European retailers could turn to peers in South Africa for ideas on how to manage the worst energy crisis in decades as they brace for potential blackouts this winter.
The chief executive officer of Shoprite, Africa’s biggest grocer, is advising European retailers to prepare to boost investment to plan ahead and manage disruption from interrupted energy supplies.
Europe’s retailers, which for years have benefited from comparatively low energy bills, are facing dramatic price increases amid a shutdown of gas supply from Russia, and that could push some smaller companies out of business. UK Prime Minister Liz Truss announced a sweeping package for households on Thursday as part of measures to fight the crisis.
The challenge is already evident. Associated British Foods Plc, the owner of Primark, warned this week that its profit will fall next year as it grapples with volatile, high energy costs the likes of which it has never encountered before. Usually energy costs from stores move by about £10 million ($12 million) a year, though this year the increase has been £100 million.
“I never thought they would have to experience what for us has sort of become daily life,” Shoprite CEO Pieter Engelbrecht said in an interview. “We’ve got standby electricity and standby water, because that’s the next thing that’s going to come.”
Outages are par for the course in South Africa, where debt-saddled state power utility Eskom is unable to meet demand from its fleet of aging and poorly maintained coal-fired plants. It implemented electricity outages for more than half of the days in the second quarter and rolling blackouts resumed this week as five coal-fired plants broke down and its sole nuclear plant malfunctioned.
Morleys Group, a regional department store chain, said its energy bill rose 50% last year and will rise another 70% next month. The retailer is investing £1 million in measures such as installing LED lights and timers to try and ease the soaring cost pressure across its eight stores.
“The price has given us a kick up the backside to invest in lower consumption and that has helped mitigate the huge increase in costs,” said Chairman Bernard Dreesmann. “It’s a real challenge.”
All Shoprite’s 2 700 stores across South Africa have diesel-powered generators, even as that’s pushed the retailer’s fuel costs 37% higher last year. Some of its outlets are self-sufficient with solar energy, though that isn’t always an option as not all buildings are constructed in a way that can carry the extra weight from solar panels.
“It’s a massive capital expense,” Shoprite’s Engelbrecht said. “It doesn’t resolve overnight.”
Cape Town-based Shoprite 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 solar panels fitted to more than 200 stores and is using aerofoil technology to prevent cold air leaving fridges. Morrisons is also using technology to keep the cold air in its open fridges and freezers and in other cases has fitted doors. The chain has solar panels installed at 37 sites and is planning more.
One retailer that is particularly reliant on energy is frozen-food chain Iceland Foods. Moody’s Investors Service downgraded its rating on the retailer’s debt last month, saying the company’s electricity bill will more than double in the financial year to March 2023.
The energy-saving measures don’t come cheap. Last month Carrefour SA CEO Alexandre Bompard said the French supermarket chain will cut its energy use 20% by 2024, requiring investment of 320 million euros ($323 million).
“As long as it’s predictable, it’s manageable,” Engelbrecht said. “If you’ve got 240 loaves of bread in the oven and then the electricity goes off, you waste all that food.”