier Development
4.
inflation of 10%
environment J
A diversified product
Initiatives in 2017
Efficient range – sold 7 .4 billion
J
Feeding those in need
A strong operating model items in 2017
– 3.6 million people
were fed in 2017,
balance sheet and R108 million of
J
Acting for change
in our communities food donated
5. State of the
art stores
– 2.6% of net
profit after tax to
community projects
J
Consistent
shareholder
State of the art returns – 20% p.a.
compounded annual
infrastructure growth rate (CAGR)
A keen in total shareholder
6. assessment
of customers’ J
return over 10 years
A cleaner environment
Environmentally for our children
needs
sound practices
For more detail about For more detail about our financial
our capitals, refer to performance refer to the financial
For our Value Added
pages 41 – 55. report on page 35.
Statement refer to page 14.
Shoprite Holdings Ltd Shoprite Holdings Ltd
10 Integrated Report 2017 Integrated Report 2017 11
Business Overview
How we add value
Key strategic aspects of our business model drive our long term success
Delivering the lowest
prices through
increased efficiency
We pursue efficiency in everything that we do.
By streamlining our supply chain, upgrading our
operations and driving down costs, we are
better able to deliver the lowest prices in a first-
world shopping environment to consumers Retail storage,
across Africa.
availability and
information technology
Our advanced
Our advanced supply chain also presents the
supply chain opportunity to re-engineer our retail stores and
Shoprite improved its competitive advantage optimise the use of retail space by dedicating
and sustainability by taking control of its supply the minimum area to storage and the maximum
chain in line with international best practices in area to trading space.
retail and today not only commands a
leadership position in the industry but has also Our technological platforms are continuously
become the African continent’s largest being refreshed to keep us abreast of
distributor of grocery products. technological developments. A new ERP
system and investments in digital
Our state-of-the-art distribution centres and transformation have led to increased
supply line infrastructure give us greater control efficiencies, more collaboration and better
over our inventory across 15 African countries. innovation across our businesses. Continuous
This empowers us to introduce a number of investment in customer science and big data
cost-saving efficiencies without decreasing allows for improved decision making in terms of
margins or compromising on quality. promotions, products, store layouts and pricing.
Fully-owned fleet
Our large fleet of trucks and trailers operates
24 hours a day, seven days a week to ensure Centralised distribution
maximum availability of goods that are
delivered on a time schedule. Sophisticated The Group has invested in an extended
transport route planning and scheduling centralised distribution network that enables us
software optimises store deliveries and reduces to seamlessly manage the supply of products to
the number of trucks on the road, thereby our stores across the continent.
reducing congestion, lowering our carbon
footprint and saving costs. As the first South African retailer to receive the
renowned ISO 9001 accreditation for import
This efficient supply chain infrastructure also and export handling, we continue to pursue our
empowers small-to-medium sized suppliers to strategic lead in supply chain management.
deliver merchandise directly to our centres and Our International Trade Department sources
avoid the need to invest in either warehousing products from anywhere in the world with
or vehicles. Our trading partners are a vital link extreme efficiency, assuring our customers of
in our supply chain and we work closely with choice, availability of products and value for
them to create mutually beneficial relationships money. We have invested substantially to create
that go beyond simple supply and demand a network of advanced distribution centres.
management. Their accompanying transport operations are
supported by sophisticated information
We have been pioneering reverse logistics management systems. A substantial portion of
initiatives that enhance our sustainability and the investment in information technology and
environmental position, in line with international logistics infrastructure has been devoted to
best practices. Our focus is on re-use, recycle upgrading and expanding our distribution
and the reduction of waste to landfill. network.
