Analysis of The Great Atlantic and Pacific Tea Company and Shoprite Supermarket - Case Study Example

?ANALYSIS A&P supermarkets VS Shoprite Amanda Stamler BUS 100 OL Cathy Ko 11/16 Table of Contents EXECUTIVE SUMMARY: 3 INTRODUCTION: 5OVERVIEW OF A&P: 5 OVERVIEW OF SHOPRITE: 5 PRODUCTS AND SERVICES: 6 ANALYSIS 6 COMPANY’S GROWTH STRATEGIES 6 A&P: 6 SHOPRITE: 7 FINANCIAL PERFORMANCE: 7 A&P: 7 SHOPRITE: 8 SWOT ANALYSIS 8 SWOT ANALYSIS OF SHOPRITE: 8 Strengths 8 Weakness 9 Opportunities 9 Threats 9 SWOT ANALYSIS OF A&P: 10 Strengths 10 Weakness 10 Opportunities 10 Threats 10 SUCCESS FACTORS 11 A&P: 11 SHOPRITE: 11 GROWTH STRATEGIES 12 A&P: 12 RECOMMENDATION: 12 EXECUTIVE SUMMARY: This report presents a comparison and analysis of A&P supermarket and Shoprite supermarket. With the help of this analysis an attempt has been made to identify the best possible investment decision for the investors out of the both companies. The Great Atlantic & Pacific Tea Company, Inc. (A&P) is operating in the retail market of United States of America. The company operates around 435 supermarkets all over the United States. It is being operating as a subsidiary of Tengelmann Group, which is a based in Germany. A&P is only operating in the market of USA and has around 45000 employees. Once known to be the biggest supermarket retail chain in the country, A&P is now facing several financial issues and challenges. In the year 2010, the company reported a decline of around 7.4 percent in the overall revenues. The operating loss was reported to be around $600.6 million in the same year and the net loss in the year 2010 was around $875.6 million. Shoprite Holdings Limited is serving in the retail industry through different subsidiaries and provides the customers with fast moving consumer goods retail services. The company has being operating a vast network of hyper markets, outlets, and stores. Apart from this the operations of the company are expanded into 17 different countries and have well constructed supply chain network. Shoprite has been reporting considerable financial results and performance from several years and has been able to survive in the time of economic recession. It is offering significant dividend to its shareholders. The strategic and financial analysis carried out in this report, suggest that Shoprite is a better option for investing the money as the company is reporting increasing profits and revenues. INTRODUCTION: Retail industry is a recession proof industry and the industry has been growing even during the time of recession. The main reason for this is because of the fact that people have to eat, drink and wear clothes despite of what the situation of economy is. Because of this reason, a lot of investors choose to invest in companies within the retail industry particularly grocery stores. OVERVIEW OF A&P: The Great Atlantic & Pacific Tea Company, Inc. (A&P) is a US supermarket chain; the company was once one of the biggest companies in the US but it has been reduced in size. A&P runs 435 supermarkets in eight eastern states and the District of Columbia (AP Freshonline). In late 2007, A&P acquired its longtime rival, Pathmark Stores, for about $1.4 billion, reversing years of decline at the grocery company. A&P is a subsidiary of Tengelmann Group, a German Retailing Group which owns about 40% of A&P. A&P operates only in the US and is headquartered in Montvale, New Jersey. It employs approximately 45,000 people (Great Atlantic & Pacific Tea Company, 5). OVERVIEW OF SHOPRITE: Shoprite Holdings Limited (Shoprite) is an investment holding company that operates through its subsidiaries and offers fast moving consumer goods retail services by operating a range of hyper markets, stores and outlets. It operates through 1,394 stores, including 265 franchised outlets and 1084 corporate outlets in 17 countries. Shoprite is headquartered in Western Cape, South Africa, and primarily operates in South Africa, the Indian Ocean Islands and various other African Countries. It employs about 88,000 people. PRODUCTS AND SERVICES: Both companies offer a range of products and services which mainly include consumer products, dairy products etc. Details of products and services offered by two companies can be found in the appendix. ANALYSIS COMPANY’S GROWTH STRATEGIES A&P: A&P is going through financial challenges as the company is currently suffering from losses. It was one of the America’s best known supermarket chains but today it is struggling to earn profits. Fiscal 1st quarter losses of the company were $122.6 million and full-year losses of $876 million in fiscal year 2010 (A Voice for working America). In order to improve the productivity of the company, the CEO has been changed for the fourth time. The new CEO of the company is a team builder and therefore it is expected that this would help the company to improve its current position (A Voice for working America). SHOPRITE: Shoprite has been expanding its services to different parts of the world with the passage of time however most of the progress has been made in African regions. One of the reasons for expanding in African countries is the potential in the market. Also because of having knowledge about the local market, Shoprite has been able to penetrate effectively in African countries (Cairns, 2011). According to Marlo Scholtz, the African business went from R2.3 billion business in 2003 to R7.2 billion business in the year 2010. During the same time period, the South African supermarket industry expanded from R17.9 billion to R53.4 billion business. So, Shoprite’s core operations will continue to be in