Low internal sales inflation dominated the trading environment.

Food inflation dropped throughout the period, ending close to 1,0% overall and -10,1% in commodities (wheat, maize, sugar, etc). This deflation is a result of lower global commodity prices and the stronger Rand. Food wholesalers were more affected than retailers, as their customers, the independent retailers, delayed their purchases in anticipation of lower prices. Wholesale volumes therefore dropped for a few months, although had recovered by December 2009.

General Merchandise inflation also declined to -0,5% by December 2009 as the stronger Rand brought down the price of imported items. Again we saw deflation in many technology-based categories.

In Home Improvement, inflation dropped not only as a result of the stronger Rand but also as a result of demand weakness as activity in the bonded residential property market slowed dramatically.

With product inflation substantially below Consumer Price Inflation, the market participants had to compensate by gaining market share, resulting in pressure on gross margins. Competitive activity in all categories increased.

Expense growth throughout the industry is under pressure from very high increases in local taxes for basic services, electricity, and union wage demands, resulting in the need to look for further productivity gains. The comparable expense growth for the period was 2,5%.

The Competition Commission’s industry-wide investigation into the distribution of food is still at an early stage and we will submit the first round of requested information in March 2010.