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Shoprite chief executive Pieter Engelbrecht warned that a value-added tax (VAT) increase will cause tremendous damage to South Africa.
Engelbrecht shared his views on Newzroom Africa following the company’s interim results for the 26 weeks ended 29 December 2024.
The Shoprite Group, which includes Shoprite, Checkers, and Usave, increased revenue by 9.4% to R130.8 billion.
Merchandise sales increased by 9.6% to R128.6 billion, while sales from its South African supermarkets increased by 10.4% to R107.7 billion.
The retailer opened a net total of 283 stores during the past year and increased its staff complement by 2,989 employees in six months.
Engelbrecht said this growth was not attributable to the 0.6% increase in South Africa’s gross domestic product (GDP) over the last quarter.
Instead, he said the significant reduction in load-shedding has helped them to reduce the cost of serving customers.
Shoprite also benefitted from the two-pot system, which gave South Africans access to a part of their pension money.
“These two items are more important in our growth than the 0.6% GDP growth,” Engelbrecht said during the interview.
The Shoprite CEO would not directly comment on the 2025 Budget, which Finance Minister Enoch Godongwana will table in Parliament next week.
Godongwana was due to have tabled the 2025 Budget on 19 February 2025, but it was delayed after cabinet members rejected the planned VAT increase.
The government rejected the Finance Minister’s plans to raise value-added tax by two-percentage-points.
Since then, there has been a fierce debate on the best route to improve government finances, with a compromise 0.5 to 1.0 percentage point proposed.
A VAT increase will significantly impact South African retailers as it affects all South Africans, including poor households.
Engelbrecht would not comment on his views on the 2025 Budget. However, he shared his view on a VAT increase.
“An increase in value-added tax would be very hard for South African consumers. They are still under a lot of stress,” he said.
He said Shoprite wants to engage with the government about zero-rating frozen chicken, which would help poor households in the country.
He told Bloomberg that consumer spending has only just started to recover, boosted by benign inflation, interest-rate cuts and the introduction of the two-pot pension system.
Despite these challenges, the government is pressuring South African companies about food prices and possible tax increases.
Shoprite is trying to figure out how to ease food inflation by using sophisticated software, artificial intelligence, breaking down cost components and possibly collective buying.
While the local inflation rate has declined and is helping Shoprite boost volume growth, the risks remain.
“People are desperate,” he said. For most South Africans, “it’s not like I’m buying less because I have less money. It’s the fact that my money doesn’t go as far anymore.”
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