Shoprite is Africa’s biggest grocer, with over 2 500 stores in South Africa alone.

They might then seem like a pretty good bet if you’re looking to invest, although things have gone south pretty rapidly.

BusinessTech reports that Shoprite Holdings Ltd. shares have now plummeted to their lowest prince since 1999, fresh off the announcement that their first-half earnings dropped as much as 26%:

Alongside food-price deflation and rising costs in essentials such as electricity and security, Shoprite struggled with the introduction of a new IT system and some industrial action.

There’s little sign of any economic improvement either, though the company insists it can rely on customer support for its brands.

These problems are new to South Africa, but not uncommon in the rest of Africa.

A massive devaluation in the Angolan currency (and, to a lesser extent, in Zambia and Nigeria) has hurt conversion to the rand and driven up import costs. Meanwhile, rents in many African countries are linked to the US dollar.

The share price fell as much as 17% following the first-half announcement, and traded 12% lower at R157,37, as of 9:12AM this morning.

This graph (you can follow the share price live here) shows the trajectory of the shares over the past three months, and clearly illustrates the recent tanking:

Over the past 12 months, the share price is down around 34%, which is more than three times the drop in the FTSE/JSE Africa Food & Drug Retailers Index.

“Shoprite’s high South African margin has been driven by a formula of low prices in ever-improving stores,” said Charles Allen, an analyst at Bloomberg Intelligence.

Yet “availability issues, caused by an IT upgrade and strike, have hurt revenue” and “competition has improved, meaning that the company will have to work harder to regain momentum.”

“Profitability has been affected by South African deflation and consumers under extreme pressure, as well as inflexible costs, many of which are fixed in dollars across other African countries,” said Alec Abraham, an analyst at Sasfin Securities in Johannesburg.

You know it’s bad when even the big dogs are feeling the pinch.

[source:businesstech]