WHERE TO INVEST: Woolworths and Metair reflect SA’s mounting retail and industrial struggles

There aren’t many local companies that are doing well right now. Even more concerningly, some of the strong performers are sounding the alarm about the economy.A good example can be found in the latest Purple Group results, showing us just how accessible a financial report can actually be. The company does an excellent job of explaining the underlying drivers in the business and why the shape of margins has changed.The commentary by CEO Charles Savage also includes a warning about the company “planning for fewer tailwinds”. That’s an elegant way of saying that things are getting harder for the owner of EasyEquities.It makes sense that he’s cautious, as a squeeze on consumer budgets inevitably means that there’s less money at the end of the month to invest.Purple is still lucky though, as the concept of any kind of tailwind is foreign to most companies trying to compete in the retail and industrial sectors in South Africa.If anything, it’s more like a hurricane-strength headwind, evidenced by the demolition of the share prices of multiple household names this year.In the past week, we saw two corporate updates that provide further data points in this regard.Woolworths shocked the market with the news of that Woolworths Food is stumbling.Metair isn’t remotely as famous as Woolworths, but the company is one of the canaries in the coal mine for South African industrial infrastructure and automotive manufacturing.Speaking of the automotive sector, it’s best that you buckle up.Even Woolworths Food evangelists are battlingWoolworths Food, usually the star performer in the Woolworths portfolio, is showing the effects of consumers’ pinching their pennies. (Photo: Halden Krog / Bloomberg via Getty Images)When people emigrate, one of the things they miss most is Woolworths Food. We have an objectively world-class local retail sector, with the quality at Woolworths Food being as good as anything you’ll find anywhere in the world.But when it comes to efficiencies around delivery and value for money, arch-rival Shoprite holds its own against any global peers.This leaves Woolworths up against a formidable foe, with the Checkers banner within Shoprite having made life much harder for Woolworths in recent years.Macroeconomic challenges are playing a role here, with local consumers forced to keep finding new ways to save money each month. Even the traditional Woolies shopper is having to cut back, with spend moving downstream to cheaper alternatives. We are in the era of value retail, not premiumisation.Checkers appears to be the biggest beneficiary of this trend, but the other players in the market (such as Pick n Pay and Spar) are also waiting with open arms to welcome shoppers who simply cannot afford the premium Woolworths Food products anymore.This is coming through in the latest numbers at Woolworths, covering the 19 weeks to 8 November 2026. It’s really concerning for shareholders that Woolworths Food could grow turnover by only 1.9%.The comparable-store growth of 0.1% is particularly shocking, especially in an environment where price movement was 3%. This implies that Woolworths Food suffered a reduction in sales volumes.Keep in mind that this is the part of the business where Woolworths believes it has the widest moat and the clearest right to win.These are not winning numbers.We then need to consider the Fashion Beauty Home (FBH) segment, where Woolworths has already told us that it plans to scale back its ambitions in apparel. The FBH segment reported a decline in sales 0.3% in this period on both an overall and comparable store basis.Price movement was 1.2%, so we once again have the implication of negative volumes.Even the segments within FBH that have been identified for growth aren’t necessarily shooting the lights out. Beauty was up by 3.1%, a muted performance in a category that has become incredibly competitive. Growth of 6.4% in Home is much better but is also being flattered by just how poor the rest of the group has been.What can we conclude from this update?One possible read-through of this result is that South Africa’s upper-middle class is being hollowed out by endless financial pressure.Another interpretation could be that Woolworths is simply not doing a good enough job of competing.It’s likely that there’s some truth to both interpretations.An absolute mess at MetairLengthy delays at the Durban Gateway Terminal have added to the pressure on original equipment manufacturer Metair. (Photo: Shiraaz Mohamed / Reuters)If you thought the Woolworths update was depressing, then brace yourself for something far worse at hapless Metair. The share price closed a revolting 35% lower on the day of release of an operating and trading update for the year ending December 2026.If you know anything about this company and the look-through to the South African automotive original-equipment manufacturing sector, then you might be expecting to hear about the pressure of Chinese imports and falling production.The tragedy is that although those issues are still in play, Metair’s recent problems lie further up the value chain. That’s because our country’s infrastructure has once again let the team down.The Durban Gateway Terminal has had significant operational challenges, leading to delays at the port of nearly 20 days at times. For local manufacturers such as Metair, this creates impossible operating conditions.How do you plan production lines with these kind of delays? How do you manage stock? How do your customers, who rely on your components, manage their own businesses?The impact on Metair is predictably awful, with the company having suffered manufacturing interruptions, stock shortages and higher logistics costs because of the need to use airfreight as a substitute. Overtime was needed to try to make up delayed deliveries. There was even a temporary stoppage at one of the customer production lines.To add insult to considerable injury, the port challenges have been accompanied by breakdowns in the industrial e-beam machine at one of Metair’s subsidiaries. This machine is critical in the production process.What’s that saying about how it never rains?The impact of these issues is enormous. Metair has guided that the incremental cost impact is 20% to 25% of earnings before interest, taxes, depreciation and amortisation. These costs are not recoverable from customers.This is a company that is already having regular engagements with its bankers to keep the lights on. One wonders just how much risk the banks are willing to take.As the capitulation in the share price showed us, many of Metair’s investors aren’t willing to hang around to find out. DM