Shoprite Holdings Ltd Shoprite Holdings Ltd
12 Integrated Report 2017 Integrated Report 2017 13
Business Overview
Financial highlights Stakeholder engagement
Shoprite Holdings Ltd and its Subsidiaries for the year ended 2 July 2017
Restated Sales
52 weeks 53 weeks 160 000
% 2017 2016
increase Rm Rm+ 140 000 Employees
and Trade
141 000
Sale of merchandise 8.4 141 000 130 028 120 000 Unions
Our stakeholders
130 028
Trading profit 11.6 8 127 7 281
Earnings before interest, income tax, d
epreciation and Shoprite maintains relationships with a range of
113 694
100 000
R Million
amortisation (EBITDA) 6.8 10 013 9 376 interested parties to continuously improve the
Communities,
102 204
Profit before income tax 11.2 7 615 6 848 alignment of interests between the Company
including community-
92 457
Basic headline earnings 14.8 5 554 4 838
80 000 and its key stakeholders. The stakeholder
Shareholders based organisations
groups below have been identified based on the
82 468
and debt funders and non-governmental
extent to which they can influence the financial
72 076
60 000
Performance measures and operational performance, as well as the ion in environm organisations
uct
67 209
en
Diluted headline earnings per share (cents) 11.9 1 007.4 900.3 strategic direction of the Group. ed ti
59 127
40 000 t r
Dividends per share declared (cents) 11.5 504.0 452.0
m
ha
47 474
pa
et
Dividend cover (times) 2.0 2.0
cts
focus to ensur
Trading margin (%) 5.8 5.6 20 000
remains a top
Return on average shareholders’ equity (%) 19.4 19.3
+
0
The 2016 figures have been restated for the change in accounting treatment of advertising rebates. Refer to note
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
12 of the summary c onsolidated financial statements for more detail.
ide
Definitions
pro
w
p-
io
Return on average shareholders’ equity ou y
rit
Basic headline earnings, expressed as a percentage of the average of capital and reserves and interest-bearing borrowings at the beginning and the end Gr
of the financial year.
Suppliers Customers
Value-added Statement 24.1% 52.7%
Restated
52 weeks 53 weeks Regulators
2017 2016
Rm+
2017
Rm % %
Stakeholder engagement
Sale of merchandise 141 000 130 028
Investment income 415 285 9.9%
Shareholders and debt funders
Cost of goods and services (119 447) (110 329)
Value added 21 968 100.0 19 984 100.0
13.3%
Engagement methods
Employed as follows: Shoprite engages with investors through meetings, investor days, webcasts, conference calls, perception studies and surveys, conferences and
presentations.
Employees
Salaries, wages and service benefits 11 563 52.7 10 356 51.9
Key issues raised Our response
Providers of capital 2 926 13.3 2 642 13.2
24.9% Africa growth opportunities and disclosure We are providing more information on the
Finance costs to providers of funds 340 1.5 498 2.5 investment case and economic outlook for
Dividends to providers of share capital 2 586 11.8 2 144 10.7 Africa.
2016
Access to management Access to management was improved this year
Income tax by increasing the number of meetings with
Income tax on profits made 2 180 9.9 1 998 10.0 investors and by attending investor
conferences locally and abroad.
Reinvested 10.0% 51.9% Understanding Shoprite’s strategy In-depth strategy discussions have been
Reinvested in the Group to finance future
incorporated in investor presentations and
expansion and growth 5 299 24.1 4 988 24.9
included in the Integrated Report.
Depreciation and a
mortisation 2 457 11.2 2 288 11.4 13.2%
Retained earnings 2 842 12.9 2 700 13.5 Management succession CEO succession was well flagged and the new
team have made themselves available to meet
Employment of value added 21 968 100.0 19 984 100.0 with investors. Succession seems to have been
well-received.
+
The 2016 figures have been restated for the change in accounting treatment of advertising rebates. Employees Providers Income tax Reinvested
Refer to note 12 of the summary c
onsolidated financial statements for more detail. of capital
Shoprite Holdings Ltd Shoprite Holdings Ltd
14 Integrated Report 2017 Integrated Report 2017 15
Business Overview
Stakeholder engagement (continued)
Employees and Trade Unions Customers
Engagement methods Engagement methods
Through our weekly store staff meetings, a new CEO video initiative, our internal newspaper Baked Beans and Bully Beef, information sharing via Trade Engagement with customers is primarily through three platforms:
Unions, suggestion boxes, in-store training, Super Service awards and TopStars singing competition across Africa, we create an environment where J The Brand Health tracker survey;
staff are well-informed and engaged. J Social media platforms – where engagement has increased notably in recent times; and
J Direct interaction with customers in the stores.
