In brief
- Xtra Savings Plus is a subscription service offered by Checkers, which gives shoppers unlimited Sixty60 deliveries and a one-off 10% discount on an in-store purchase per month. The introductory price is R99pm, discounted from R149pm.
- Our data shows that XSP has been successful so far, at least from a customer perspective. Retention is high and the service is popular among older, high-income shoppers.
- We analysed a cohort of XSP subscribers to see how their grocery spending in March and April 2024 compares to grocery spending during the same period in 2023. Average spend at Checkers among this cohort increased by 28% to R5,617pm, and the average number of Sixty60 orders increased by 44%.
- When it comes to profitability, however, the numbers for XSP are less convincing. We estimate gross profit may increase by 9% if XSP subscribers do not take up the in-store discount. If they do, gross profit may decline by 5%. Ultimately, we think that XSP is a ‘prime’ example of local retailers adapting to growing international competition.
Towards the end of last year, Checkers launched their Xtra Savings Plus subscription service. You probably remember the ad: a faux Tom Cruise in all his greatest moments (although sadly not as Stacee Jaxx), spending and swiping and saving the world.
For an introductory offer of R99pm, discounted from R149pm, subscribers could access unlimited Sixty60 deliveries, plus an additional 10% saving on one in-store purchase per month.
‘Xtra Savings Plus’ is quite long and complicated, so we’ve abbreviated it to XSP. In this research note, we’re going to evaluate the profitability of XSP as a subscription service. Using a new retention model, we’ll see how it stacks up against other leading consumer subscription services like Netflix and Spotify. Drawing on our unique real-time spending data, we’ll also highlight which shoppers are using XSP, and how XSP has affected their purchasing behaviour.
In the end, we’ll hopefully have enough inputs to answer the question that all analysts and competitors should be asking: Is the Xtra Savings Plus subscription model profitable for Checkers?
Customer retention
In case you’re wondering why we’re comparing XSP to Netflix and Spotify (and Showmax, for local flavour), it has to do with the word ‘subscription’. The subscription business model has become synonymous with media streaming services, even as it has spread to other services. Comparing on this basis is not perfect, but it does provide a benchmark to evaluate how successful XSP has been so far.
To be clear, XSP is not yet in the same league as Netflix and Spotify. The number of South Africans subscribing to the major global media services is orders of magnitude larger. Netflix is the big daddy, with c7.6 subscribers for every one XSP subscriber in the sample.
But what about Sixty60 users and Checkers in-store shoppers? Including these metrics gives more context to the research and helps to scale the samples.
So, here’s what we’re looking at: There are about the same number of Spotify subscribers in the sample as there are Sixty60 shoppers, and 1.5 (standalone) Showmax subscribers for every XSP subscriber. The number of Checkers in-store shoppers is many times larger than any subscription service.
RELATIVE SIZE: NUMBER OF SUBSCRIBERS/SHOPPERS TO EVERY XSP SUBSCRIBER
We’re specifically interested in how these services retain their customers, month to month. By our definition, retention means the proportion of last month’s customers who subscribed again this month.
From the chart on the next page, it’s clear that customers are loathe to give up their Netflix and Spotify subscriptions. Nearly 95 out of every 100 customers prioritise paying their subscriptions to these services each month. (No wonder credit bureaus around the world are searching for alternative measures, like subscription payment profiles, to offer differentiated credit scores and increase access to credit.)
XSP’s retention level is just below this high-water mark. Currently, nine out of ten XSP subscribers maintain their subscription on a month-to-month basis. Showmax’s retention, by comparison, is a little lower at ~83%.
In general, we note that retention seems to fluctuate fairly predictably. The rate weakens in the early part of the year, maybe as a result of consumers struggling to maintain their festive season splurging.
CUSTOMER RETENTION RATE: JAN 2022 – APRIL 2024
Who subscribes to Xtra Savings Plus?
In previous reports, we have shown that on-demand grocery delivery is most popular among mid- to high-income, predominately middle-aged users – the time-starved working families or professionals who can afford not to go to the supermarket.
Our most recent spending data shows that XSP exaggerates this trend and appeals to the Sixty60 super fans. In other words, a Sixty60 shopper is likely to be relatively wealthy and they’re likely to fall into the 35–45 age bracket. XSP subscribers are even more likely to earn in a higher bracket and more likely to fall into the 35–45 age bracket.
SIXTY60 USERS AND XSP SUBSCRIBERS, BY INCOME AND AGE
Convenience, delivered
Now that we know who subscribes to XSP, let’s see how unlimited delivery has affected their purchasing behaviour and whether a subscription model can be a profitable business for Checkers.
The best way to measure the effect of XSP of consumer behaviour is to take today’s XSP subscribers, review their current grocery spend, then look back in time and compare how they were spending this time last year.
Fortunately, that’s exactly what Reveal can do.
From the sample of XSP subscribers, we identified a sub-sample of 1,770 XSP subscribers with uninterrupted transaction data that allows us to compare March and April spending between 2023 and 2024.
