Shoprite CEO offers advice to European retailers during their electricity crisis | Fin24


European retailers could turn to colleagues in South Africa for ideas on how to cope with the worst energy crisis in decades as they brace for possible blackouts this winter.

The chief executive officer of Shoprite, Africa’s largest grocer, advises European retailers to prepare to boost investment to plan ahead and manage disruptions from disrupted energy supplies.

European retailers, which have benefited from relatively low energy bills for years, are facing dramatic price increases due to a cessation of gas supplies from Russia, which could bankrupt some smaller companies. British Prime Minister Liz Truss announced a sweeping package for households on Thursday as part of measures to combat the crisis.

The challenge is already clear. Associated British Foods Plc, owner of Primark, warned this week that profits will fall next year as it struggles with volatile, high energy costs like it’s never encountered before. Typically, retail energy costs rise by around £10 million ($12 million) a year, although the increase was £100 million this year.

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“I never thought they would have to experience what has become a kind of everyday life for us,” said Shoprite CEO Pieter Engelbrecht in an interview. “We have standby electricity and standby water, because that’s the next thing to come.”

Power outages are common in South Africa, where debt-ridden state energy company Eskom Holdings SOC Ltd. is unable to meet the demand of its fleet of obsolete and poorly maintained coal-fired power plants. It had power outages for more than half the days in the second quarter, and the blackouts resumed this week when five coal-fired power plants broke down and the only nuclear power plant malfunctioned.

Morleys Group, a regional department store chain, said its energy bills jumped 50% last year and will rise another 70% next month. The retailer is investing £1m in measures such as installing LED lighting and timers to try to alleviate rising cost pressures in its eight stores.

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“The price has given us a boost to invest in lower consumption and that has helped to limit the enormous increase in costs,” said chairman Bernard Dreesmann. “It’s a real challenge.”

All Shoprite’s 2,700 stores in South Africa have diesel generators, even though the retailer’s fuel costs increased 37% last year. Some of the outlets are solar self-sufficient, but that’s not always an option as not all buildings are built to support the extra weight of solar panels.

“It’s a huge capital burden,” said Shoprite’s Engelbrecht. “It doesn’t resolve overnight.”

Shoprite, based in Cape Town, has also regrouped food truck deliveries and changed its fleet to more efficient vehicles.

In the UK, J Sainsbury Plc has switched to 100% renewable energy, has installed solar panels in over 200 stores and uses aerofoil technology to prevent cold air from leaving the fridge. Morrisons also uses technology to keep the cold air in its open refrigerators and freezers, and has fitted doors in other cases. The chain has installed solar panels at 37 locations and is planning more.

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A retailer that is particularly dependent on energy is the frozen food chain Iceland Foods. Moody’s Investors Service lowered its rating for the retailer’s debt last month and said the company’s electricity bill will more than double in the fiscal year to March 2023.

The energy-saving measures are not cheap. Last month, Alexandre Bompard, CEO of Carrefour SA, said the French supermarket chain will reduce its energy consumption by 20% by 2024, requiring an investment of 320 million euros ($323 million).

“As long as it’s predictable, it’s manageable,” Engelbrecht said. “If you have 240 loaves of bread in the oven and then the electricity goes out, you’re wasting all that food.”