Key issues raised Our response
Our customers increasingly communicate Social media interaction
Career development and growth We maintain regular and consistent interaction
with us via social media platforms – to
with the people within our business to ensure Brands Facebook Twitter YouTube Instagram
follow specials, request store details or
that they are adequately challenged, continue
Education and training product information and provide their
to grow and develop and are rewarded based Checkers RSA 944 106 146 608 2 054 25 369
views on a range of topics. We initially
on key performance indicators.
used social media as a marketing channel Shoprite RSA 877 015 109 233 1 420 N/A
Health and safety and have since extended its functionality
to a customer response, retention and Shoprite Nigeria 1 223 624 209 000 N/A N/A
recovery mechanism, as well as a brand-
Transformation and empowerment Shoprite Zambia 19 863 N/A N/A N/A
building medium.
Remuneration and incentives
Key issues raised Our response
For more information about our staff initiatives
Study assistance Affordability ‘Everyday low prices’ is our overarching
refer to Human Capital discussion on page 41.
objective and our entire business model is
structured and geared to deliver this on a
consistent basis.
Communities
Availability of products We continuously engage with a broad and
Engagement methods diversified range of suppliers to ensure on-shelf
Engagement occurs primarily through the social initiatives that Shoprite undertakes, as well as through direct customer feedback as these communities availability of product in all our stores. We use
also comprise our customers. more than 23 000 suppliers in 43 countries to
provide customers with the greatest choice
and consistent availability.
Key issues raised Our response
Quality complaints and safety concerns Shoprite maintains extensive quality control
Focus on food security Shoprite fights hunger through a variety of
programmes to ensure product quality and
feeding programmes, food gardens and food
safety and an efficient compliance and recall
donations.
system. This year, we have had an enhanced
Empowerment Women play a significant role in our business – rollout of training on issues of food safety and
they are our customers, employees and hygiene. We also empower our staff to resolve
suppliers. We partner and assist with various all complaints and ensure maximum customer
initiatives to support this group. We also satisfaction.
support a large number of small suppliers and
growers. Healthy options We have added more than 100 lines to our
Fresh Convenience Foods this year and
Job creation At Shoprite, we not only provide a substantial
launched an industry-leading Gordon Ramsay
number of direct employment opportunities
endorsed kids’ meal range, which sold more
related to our stores, but we also develop skills
than 200 000 meals in three months.
among the unemployed to create a pipeline for
future job creation.
Environmental sustainability Shoprite focuses strongly on the usage of
Community development Shoprite is committed to growing and recycled materials, as well as reducing
developing the communities we serve and packaging, reducing waste and minimising its
have a variety of initiatives in place to facilitate carbon footprint. Its leading innovation in the
this. While our initial focus is on meeting recyclable Checkers shopping bag has
immediate needs, our longer-term objective is significantly reduced landfill and will be rolled
always to put in place sustainable initiatives out to its other brands next year.
that will ultimately ameliorate the need. We
often work in partnership with other
organisations to deepen the impact of our
interventions.
Shoprite Holdings Ltd Shoprite Holdings Ltd
16 Integrated Report 2017 Integrated Report 2017 17Business Overview
Stakeholder engagement (continued) Operating context and strategy
Regulators Our market place – long term drivers
Engagement methods A large and growing population on the African continent
Engagement occurs primarily through meetings, regulatory submissions and interaction via industry bodies. requiring food and staple products
Africa’s population is set to DOUBLE to 2.4 billion people by 2050. Large
scale and rapid urbanisation, strong population growth and economic
Key issues raised Our response growth that is persistently higher than that of developed economies,
continue to make Africa an attractive long-term investment opportunity.
Ongoing compliance with regulatory We maintain a strong focus on ensuring that
frameworks Shoprite complies with all applicable
As the largest retailer in Africa, with almost 40 years of experience in
regulationsin all the countries we operate in.
South Africa and more than 26 years in the rest of Africa, Shoprite is
Job creation Governments of the countries in which we ideally positioned to meaningfully participate in this growth.
operate are particularly concerned with job
creation and Shoprite is a people-intensive Low commodity prices, weak currencies and pervasive drought conditions
business – we have a broad range of initiatives momentarily slowed our game plan for Africa in 2017, but we remain
in place to attract, recruit and train large committed to the long-term opportunities presented by the continent.
numbers of staff. The 15 markets that Shoprite operates in, have a combined population of
500 million people and a collective gross domestic product (GDP) of
R15 trillion.
