With a background in financial management and business valuations, I have always been intrigued by ‘strategy’, that thing that ultimately sets a company apart from the next and probably, together with strong leadership, the main driver behind sustained value creation. In a series of interviews, I will be exploring different business leaders’ (all chartered accountants) approach to strategy.
I had a virtual interview with Anton de Bruyn, CFO of the Shoprite Group of Companies, to gain insights on what shaped Shoprite’s strategy during the early stages of the COVID-19 crisis. Four interesting items stood out:
The importance of adherence to risk management principles
The phrase ‘that brings me back to risk management’ echoed throughout the interview. It underlines the importance that Anton places on having a solid risk management framework. Adherence to principles such as risk registers for all divisions, having disaster recovery plans, business continuity plans, as well as regular risk forum discussions, was already part of Shoprite’s culture. The benefit of going through the risk management process lies therein that you already have a good idea of how you should react and what your contingency plans look like should anything unforeseen happens.
To illustrate how it practically unfolded, he took me through an example relating to their distribution centres. During 2018, due to labour unrest and other contributing factors, their distribution centres in Gauteng came under severe pressure, this in a time when they also went live with a new ERP system, leading to a material impact on the business − more than a billion rand lost in sales. The continued operation of their distribution centres is one of their top identified risks and the implementation of crafted continuity plan speaks to this risk. When COVID-19 happened, even though the cause was different, the continuity plans were ready to be activated.
Anton added that you will never be able to foresee exactly how things will play out, that a pandemic will hit, or that government will impose various regulations within different levels of opening the economy. As the pandemic poses new risks, such as potentially having a large number of your 2 800 stores closed at the same time due to infections, the framework is in place to formulate new contingency plans.
Another aspect feeding into the risk management process relates to Shoprite’s management structure, which ensures that everyone within Exco is continuously part of the risk management process. ‘Currently, the Exco meetings revolve mostly around the contingency plans and how to manage the implementation thereof.’
‘Some 12−18 months ago the business looked different to where we are today on the back of the profit warning issued in February 2019,’ Anton said. ‘In the past two to three years there were many management changes, including the group appointing a new CEO, Pieter Engelbrecht, who succeeded Whitey
Basson and had to land a clear message on strategy for the group going forward.’
Anton refers to the process as ‘future-proofing yourself’ so that you ensure that you stay relevant and move in line with international trends. And 12−18 months ago, they had to put a lot of attention on working capital, liquidity and refocusing capital allocation to strengthen their cash flow as part of ‘future-proofing themselves’. It inevitably placed them in a stronger position ahead of the crisis.
‘That brings me back to risk management …’ Anton emphasised that you must do a ‘risk assessment’ on your strategy to see if your strategy is still relevant, looking at all the strategic drivers. In order to ‘future-proof yourself and stay relevant’ you need to continuously look at ways to innovate in line with international trends (for example unlocking alternative revenue streams and focusing on online offerings). ‘You need to get the combination right between short-term quick wins and longer-term bigger strategies. If you stop innovating, you will stop being relevant, which will have an impact on the growth of your customer base.’
Some things can be implemented quickly, like seeing what to focus on during the pandemic − Shoprite expanded their online offerings, introduced virtual vouchers, and focused more on cell phone-related sales, among other things. Then there are other innovations that take longer to develop and roll out, like their FreshX store formats and Checkers rewards programme, both hugely successful.
‘There is, however, one proviso to innovation: you need to have the systems in place, especially the IT platform, to be able to handle these changes.’ Shoprite invested in an SAP ERP system and SAP software integration that allowed them to do things that they would not have been able to do in the past.
Communication with all role players
Continuous and clear communication with all stakeholders of the group, which includes the board, staff, shareholders, suppliers, the investor community, financiers and analysts, is crucial, and not just in a time of crisis. ‘If you don’t have the same message to all role players, people will get confused.’
Firstly, your board should know what strategy management drives and they need to buy in and support that strategy.
During the lockdown period management continued to update the board.
Also, your overall business strategy is not a secret anymore. Historically it could have been a ‘secret competitive advantage’, but today the communication of strategy is much more in the public domain, especially for a listed company. Shoprite has nine key drivers they focus on and these get communicated widely to all stakeholders (www.shopriteholdings.co.za/shareholders-investors).
Shoprite’s CEO communicates directly to the staff via their own company application. He publishes videos in which he shares strategic goals (for example key messages regarding cost drivers) and gives clear guidance on what is expected. ‘Communication’ − Anton could not emphasise it enough − ‘the better you communicate, over and over giving the same message, the better the strategy will be followed.’
Shoprite need to communicate in 14 countries, each with its own set of rules.
‘Within an environment that changes every day, the structure in which you communicate becomes extremely important,’ said Anton.
Corporate culture: passion and positivity
‘What pulls one through in a time of crisis is passion and the way in which you approach it. Positivity unlocks creative thinking. It is all about positivity and accepting challenges. You need a management team and employees with a lot of passion. Our CEO drives positivity.’
Anton continued that one of the first things Shoprite did was to ensure that their staff were safe (protective gear, enough sanitiser, rolling out mobile clinics). They also, early on during the lockdown, paid all staff an appreciation bonus − ‘retail is a hard and fast environment, you need to show you care about your staff and keep them motivated.’
We ended our conversation with some general business strategy-related topics, including the age-old principle of focusing on the client/customer. Shoprite’s approach is driven by a saying in their business that ‘no customer will leave the store unhappy’, so people go out of their way to make customers feel happy. New projects are approached with the questions ‘Is it for the benefit of the customer?’ and ‘How does it benefit the customer?’, a clear example of putting the customer at the centre of strategic thinking.
On incorporating sustainability and corporate citizenship into strategy, Anton mentioned that the integrated report is the first point of departure. Their company is totally committed and they embrace their role in society − supplier development (from information technology service providers to fruit and vegetable suppliers), soup trucks (utilised during periods of crisis) and mobile trucks serving rural areas, to mention a few. ‘It is nice to see that we can make a difference. The company does a lot and tries to give back to the communities − at the end of the day it is all about the customer.’
AUTHOR | Christiaan Vorster CA(SA), SAICA Regional Executive