Boston, MA -- (ReleaseWire) -- 04/30/2014 -- We expect to see another positive year for the South African economy and consumer industries through 2014, as the country's economy continues to recover post-recession. We forecast real GDP growth of 2.5% in 2014, up from 1.8% the previous year. In addition, private consumption is expected to continue its growth of the past four years at a rate of 2.2% in 2014, and 2.9% in 2015. Although the economic recovery has not been without challenges and will likely remain uneven, in our view the consumer sector continues to hold up.
Headline Industry Data
- 2014 per capita food consumption (local currency) = +6.9%; five-year forecast compound annual growth (CAGR) to 2018 = +7.9%.
- 2014 soft drinks volume sales = +8.2%; forecast compound annual growth to 2018 = +5.8%
- 2014 mass grocery retail sales (local currency) = +8.0%; forecast compound annual growth to 2018 = +8.9%.
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Key Company Developments
SABMiller's African Expansion Continues: SABMiller opened its second 1.8mn hectolitre brewery in Uganda in August 2013, effectively doubling its brewing potential in the country. This completes part of a US$260mn African expansion programme announced by the company in 2011. SABMiller intends similarly to expand brewing capacity in its important Ghanaian beer market (aiming to further gain ground on Heineken and Diageo), with work starting this year on a major extension of its Ghanaian facilities. Pick n Pay Making Progress: South Africa's second biggest food retailer by sales, Pick n Pay, has improved its performance. After a challenging period that saw it lose further ground to its main rival Shoprite, it reported promising results for the first half of its 2013/14 trading year.
Chief among Pick n Pay's problems has been a relatively dated distribution network, which was thought to be a contributing factor in its consistently weaker operating margin performance compared with Shoprite over the past few years. Recent efforts to streamline its operations and cut costs appeared to be paying off, however, when the company announced in October 2013 that it had achieved a 13.6% increase in its first half-year profits compared with the same period in the previous year. Those profits were from sales that had increased by 6.2% y-o-y, to reach a half-year total of ZAR30,100mn.
Pick n Pay still has a way to go and is aiming to bump up its operating margins nearer to the 4.5% range, compared with 2.7% in 2012 and 2.3% in 2013. Getting its margins above 4% would represent a tremendous step forward in Pick n Pay's ability to remain competitive as the South African retail landscape evolves considerably over the next few years. With Walmart's Massmart unit also expected to spend significantly on food retailing, the next few years will be particularly important for Pick n Pay.
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