Whitey Basson

Who Whitey Basson is

James Wellwood “Whitey” Basson took a chain of eight grocery stores bought in 1979 and turned it into the largest food retailer in Africa. He is the clearest example on this index of a fortune built by an employee rather than an owner — and of what that distinction is worth.

He is also the reason most South Africans over forty have an opinion about executive pay: his salary for 2016 was R100.1 million, including a R50 million bonus.

Porterville, Stellenbosch, and a set of accounts

Basson was born on 8 January 1946 in Porterville in the Western Cape. He took a BCom with CTA at Stellenbosch and qualified as a chartered accountant in 1970.

He joined Pep Stores in 1971 as financial director, became head of operations in 1974, and sat on the board from 1974 until 2004. The order matters: he came up through the numbers before he ran the stores, which is unusual for a retailer and shows in how the business was subsequently built.

By 1981 Pep had 500 stores, 10 factories, 12,000 employees and turnover approaching R300 million. This was the business Christo Wiese had taken control of that same decade; Basson was the operator inside it.

Eight stores

In 1979, Pep acquired a small eight-store grocery chain called Shoprite.

That is the entire origin of what became Africa’s largest grocery retailer. Eight stores, bought as a sideline by a clothing business, handed to a thirty-three-year-old accountant.

The expansion that followed had a particular character. Shoprite went where the formal grocery trade had not: into townships, small towns, and eventually across the rest of the continent, on the same insight that had built Pep — that customers with modest incomes are a large and underserved market rather than an unattractive one. Supermarkets in those locations were told for years that the economics did not work. They worked.

Why low-income food retail compounds

Groceries look like a bad business from the outside. Margins are thin — a few per cent on a basket — and the product is perishable, price-transparent and impossible to differentiate. Selling maize meal to customers counting coins sounds worse still.

It is in fact one of the most durable business models there is, for three reasons that all show up in Shoprite’s numbers.

The first is velocity. A supermarket sells its entire stock many times a year and is paid in cash at the till, while paying suppliers on terms. That means the business runs on negative working capital: the customer funds the inventory. A chain growing at this rate generated cash as it expanded instead of consuming it, which is why the expansion did not need endless rights issues.

The second is defensive demand. People buy food in a recession. A retailer serving lower-income customers actually gains share when the economy turns, because shoppers trade down into it — the same property that made Pep work, applied to the weekly shop.

The third is buying power, which compounds on itself. Every new store increases volume, volume improves supplier terms, better terms fund lower shelf prices, lower prices bring more customers, and more customers justify the next store. Past a certain scale a competitor cannot match the prices without losing money, because they are not buying at the same cost.

None of that is visible in a margin percentage, which is why the model was underestimated for as long as it was.

Checkers, and the reverse listing

The transaction that gave Shoprite its scale was the acquisition of Checkers, a failing supermarket chain. Shoprite was reverse-listed into Checkers’ holding company to form the Shoprite Checkers Group, and Basson took nine months to revive Checkers’ finances.

A reverse listing is worth explaining, because it recurs in South African corporate history. Instead of the healthy company buying the sick one and absorbing it, the healthy business is placed into the listed shell of the sick one. The shareholders of the good business end up controlling the listed entity. It is faster and cheaper than a fresh listing, and it is how a private operating business acquires a public quotation without an IPO.

What Basson bought in Checkers was a distressed asset with stores, distribution and a listing attached. What he did with it in nine months is the reason the group exists in its current form.

The pay packet

Basson retired on 31 December 2016. His remuneration for that year was R100.1 million, including a R50 million bonus, and it caused a public argument that is still cited whenever South African executive pay is discussed.

Both sides of that argument are worth stating, because this site is read by people who work for a living.

The case against: a hundred million rand is roughly what several thousand of the group’s own shop-floor employees earn between them, at a company whose commercial model depends on paying low prices to low-income customers and, necessarily, low wages to the people serving them.

The case for: he took eight stores to a continental retailer over thirty-seven years, and shareholders who held through that period made many multiples of their money. A performance bonus is what it is called when someone is paid for an outcome.

This index takes no position on whether the number was deserved. It records that it was disclosed, which is the only reason anyone can argue about it — and that the disclosure requirement applies to executives and not to the private fortunes elsewhere on this list.

How Rateweb values him — and why we think our figure is too high

Here is what is actually documented. In May 2017, shortly after retiring, Basson sold 8.58 million Shoprite shares with a value of R1.8 billion.

That is a hard, dated, checkable disposal. Set against it, the figure this index currently carries for Basson looks generous. Our number is several times R1.8 billion, and it rests on a provisional US dollar constant seeded when the index was first built rather than on any sourced holding.

It is possible the higher figure is right. He may have retained a substantial holding after that sale, and thirty-seven years of salary, bonuses and share awards compound. But we cannot show that, and the one transaction we can evidence points lower.

So this entry carries the same health warning as Natie Kirsh’s did before his figure was corrected, pointing the other way: the index is probably overstating Basson, and the fix is the same — someone needs to read his disclosed shareholding out of Shoprite’s annual report and record it, after which the figure is computed rather than asserted. Until then the confidence rating carries the doubt. See the methodology.

Employee, not owner

Basson is the best case study here for a distinction this index keeps running into.

He did not found Shoprite and he did not own it. Wiese did. Basson was an employee — an extraordinarily well-paid one, with share awards, but an employee — and his wealth came from salary, bonuses and equity granted for performance rather than from a founding stake bought cheaply and held.

The difference shows up in the size of the outcome. A founder’s percentage compounds with the whole company; an executive’s award is renegotiated every year against what a remuneration committee will tolerate. Thirty-seven years of building Africa’s largest grocer produced a fortune that is real and large — and smaller than the one held by the man who bought the shares.

That is not a complaint on his behalf. It is the most practically useful thing on this page for anyone reading it about their own working life. The people at the very top of this index almost all own a percentage of something; the people slightly below them were almost all paid, however handsomely, for their time. Equity and salary are different instruments, and thirty-seven years of the second does not catch the first.

The corollary matters too: an executive’s share awards are the part of the package that behaves like ownership, and they are the reason Basson appears here at all rather than merely having been well paid.

What we do not know

What he held after the May 2017 disposal, and what he holds now. How much of the retained position has since been sold. What sits outside Shoprite entirely — private investments and property are not disclosed in any form we can value. And whether any of it is held through trusts or family structures rather than personally.

If you can point us at his disclosed shareholding in a Shoprite annual report, tell us. On current evidence this entry is more likely to move down than up, and we would rather publish the lower number with the working shown.