We looked at all spending at the four major grocery retailers over this period. The average total grocery spend by today’s XSP subscribers has increased by 10% to R11,250 pm.
These shoppers were already regular Checkers shoppers. Since subscribing to XSP, their spending at the retailer has increased even more. In 2024, among this user sample, Checkers accounted for 50% of the average total monthly spend on groceries – an increase of 7 percentage points (pp) over 2023. Average spend at Checkers by XSP subscribers increased by 28% to R5,617pm and the number of Sixty60 orders increase 44%.
Interestingly, however, the average Sixty60 order value among this cohort declined 10% to R432 (more on that later). In-store visits and average maximum in-store purchase values also decreased.
Can Xtra Savings Plus be profitable?
Checkers’ spending share gains have been won in equal amounts from all of the other major grocery retailers. In this particular consumer segment, Woolworths has the second largest share (-2pp on 2023 share), followed by Pick n Pay (-3pp) and Spar (-2pp).
Of the R11,250 that these XSP subscribers spend on groceries each month, they spend R5,617 (50%) at Checkers. Sixty60 accounts for 37% of that spend – an increase of 10pp over 2023.
From this data, it’s clear that Sixty60 accounts for all the increases in total spending at Checkers for this cohort. (In-store sales actually declined, as did in-store shopping trips.) With the licence to summon unlimited baskets to their door, the average number of Sixty60 orders has increased by 44% – from 7 orders to 10 orders per customer per month – even as the average order value has decreased by R46 (10%) to R432. (Much of that decline can be explained by no longer having to pay the R35 delivery fee…)
Finally, the maximum average transaction value (ATV) per customer is ~R1,260. Maximum ATV is relevant because we think it’s reasonable to expect that XSP subscribers use their monthly 10% in-store discount for their highest-value purchase.
From the customer’s perspective, an XSP subscription appears to be a significant benefit. Instead of spending R243 on delivery fees (7 * R35), they spend just R99 and order more often. Total spending at grocers has increased by 10%, roughly in line with inflation over the period, so the monthly saving of R144 equates to c1.3% of monthly grocery spend.
Checkers has clearly won share of spend that will support revenue growth, but what do these findings imply for profitability?
The table on the following page estimates the profit impact of XSP from Checkers’ perspective.
In 2023, the cohort under review were spending an average of R4,402pm at Checkers. During the same period in 2024, they spent R5,617 – an increase of 28%. After VAT, delivery and subscription fees, these customers are spending a total of 33% more on groceries in 2024.
The main assumption is what the average gross profit margin might be for a Sixty60 order. If the Shoprite Group gross margin was 24.1% in FY23, we’d assume the contribution from a Sixty60 order should be higher – more branded items and more fresh produce in the basket. With that in mind, we’re assuming a 25% gross margin on a Sixty60 order.
At that margin, Checkers’ average gross profit per customer in 2024 is 33% (or R295) higher than in 2023 (assuming Checkers foots the bill for the same cost per delivery – R30.50 after VAT – net of the subscription received). If we were to stop there, Checkers’ estimated gross profit per customer would be up 9%, or R77.
But XSP subscribers also get the benefit of an extra 10% off an in-store purchase. Not all subscribers will redeem this benefit, however. The average XSP subscriber is shopping less in-store and there are additional actions that he or she must undertake to redeem the discount. (Such actions typically cause conversion rates to fall.) The worst case for Checkers is if every subscriber redeems the discount on their highest-value purchase each month (~R1,261). If that were the case, then our estimate implies gross profit per XSP subscriber declines by 5%. By the same logic, Checkers will break even if less than 61% of XSP subscribers do not redeem their in-store discount.
What does the future hold?
Our data suggests that XSP has been a hit for customers: Retention is high and stable, and the service offers meaningful customer value.
But the evidence of profitability for Shoprite shareholders is potentially less definitive. XSP is almost certainly driving stronger market share and revenue gains among higher-earning customers. This is a known strategic objective for the company and it might translate into gross profit growth between -5% and +9%. Inevitably, investors will complain that XSP is diluting margins while management will argue that they’re banking rands not percents.
There are other factors to consider:
- Sixty60’s effect on trading profit is still uncertain. For example, ‘dark stores’ or mini distribution centres are popping up – these service Sixty60 orders only. There’s one such ‘dark store’ close to Reveal’s offices in Cape Town. It’s like a beehive, with bikes coming and going at high frequency. The seemingly higher trading density and obviously lower occupancy cost might well translate into better trading margins than the average Checkers store.
- Strategically, an XSP subscriber is now even more immersed in the Checkers/Shoprite ecosystem. They’re tied to the points balance on their Xtra Savings card and they’re hooked on the convenience of Sixty60 delivery. We argued in Grocery Games that Sixty60 would inevitably expand into a larger general merchandise offering – something that is now happening. As Amazon launches in South Africa, perhaps an XSP subscription is the best defence against this giant retailer hitting its ‘prime’ on our shores…