Suppliers
Engagement methods
Suppliers are engaged through direct interaction, farm visits, agricultural shows and our electronic platform. Significant levels of unemployment and food insecurity
in parts of the African continent
Climate change may exacerbate these challenges by potentially
Key issues raised Our response
disrupting production patterns and increasing production costs.
Opportunities to supply to Shoprite Shoprite maintains a large and diverse group Shoprite continues to diversify its sources and portfolio of suppliers to
of suppliers. We focus on building long-lasting ensure availability of products on a consistent basis.
relationships with suppliers through direct
interaction and communication. Shoprite works We are working tirelessly to provide customers with products that are
with over 1 000 growers and sources more affordable and accessible. In 2017, we subsidised over 44 million
than 90% of all products locally, in support of loaves of bread and rolled out our R5 meals project to specifically
the communities it serves. address these challenges. We also ensure ready availability of a range
of staple foods for under R10.
Transformation A high percentage of Shoprite’s fresh produce
suppliers are small and medium enterprises
and in South Africa more than half of the
suppliers deliver on contracts worth less than
R500 000 a year.
Growth and development Shoprite maintains a number of small-
enterprise development initiatives to develop
and grow suppliers in local communities. Our Muted economic growth outlook
continued significant investment in supply Current trading conditions are characterised by limited macro-economic
chain infrastructure, also assists these support and low consumer and business confidence. The defensive nature
suppliers by reducing their travel time and of our brands and our ‘best value’ proposition become most evident under
costs. these trading conditions. Shopping for staples and basic foodstuffs
generally remain resilient throughout the economic cycle in the lower
income groups. In addition, an increase in value seeking behaviour is
benefiting our brands and market share in middle income groups. At the
For further detail of our engagement and opposite end of the scale, our recent successes in respect of increased
interaction with these stakeholder groups, penetration of the upper LSM groups is providing robust growth
refer to our Chief Executive’s report on
opportunities despite the current economic challenges. Our differentiated
page 30 and Nurturing our capitals on
pages 41 – 55. portfolio provides us with significantly more competitive levers to weather
current conditions.
Shoprite Holdings Ltd Shoprite Holdings Ltd
18 Integrated Report 2017 Integrated Report 2017 19Business Overview
Operating context and strategy (continued)
Managing business risks
Increase in regulation and standards Online shopping trends Our principal risks may impede on Shoprite’s ability to achieve our objectives. To determine the key risks, our risk universe is assessed from a likelihood as
Growing compliance requirements in every jurisdiction we operate require Online shopping is rapidly growing on a global scale. In Africa, the well as an estimated impact perspective and risks are categorised according to its combined score on these two dimensions.