South Africa where the company has made tremendous inroads over the past decade (Cairns, 2011). Currently the company is planning and evaluating its profitability to expand its services in Republic of Angola. The company has also planned to open two new supermarkets in Mauritius as well (About the company). FINANCIAL PERFORMANCE: A&P: A&P recorded revenues of $8,813.6 million in the financial year 2010 which shows a decrease of 7.4% as compared to financial year 2009. A&P’s operating loss was $600.6 million in the financial year 2010 compared with an operating loss of $46.8 million in the financial year 2009 A&P’s net loss was $876.5 million in the financial year 2010 , compared with a net loss of $143.3 million in the financial year 2009 (A Voice for Working American). A&P lost $502.4 million from continuing operations during the financial year 2009, 3rd quarter. In just 3 months, A&P has lost all the money that investors had put in plus hundreds of millions more. Moreover A&P’s financial performance in other categories was equally poor that is comparable store sales fell by 5.8% (A Voice for Working American). SHOPRITE: Shoprite earned a total revenue of ZAR67, 402.4 million (approx. $8,870.2) in the year 2010 which shows a 13.6% growth from the last year. The operating profit was ZAR 3,387 million (approx. $445.7) in FY2010 reflecting an increase of 16.3% over FY2009. In addition to this, the net profit of the company showed an increase of 13.4% from 2009 as the net income in 2010 was ZAR2, 266.5 million (approx. $298.3 million) (Bloomberg Business week). In the year 2010, dividends paid by the company were R2, 27 per share which is more than the dividends paid in 2009 and 2008. Dividends paid in 2009 and 2008 were R2 and R1, 55. Even though the economy has been going through recession and still it is recovering from the financial crisis but still the company has been able to increase the dividends per share (Shoprite Holdings Ltd.). SWOT ANALYSIS SWOT ANALYSIS OF SHOPRITE: Strengths One of the main strengths of Shoprite is its wide network of stores in different regions that is able to attract customers from different states. In addition to this, the supply chain management and supply chain system is outclass with which the company is able to cut its overall operational costs thus company is able to gain competitive advantage because of its efficient management of supply chain. The future of the company looks promising considering its past performance and it is expected that the company would grow in the years to come. Also the strong performance of its supermarket division which is able to contribute significantly in its profitability is one of it is major strengths. Weakness The company is highly dependent on South African markets as major revenue of the company is contributed from this region. In addition to this, the operating margin of the company is limited. Also the other weakness of the company is that it is facing liquidity crisis as its working capital is not sufficient enough. Opportunities There are several opportunities for Shoprite that it can capitalize and one of the opportunities is that the industry is growing and emerging as a profitable industry thus company can capitalize on this opportunity. Also the market would provide more opportunities considering the Black Middle Class in the South African region is growing. Growth in E-retail is also a significant opportunity for Shoprite that it can capitalize. Threats Increasing competition is one of the major threats that the company is facing. The other threat the company is facing is unfavorable Government Regulation. Reduction in Discretionary Spending is another important threat for Shoprite. SWOT ANALYSIS OF A&P: Strengths A&P is a subsidiary of Tengelmann Group (a German retailing group) and it has a strong parent backing which is one of the major strengths the company has. A&P has a wide range of products and brand portfolio which is important to cater the needs of different customers. In addition to this, A&P has a wide network of stores therefore customers from different states can be targeted which is a major strength of the company. Weakness A&P is highly dependent on single supplier, C&S Wholesale Grocers and this is one of the major weaknesses. Financial performance of the company has been weakening with the passage of time which is a major concern for the management. Also the company has been incurring losses therefore its financial performance has to be improved. Opportunities There are several opportunities that A&P has and one of the opportunities it has is to have acquisition with Pathmark which would provide several growth opportunities for A&P. Another important opportunity for A&P is its increasing demand for private label products. Also the company can expand its services in different regions to improve its sales. Threats Intense or strong competition is one of the major threats the company is facing. However, increasing retail rentals and Industry Consolidation are another important threat for A&P. SUCCESS FACTORS A&P: Wide network of stores makes A&P a strong player in the market. A&P’s acquisition of Pathmark Stores in late 2007 has enhanced A&P’s network of stores in New York, New Jersey and Philadelphia metropolitan areas and this is one of the major success factors of the company. In addition to this, with a variety of products and brands available, the company is able to target multiple customer segments this is another major success factor. The company was able to reduce its overheads by approximately $50 million which mainly included administrative