'That business is not coming back.' Shoprite says many smokers, drinkers sticking to black market

Business Insider SA
A pile of cigarettes
  • Shoprite lost a sizeable chunk of its alcohol and cigarette sales to the black market during sales bans in the pandemic.
  • Its CEO says that a part of that business may be gone for good.
  • He says cigarettes in the informal trade are currently selling for below the excise duty.
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Many South Africans switched to the black market during lengthy cigarette and alcohol sales bans over the past year – and a sizeable group is not returning, says Shoprite.

“That business is not coming back,” CEO Pieter Engelbrecht told 702’s The Money Show on Tuesday evening. He said that the bans hit sales by more than 20%, indicating that an equivalent sales number has now “moved away from formal”

He says that the illicit trade in cigarettes, specifically, is thriving, which is clear from the prices on offer in the black market.

“When the excise duty is R20.30 on a packet of 20 [cigarettes] and you selling it for R19.99 how do you pay it [the tax]?”

A study by the Research Unit on the Economics of Excisable Products (REEP) at the University of Cape Town, released last year, showed a strong shift to smaller brands that continued after South Africa's 20-week ban on tobacco sales.

READ | Cigarette market in SA: Winston won share, but other big brands lost after ban, survey shows

The Shoprite group’s liquor sales fell by 22% to R3.6 billion in the 26 weeks to 27 December, compared to the same period in the previous year. Trading bans kept its LiquorShop stores closed for 79 out of 182 trading days.

Excluding its LiquorShop sales, its supermarkets saw sales growth of 7.8% over the past half year. Including liquor sales, the growth number comes down to almost 5%, with sales growing to above R83 billion.

Checkers delivered a stand-out performance, increasing sales by more than 11% over the past six months. Checkers now represents 40% of the group’s supermarket sales.

Shoprite hiked its dividend by more than 22% to 191c per share, and its share price jumped more than 4% following the release of its results on Tuesday.

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