diligence and strong systems for oversight. Over-regulation is stifling trend is still in its infancy, not least because of limited logistics Key risks Mitigation
entrepreneurship, and is adding significant complexity and cost to doing infrastructure. It is Shoprite’s intention to participate in this trend as it
1
business for small suppliers. matures on the continent. Unavailability of key systems J 24 hour monitoring of all key systems
Key IT systems may be off-line resulting J Formal Disaster Recovery programme that is tested on a regular basis
At Shoprite, we believe that you get people out of poverty by creating free An eCommerce project is currently being finalised. in disruption to business operations J In the process of migrating systems to the Cloud
market conditions and ease of doing business. We provide ongoing J Identify, diagnose and resolve incidents with support teams
support and guidance to small and medium enterprises, as part of our J Thorough testing of application changes
commitment to help overcome the challenges to comply with the required J Data protective mechanisms in place (automated data back-ups, IPS installations)
standards. J Back-up communication channels (3G, satellite)
2
Losses due to fraud J Formal approval system embedded for capital and operational expenditure
J All payments are done via EFT systems with reputable banks
J Automated system controls with online banking systems
Changing trends in customer preferences and J The controls around significant EFT systems have been assessed by PwC, the Group’s
consumption behaviours independent external auditor
Consumers are increasingly making healthier food choices, opting for J Critical financial systems subjected to regular risk based internal audit
organic, low-fat, or low-carb options, or eliminating ingredients based on J Monthly reconciliations of all ledger accounts
food sensitivities, allergies or personal convictions. There is a growing J Monthly review of Income Statements at lowest level entity (Branch)
trend towards fresh food, healthy options and convenience. This trend is J Well-publicised Hotline systems managed by independent external party
3
particularly evident in the more affluent communities who have a wider Non-performance of outsourced J Establish multiple suppliers for key services to avoid over-dependency
choice of lifestyles. J Conduct regular price and service benchmarking
service providers
J Develop in-house capabilities for key services
Shoprite is strongly participating in this trend with the Checkers brand, J Standard contract terms and conditions
with the rollout of a wide range of fresh and ready-made options and J Establish process to implement and enforce contracts
4
investment in the cold chain, quality specifications and quality
Foreign exchange losses J All imports and exports are executed in accordance with the Group’s Treasury mandate that was
management. We have also expanded our ranges of healthier alternatives
The Group may be exposed to foreign independently reviewed and then approved by the Board
– gluten free, sugar free, banting and carbohydrate substitutes – and
currency losses as a result of operating in J Adoption of hedge accounting as part of accounting policies
launched a range of healthy kids’ foods with a “no junk” promise.
various countries and due to importing J Weekly review of cash balances in the Group by Treasury forum during weekly foreign exchange
significant amounts of merchandise meetings
In tough economic times, customers tend to compromise on quantity but,
J Investment in US$ linked Angolan Government bonds
to the extent possible, not on quality. They will generally continue to seek
J Limit exposure by hedging in accordance with Treasury mandate, e.g. using Letters of Credit and
the premium quality product but buy a smaller quantity. Customers want a
Forward Foreign Exchange Contracts
value exchange of great quality and an affordable price but within budget.
J Convert surplus cash into hard currency as soon as possible
5
To accommodate this trend, Shoprite has started selling single serving
offerings of premium products, smaller sized options and ‘loose served’ Project and transformation failure J Project payments are structured on a milestone delivery basis
products at counters, allowing customers to select the quantity they can Project implementations may be delayed, J Projects overseen by Steering Committees that include various business heads. In major projects
afford. over budget and not meeting expectations the CEO, CFO and/or COO will also be involved.
J In the SAP implementation, SAP also provides expertise to manage the overall programme. In addition,
independent programme assurance forms part of the governance processes of the programme.
J Manage projects in accordance with project management best practices
Fast pace of change in technology J Track and monitor all projects through Value Management Office
Where and how retailers interface with customers is changing rapidly J All new prospective projects subjected to a rigorous cost-benefit review before being submitted
and technology and access to big data are key drivers in the changing to a Project Approval Committee that consists of senior management members. Where material,
landscape. the CEO and CFO will attend.
6
Non-compliance with laws and J Embedded compliance framework
Shoprite is actively using basket data and advanced customer analytics regulations relevant to the business J Regular reviews by Internal Audit
to guide all customer centric decision-making, from product ranges per Competition Act J Utilising software to assist in monthly reporting, compliance management and providing alerts on
store, to pricing, timing, products to promote and layout of stores. Occupational Health and Safety Act new/changes in legislation.
Pharmacy Act J Appointment of dedicated Compliance Officer
Medicines and Related Substances Act
Companies Act
Employment Equity Act
Labour Relations Act
National Environmental
Management Waste Act
Income Tax Act
B-BBEE Act
Consumer Protection Act
Protection of Personal Information Act
7
Breakdown/interruptions in J A comprehensive and formalised Business Continuity and Recovery Programme which is also in
supply chain the process of being rolled out to all Distribution Centres
Certain macro or internal events may J In process of matching suppliers’ capabilities
result in supply chain disruptions J Regular fire and risk reviews with training where required
J All critical centres have standby generators
J State of the art security and fire prevention systems, including alarms, access control,
closed-circuit television and sprinkler systems
Shoprite Holdings Ltd Shoprite Holdings Ltd
20 Integrated Report 2017 Integrated Report 2017 21Business Overview
Operating context and strategy (continued)
Strategic focus areas Strategic Our customers’
Shoprite’s strategic intent is to continue to strengthen and extend its leadership position as the foremost FMCG retail operation on the African continent. objective Initiatives and progress response Related risks
The Company intends to do this by unstintingly focusing on the delivery of low prices and a world-class shopping environment in every region it enters.
