February 26, 2018 / 4:48 PM / 24 days ago

UPDATE 1-South Africa's Shoprite benefits from strategy to head upmarket

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JOHANNESBURG, Feb 26 (Reuters) - South Africa’s Shoprite defied a struggling domestic economy with double-digit profit growth on Monday, as its new strategy to sell ready-made gourmet products began to pay off.

South African retailers have struggled to lift earnings as high household debts squeeze consumer income, although Shoprite has fared better than others with its focus on budget-conscious consumers, including more than 17 million South Africans on welfare grants.

In a bid to retain its leading industry position, the discount retailer’s new boss Pieter Englebrecht is driving hard into higher-margin, upmarket products dominated by rival Woolworths.

It has added upscale ready-to-eat meals at its Checkers stores to appeal to South Africa’s nearly 2 million more affluent consumers, such as lamb shanks and oxtail stew.

“The performance by the South African operations, boosted by the continued success of Checkers’ sharpened focus on high income group customers, helped offset the effect of a challenging year for non-South African operations,” the firm said in a statement.

Shoprite, which runs more than 2,600 outlets across Africa, said supermarkets in South Africa reported a 7.8 percent growth in sales, or 3.5 percent on a like-for-like basis.

Supermarkets outside South Africa reported a fall in sales of 0.4 percent, with a like-for-like decline of 6.4 percent.

Checkers, where sales grew at a faster rate than its two other brands, Usave and Shoprite, “gained market share on the back of significant improvements in service, enhancements to its fresh products and convenience food offerings and upgraded store design,” the company said.

Shoprite, which also vies in South Africa with Pick n Pay and Wal-Mart’s Massmart unit, reported a 14.2 percent increase in diluted headline earnings per share (HEPS) of 525.2 cents for the six months to the end of December, compared with 460 cents a year earlier.

HEPS is a widely watched profit measure in South Africa, which strips out certain one-off, non-trading items.

Total turnover grew 6.3 percent from 71.2 billion rand ($6.14 billion) to 75.8 billion rand.

“There are tentative signs of renewed confidence in South Africa and some green shoots in several economies in which the group operates which point to positive change in the medium term,” Shoprite said.

$1 = 11.6035 rand Reporting by Nqobile Dludla; Editing by David Evans and Edmund Blair

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