Consumer Trends: Food & Drink in South Africa
(Business Monitor) — Business Monitor has just released its latest findings on South Africa’s food and drink sector in its newly-published South Africa Food & Drink Report.
Business Monitor continues to hold a positive outlook on South Africa's consumer story as the country's economy continues to recover post-recession. Private consumption is expected to be stable in 2013, and Business Monitor expects the South African population to grow over their forecast period to 2017. Although the economic recovery has not been without challenges and will likely remain uneven, in their view, the consumer sector continues to hold up.
Grocery retail is one segment that reflects buoyant consumer demand in South Africa despite pressure on spending. Shoprite, the country's leading food retailer, saw total sales increase 12.1% year-on-year (y-o-y) for the year ended June 2013. With the opening of a further 114 new stores and a 15.6% y-o-y hike in trading profit over the year, the retailer's impressive headway signals promising consumption potential over the coming quarters. Although South Africa is currently dominated by domestic retailers, US giant Walmart's entry in 2011 under the Massmart banner is also indicative of growing international confidence in the South African consumer, with the country's relatively strong infrastructure continuing to aid demand.
Another indicator pointing to a positive consumer outlook is the continuing success of the country's fastfood sector. For a country that is a large consumer of meat and has a thriving 'eat out' culture, growth here demonstrates continuing discretionary consumer spending. International iconic brands such as McDonald's, Yum! Brands-owned KFC (which has more than 600 outlets in the country) and most recently Burger King continue to vie for a slice of this lucrative market worth approximately ZAR1.9bn annually. Domestic producers also continue to perform well, with Famous Brands' (which runs Steers, Debonairs and Wimpy's) annual revenue standing at approximately US$290mn. Although consumer spending continues to face pressure as the economy strives for stable growth, fast-food sales continue to demonstrate the endurance of spending on non-essential food items.
Key company developments covered in the report:
Shoprite Best Placed To Grow At Home, In Wider Africa: Shoprite has been one of the outstanding corporate South African success stories, reporting sales increases for the past five years. The food retailer has established itself as a leader in South Africa's organised grocery sector and in leading the charge into wider Sub-Saharan Africa, where there are some phenomenal long-term growth opportunities. In Shoprite's year ending June 2013, group sales increased 12.1% year-on-year, with profits rising by 15.6% and 114 new stores opened. Looking at food retailing specifically (Shoprite also sells furniture), Business Monitor remain of the opinion that it is the best placed South African retailer to continue leading growth both at home and in wider Africa, where the weakness of the rand against some other African currencies is making South African imports more affordable.
Diageo Invests In UB Group SA's Sorghum Unit: In November 2012, UK drinks major Diageo and India's UB Group entered into a memorandum of understanding under which UB Group's sorghum beer business in South Africa will become a 50:50 joint venture. This followed a spirits deal between the two firms. Diageo will spend US$36mn for its 50%, with the other half held by UB Group's chief, Vijay Mallya.
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