The Company is confident that the unique aspects of its chosen business model, as well as the strategies implemented to exploit key drivers of growth,
New record levels of
will continue to deliver sustainable value creation for all stakeholders for the next 40 years. The growth vectors are spread across various dimensions,
ensuring that there are multiple opportunities to be seized.
Building a
customer-
We make the customer our focus
J An organisation-wide understanding of customers’ expectations customer satisfaction 1 2 3
first culture
1. What you want, when you
want it
7
OUR 2. First time freshness better and better
PROMISE 3. Low prices you can trust
TO OUR 4. World-class shopping
experience (clean and
91% 87% 81%
USTOMERS
C simple to shop)
2 3
5. Friendly, helpful staff J 2.4% customer growth
Growing Developing and 0.45% gain in market
LSM Private J Operational management aligned to the brands
share – record high market
share at year-end
8 – 10 Label J Invested two million training hours, mostly around customer service, up J Eight customer awards in
Share of 12%
J Customer science and data capabilities supporting smarter decision-
the past year
Wallet making, with more relevant ranging and pricing and a 2% improvement
in on-shelf availability
Refer to page 21
J A team that is trained and empowered to do what is necessary – not a for related risks
single customer leaves the store unhappy. information.
Growing J Checkers has a significant opportunity to further grow share of wallet of
Drivers
LSM 8-10 high LSM customers.
J These customers are 4 times more valuable in terms of size of basket,
1 3 5
share of
than the average shopper
wallet
J An accelerating trend in this customer base towards fresh, convenient
6 7
of growth 4
and added-value foods
Stronger
1
J Checkers intends to compete strongly to take advantage of this
Customer- Franchise growing market – we have visited and learned from the best Fresh Food
suppliers globally and have implemented much of our learnings
first Offer J Management restructured to provide complete focus per brand
Culture J We recruited a top team of developers (chefs and food technologists) to
support the adoption of premium products, including a wider range of
gourmet food offerings.
J Shoprite’s business model is well suited towards an effective delivery in
this segment in terms of its supply chain, speed to the market and
quality control.
J Fresh has launched more than 100 new convenience products in the
past year and more than 110 new products are currently in
development.
J Products in Checkers’ Ready to Cook range have received the seal of
approval from the South African Chefs Association. J Checkers has seen the
J The product offering is being supported by an award-winning store largest gain in LSM 8-10
design, providing an attractive and high-quality shopping experience. shoppers since 2011 and
6 5
was the fastest growing
Strategic Leverage supermarket chain in this
Footprint African target segment in the last
year.
Expansion Advantage J The introduction of a Fresh
Foods category was met
with great success.
J Fresh convenience foods
sales have doubled this
year
Refer to page 21
J Kids ready-to-eat category for related risks
has doubled since launch information.
Shoprite Holdings Ltd Shoprite Holdings Ltd
22 Integrated Report 2017 Integrated Report 2017 23Business Overview
Operating context and strategy (continued)
Strategic Our customers’ Strategic Our customers’
objective Initiatives and progress response Related risks objective Initiatives and progress response Related risks
Developing J Promoting private label is a win-win for both Shoprite and our J Shoprite has already had Strategic New stores J Customers welcome our
private customers – providing choice at better value for customers and better
margin for the Company.
great success with difficult
categories, with its Zip
1 2 3 footprint J 72 new supermarkets opened this year
J 82 new supermarkets to open in 2018
low prices, wide range of
products, job opportunities
1 2 4
label expansion
J It also provides the opportunity to deleverage power from multi-national Cola and Lovies Nappies and community
suppliers
J 341 new products have been launched since January 2017.
often outselling the original
brands 5 7
Store formats optimised
J Flexible formats are being introduced to better serve each market
involvement.
