Woolworths: Sales growth fuelled by panic buying won’t be sustained, say analysts

Panic buying as consumers prepared themselves for the lockdown saw Woolworths Foods’ sales volumes jump 27.6{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} compared to the same month in 2019. Looking at the 7.5{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} growth in sales volumes of food items in the first nine weeks of 2020, it becomes clear that Woolworths Foods, and possibly other food retailers, benefited from consumers diverting their expenditure from clothes, entertainment and durable goods to procure food supplies, say analysts.

Even though Woolworths has been working on increasing the Food division’s contribution to the group, expanding its footprint and improving its offering in the six months to December, Woolworths Foods recorded an 8.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} increase in sales. In the financial year which ended in June last year, a period in which Woolworths said Food had “another exceptional year”, the business unit’s sales increased by 7.7{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}.

“You only have to look at the growth up until the beginning of March and contrast it with the month of March. You can see from that and draw a conclusion that it has a lot to do with panic buying,” says veteran retail analyst Syd Vianello.

“People were buying toilet paper as if every toilet factory in South Africa was going bankrupt. People were buying as if the country was closing down completely,” he adds.

While other food retailers didn’t share their March sales figures, saying they are in a closed period, Mike Schussler, owner of Economists.co.za, expects a similar picture from the likes of Shoprite.

“Apart from food, people knew that they’d have to buy things like alcohol and cigarettes ahead,” says Schussler, noting that like some other retailers, Woolworths also sells wine.

Food retailers’ gains likely other players’ losses

But as food retailers laugh all the way to the bank, their fortune came at the expense of their counterparts selling clothes, music, toys and even cars, says Schussler.

“Edgars’ sales, for instance, dropped 40{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}. I heard that other retailers in that industry are struggling. I went to a music store just before the lockdown and there was absolutely no one there,” says Schussler.

He adds that consumers are likely also to have curtailed their expenditure at restaurants and other entertainment providers, well ahead of the lockdown, to prioritise food purchases.

Numbers in Woolworths Fashion, Beauty and HThome business construct a picture that supports Schussler’s view. The division’s sales in the four weeks to the end of March tanked 27.8{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} compared to the same month last year.

Growth won’t be sustained

Schussler says many people are likely to have used credit cards to fund their panic purchases in March and their spending power in the coming months will be reduced by the repayments made towards closing that debt.

Vianello says as households use the surplus stock for months after the lockdown, the retail sector is likely to experience a complete downturn.

“Assuming that the lockdown is lifted next week, and panic buying isn’t necessary anymore, all the toilet paper people bought for the next three months mean they won’t be buying any for the next three months.

“Except for day-to-day stuff like fresh fruits and vegetables, all the other stuff that people were stockpiling won’t move and I think Woolworths are alluding to this as well,” he adds. 

Because of this, says Vianello, many companies may be forced to start retrenching or cutting staff hours, especially if public sector wages do not increase – as Finance Minister, Tito Mboweni, wants to cut the wage bill by R160 billion over three years.

“You will find far less spending money in the system. The impact will be less so on food retailers, but I think you’ll start seeing a much bigger impact on durable and semi-durable goods,” argues Vianello.

Vianello says the abnormality caused by panic buying will likely work its way out of the system by the end of June and sales figures of furniture and other durable goods retailers will be worth watching then.

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