expenses after reorganization in the year 2005. The company estimated to achieve a cost saving of $25 million in the year 2006 which A&P was able to achieve thus such cost savings has helped the company in improving its financial position. SHOPRITE: Shoprite has achieved the leading position among South Africa’s food retailers by market share over the last year or so. This has been achieved because Shoprite has been able to make the best of the middle class people and people belonging from lower to middle income group. The company has used centralized distribution strategy which has helped in saving enormous amount of cost which is one of the success factors of the company. Because of central distribution strategy, Shoprite has not only been able to save costs but it has been able to achieve control over its supply chain. In addition to this, another major success factor is that the company has been able to expand its services in African countries efficiently and now it is the biggest food retailer in Africa with its operations in 17 countries. GROWTH STRATEGIES A&P: A&P operates only in the US and the company’s operations are present in seven states whereas on the other hand, Shoprite operates in 17 countries and it is mainly dominant in the African countries. Both the companies have been expanding their stores and have been gaining popularity however Shoprite has been able to cater the needs of international market whereas A&P has been expanding in USA. Therefore A&P has opportunities to go for the expansion of business in different countries other than USA where there is an immense opportunity to grow. The consumer goods market of Nigeria is different from South Africa market as there are no other superstores except the two stores of Shoprite. Therefore, Shoprite has the first mover advantage and it can make the most of this advantage and capture majority of the market share. Therefore the company should also evaluate similar regions where competition is low and company can capitalize on opportunities available in the market. So, both these companies have several opportunities to grow and expand its business. In US, private label products are witnessing a strong growth in sales so A&P should aim to go for growth in its private label products whereas, Shoprite should focus on e-retail services to improve its profitability even further. RECOMMENDATION: Investing in Shoprite would be beneficial and profitable because Shoprite’s share price did not fall off during the recession, unlike most of the stocks on JSE. There has been an upward movement in the share price of Shoprite. Also the company has been growing and the financial performance of the company is improving every year. Works Cited About the company. Shoprite Holdings Ltd., n.d. Web. 13 Nov. 2011 Analysts Comment on A&P’s Financial Condition. UFCW, 2011. Web. 13 Nov. 2011. Cairns, Patrick. “Shoprite Share Price Up.” The Citizen Online. 2011. Web. 13 Nov. 2011. Great Atlantic & Pacific Tea Company. Company Profile. The Great Atlantic & Pacific Tea Company, 2007. Web .13 Nov. 2011 Niccollai Decries Poor A&P Financial Performance. UFCW, 2011. Web. 13 Nov. 2011. Shoprite Holdings Ltd. Annual Financial statement. Jun. 2011. Shoprite Holdings Ltd. Web. 13 Nov. 2011 Shoprite Holdings Ltd. Bloomberg Business week, n.d. Web. 13 Nov. 2011. Welcome to A&P: About US. The Great Atlantic & Pacific Tea Company, 2011. Web. 13 Nov. 2011. APPENDIX Currency in Millions of South African Rands 2008 ZAR 2009 ZAR 2010 ZAR Revenues 47,651.5 59,318.6 67,402.4 TOTAL REVENUES 47,651.5 59,318.6 67,402.4 Cost of Goods Sold 38,134.0 47,829.7 54,084.5 GROSS PROFIT 9,517.6 11,488.9 13,318.0 Selling General & Admin Expenses, Total 4,806.5 5,812.8 6,888.0 Depreciation & Amortization, Total 596.8 753.9 839.2 Other Operating Expenses 1,845.4 2,010.5 2,133.0 OTHER OPERATING EXPENSES, TOTAL 7,248.8 8,577.2 9,860.2 OPERATING INCOME 2,268.8 2,911.6 3,457.8 Interest Expense -59.1 -86.0 -93.7 Interest and Investment Income 211.7 220.8 138.4 NET INTEREST EXPENSE 152.5 134.9 44.7 Currency Exchange Gains (Loss) 33.2 3.0 -77.8 Other Non-Operating Income (Expenses) -- -0.2 -- EBT, EXCLUDING UNUSUAL ITEMS 2,454.5 3,049.3 3,424.7 Gain (Loss) on Sale of Assets 6.8 -31.2 -25.6 EBT, INCLUDING UNUSUAL ITEMS 2,461.3 3,018.1 3,399.1 Income Tax Expense 875.6 999.5 1,111.8 Minority Interest in Earnings -15.4 -20.4 -20.8 Earnings from Continuing Operations 1,585.7 2,018.6 2,287.3 NET INCOME 1,570.3 1,998.2 2,266.5 NET INCOME TO COMMON INCLUDING EXTRA ITEMS 1,570.3 1,998.2 2,266.5 NET INCOME TO COMMON EXCLUDING EXTRA ITEMS 1,570.3 1,998.2 2,266.5 (Source: Bloomberg Business week). A&P’S PRODUCT AND SERVICES: A&P offers a wide range of products which are as follows: Frozen foods Dairy Fruits and vegetables Meat Deli Bakery Seafood General merchandise Health and beauty aids Liquor A&P also offers several consumer services through its stores, which are as follows: Banking Pharmacy Florists A&P’s also offers its private label brands, which are as follows: America’s Choice Master Choice Health Pride Savings Plus Body basics SHOPRITE’S PRODUCT AND SERVICES: Shoprite offers a wide range of products which are as follows: Food ingredients Groceries Non-food merchandise Fast moving consumer goods Meat Fruits and Vegetables Alcohol and other beverages Health & personal care products Furniture Appliances and other consumer goods Shoprite also offers several consumer services through its stores, which are as follows: Money market Cell phone Bus ticketing Pharmacy Airline tickets Account payments Insurance Home loans And other consumer services Read More