South African Food and Drug Retail GP margins are not a reliable signal of promotional intensity or pricing discipline

Research evidence excerpt

J P M O R G A N

CEEMEA Equity Research

06 August 2026

South African Food and Drug

Retail

GP margins are not a reliable signal of promotional

intensity or pricing discipline

Many investors treat gross margin as a clean signal of promotional intensity or

pricing discipline. We think that overstates what GP% can tell you in isolation.

GP% is heavily driven by who funds the promotion (supplier-funded vs retailerfunded), so the funding mix must be separated before judging execution. GP% also

understates volume benefits, which largely flow into gross profit (rand) rather than

the margin rate—so both metrics need to be assessed together. Our framework is

straightforward: the worst outcome is retailer-funded promotions with low

elasticity (margin dilution with limited volume payback). The more attractive

setup is meaningful supplier funding with higher elasticity, where gross profit

(rand) can outperform even if GP% is lower. We see Shoprite (OW) and Boxer

(N) as executing well on this basis, with supplier funding supporting their

promotional mix and margin resilience. By contrast, Woolies Food’s GP%

contraction appears more consistent with a higher share of retailer-funded

promotions. In drug retail, the mix often shows up in total income margin: supplier

support has historically been material, while Dis-Chem’s (UW) recent disruption

suggests greater reliance on retailer-funded “top-up” activity. Overall, we

prioritise scale and the ability to reinvest while compounding gross profit (rand),

not simply defending GP%. In a more competitive environment, GP% pressure

alone is not decisive—what matters is whether promotions are building sustainable

gross profit growth.

South African Consumer

Shaun Chauke AC

(27-11) 507-0735

J.P. Morgan Equities South Africa (Pty) Ltd.

Elena Jouronova, CFA

(971) 4561-2010

J.P. Morgan Securities plc

What have we learned from our in-store pricing surveys? Competitive

intensity is rising across the board, with a meaningful step-up in promotional

activity. In food retail, promotional participation increased from 19% in April to

38% in July. Shoprite led the pack, with 56% of our basket on promotion, while

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