J Optimised store size
3
J There is further room to increase Shoprite’s private label participation. J Private label participation 6 improve ROI 5 7
The Food and Grocery categories currently have a 14.7% participation
in South Africa in an industry worth R29.9 billion, relative to the industry
improved by 1% in South
Africa and 1.2% in Non-
Capitalise on bricks-and-mortar
J Bricks-and-mortar an advantage for Omni Channel offerings – ability to
J Centralised distribution
offers effective inventory
6
participation of 18.5%, according to Nielsen (2017). RSA this year get items to any city at a low cost management and a
J The Non-RSA opportunity remains totally untapped. J Private label gross margin J Continue to extend our lead in Africa positive cash cycle,
Refer to page 21
was up 2.3 percentage for related risks supporting the low cost
points year-on-year information. Own the supply chain promise.
J Shoprite maintains a sizeable head start in centralised distribution,
with 24 years’ experience and an investment of more than R40 billion
A stronger J A part of the business that has J Franchise business is J 123 000m² Cape Town Cilmor DC – opening in September 2017
franchise received strong focus this year. doing well, at 10.1% like- 1 2 4 J Transplanting expertise into Non-RSA regions, including two new
offer J We have refined our model and we are for-like sales growth. Distribution Centres in Angola and the purchase of a Distribution Centre
doing express format stores, as well J Increased appeal, with a in Nigeria
as forecourt stores net 29 new members 3 J International sourcing from 43 countries, supplying 15 countries
J Strong opportunities for growth
through private label, general merchandise,
J Gained market share
J Money market service
5 7 Expanding borders
Money Market services and our turn-key system solution. counters have experienced 6 J Shoprite will not confine its growth to existing African countries
J We have redone the private labels and introduced general merchandise substantial turnover J New Non-RSA countries are being explored
that the stores never had before growth J Other emerging markets are being investigated as a catalyst for our
J The franchise business is getting more and more products from our J 29% more products growth ambition, but expansion will be done cautiously
distribution centres and getting the pricing benefit. distributed from Shoprite
J Rebranded stores are growing at twice the pace of other stores DCs, improving retailer Implementing the right technology for 2020
J Adding another 75 fuel station forecourt stores margins by 0.5% Refer to page 21
J We are on a drive to further modernise our technology landscape for
J Trading profit growth for related risks rapid deployment and scalability
ahead of turnover growth information. J SAP COR3 – the biggest technology project ever undertaken by Shoprite.
J 4 years in the making – delivered on time and under budget
J Enables Omni Channel and e-commerce
Leverage J Shoprite has operated in Africa for more than 26 years. Our wealth of J Shoprite has a well- J Access to data lake of 100 terrabytes
African experience and track record is unsurpassed and a significant established record in 15 1 2 4 J Can run 20 million lines at point of purchase
advantage competitive advantage African countries and is J Cost reductions i.t.o. managing interface speed Refer to page 21
J Shoprite operates 437 stores outside South Africa. We have sufficient well-regarded. J Introduction of Google’s G Suite and Cloud-based solutions leads to for related risks
scale to open distribution centres in these countries, which will further Governments, regulators 3 enhanced collaboration and efficiencies information.
assist to entrench our position as market leader
J African population is set to double to 2.4 billion people by 2050.
and customers are
generally very favourably 5 7
J The growing middle class is forecast to reach 1.1 billion people by 2060. disposed to the 6
J Rapid urbanisation trends – 24 million people are moving to cities each establishment of stores
year until 2045, which implies that Africa’s top 18 cities will have from the Shoprite Group in
combined spending power of $1.3 trillion by 2030 – Shoprite is well their countries and
positioned to capitalise on this opportunity. communities.
J The long-term forecast growth for each region we have entered outside J 55 new stores opened, 43
South Africa is higher than that of the domestic economy, providing planned for 2018,
significant diversification benefits and growth prospects to the significant further
Company. opportunities available.
J Current economic challenges and a slowdown in the number of
properties being developed have reduced the pace of our store rollouts
into Africa. In the long term, we remain confident of the investment Africa is a
proposition of the continent.
long game
with many Refer to page 21
cycles for related risks
information.
Shoprite Holdings Ltd Shoprite Holdings Ltd
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