Special Report Podcast: Gareth Ackerman – chairman, Pick n Pay
ALEC HOGG: It’s Monday April 23 2012 and in this Boardroom Talk special podcast, the chairman of Pick n Pay, Gareth Ackerman, joins us on a day when BP and Pick n Pay have come that much closer together. You’ve had a deal with BP, Gareth, stretching back to 2008 but it’s going to be taken to new levels in future.
GARETH ACKERMAN: That’s absolutely correct, Alec and thank you very much for inviting me back.
ALEC HOGG: Just take us through the reason why it’s taken so long, well, three years of a testing phase before you’ve pulled the trigger on a big roll out today.
GARETH ACKERMAN: The reason it took so long is firstly we obviously signed the original deal; we then had to find the sites, get the stores converted, get them opened and run them. We’ve been running them now and it’s been successfully for at least the last 18 months. We’re very happy with the model, we’re very happy with the profitability and we’re happy that the operators make money out of it. It’s a long slow process negotiating with an oil company and it just took us maybe a bit longer than we would have liked but we’re happy to have signed it.
ALEC HOGG: The products that you’re going to have in the Pick n Pay Express, as it will be called, is it going to be similar to those that one sees at the Woolies, which are on the Engen forecourts?
GARETH ACKERMAN: Well, invariably they’ll be the same as the ones we’ve got in existing Pick n Pay Express stores. We’ve got one in Johannesburg and about six or seven in the Cape Town area, which is very much a convenience store, it’s got convenience foods, sometimes a bit of flower produce, it’s got the BP Wild Bean Café in it and basic groceries.
ALEC HOGG: But what I’m trying to head at is is it going to be upmarket? Will it be, for instance, the things one sees there, salads, hamburgers or meal in a box kind of things or will it be more of what one can remember from the old corner cafés?
GARETH ACKERMAN: It’s going to be market appropriate, so where the market requires it to be at upper end, it will be there and where it requires it to be in a different market segment, it will be positioned at that market. So there will always be a convenience food factor, which there has to have but people in different areas eat different types of fast foods or convenience foods and we’ll range the stores appropriately.
ALEC HOGG: Clearly you’ve been watching what the competition is doing in this space as well as doing your own research, is it likely to be an area that grows significantly in future for everybody?
GARETH ACKERMAN: We think there’s a fairly defined market but there is quite a lot of growth, it’s the formalisation of the old corner cafés. We did try this a number of years ago and we tried the 7-Eleven operation, you may recall that and that we decided not to pursue at the time but we feel this one’s far more appropriate, it’s got better traffic, it’s got better sites. The consumers have shown that they actually like this model around the world, so it’s not just a South African thing, it’s something that is very, very evident around the world. A number of years ago we actually started down this track in looking at a joint venture with Shell in the Philippines, you may recall that, that was many years ago when we first got an interest in these convenience stores and we didn’t pursue that, and now we’ve gone back into it here.
ALEC HOGG: What happened with Shell in the Philippines?
GARETH ACKERMAN: Well, it’s just we found there was a cultural incompatibility, it was just too far away, it was a very, very different environment and we felt it just wasn’t right for either of us at the time.
ALEC HOGG: What is interesting, Gareth, is the bringing together almost of BP, yourselves and Discovery. You’ve got a relationship with Discovery on the HealthyFood side, well, before we go deeper into that relationship how is that working out?
GARETH ACKERMAN: It’s been very, very successful for us, it’s quite a big part of our customer base and our top end customers enjoy it, particularly the ones who use the HealthyFood to register for that healthy food alternative with Vitality and it’s a considerable amount of money. At the moment it’s a separate loyalty scheme to our smart shopper but over time once we get the technology we think that it will be one card you swipe and you’ll get the benefit on both.
ALEC HOGG: And Discovery has got closer with BP in its Discovery Insure product, where if you fill up with BP it’s almost like what FNB are offering with their cash back through eBucks, you get cash back from Discovery as well. So it’s interesting to see the three of you getting a bit closer.
GARETH ACKERMAN: Well, it’s not…for example, we haven’t been talking directly to Discovery over this but it just happens that the three of us, through different relationships, all seem to be working in the same space.
ALEC HOGG: Could you extend your HealthyFood partnership into the BP stores?
GARETH ACKERMAN: Well, I think it will automatically happen because the Pick n Pay Express stores at the BP sites, which will be branded with Pick n Pay, will automatically accepted the Discovery cards as you do in a normal Pick n Pay store.
ALEC HOGG: So you can go along, fill up your car with your Discovery card, get a discount there, buy your healthy food, get a discount there as well. Is this what’s happening in the future, do you expect that we’ll see increasing number of alliances in this form?
GARETH ACKERMAN: I think you’re seeing it around the world and people want to affiliate. You’ve seen it with the airlines, with these airline alliances, where the consumer is saying…if you go end to end with a group you actually can get multiple benefits, as opposed to buying a little bit here and buying a little bit there. So it becomes a better value proposition for the consumer.
ALEC HOGG: And from your perspective, are these now your chosen partners?
GARETH ACKERMAN: Absolutely.
ALEC HOGG: And others, do you have others that you’ve spoken to?
GARETH ACKERMAN: No.
ALEC HOGG: So it’s BP, Discovery, Pick n Pay that’s the triumvirate?
GARETH ACKERMAN: Well, it’s BP, Pick n Pay in this particular case and Pick n Pay, Discovery in a different relationship but yes.
ALEC HOGG: You did mention the Wild Bean Café, the coffee shops, they are popular, how are they going to fit into the Pick n Pay Express?
GARETH ACKERMAN: Well, they’re absolutely part of the deal; they will be in the stores. Wild Bean is very much a BP product, it’s not ours but it will be incorporated into the Pick n Pay Express stores.
ALEC HOGG: So how does that work?
GARETH ACKERMAN: Well, it’s just their model, it’s what the range, the product but the product that is sold in there will be sourced through us but it’s their brand that they have inside the store.
ALEC HOGG: And the next step in the Pick n Pay expansion programme? Clearly this is something that’s been on the backburner for a while, as you’ve been working on it for the last few years, have you got other backburner ideas that perhaps you’re rediscovering?
GARETH ACKERMAN: We’re looking at a lot of backburner ideas, we’re re-examining a lot of the things we’ve looked at in the past and we’re seeing how can we do things that add to our number of stores, add to the experience that we can give to our customers and just help generally the building and the development of the company. We’ve had a very, as we discussed last week, a very difficult couple of years and we’re really relooking and reinvigorating the business just to make sure that we actually can deliver a decent return to our shareholders and deliver fantastic service and product to our customers.
ALEC HOGG: You mentioned last week, it must have been an interesting few days for you going to the marketplace, going to your investors and the investment community and talking about the last financial results. We were quite surprised at the very rapid or positive reaction from investors generally with the share price going up quite strongly, were you?
GARETH ACKERMAN: Well, we’re very confident in what we’re doing and how we’re delivering at the moment. I think there have been a number of years of start-stop and we’ve promised a lot and we haven’t been able to deliver it, and I think we’re now starting to see that those long-term investments, which didn’t generate cash, which didn’t generate a return, are now starting to pay off in the form of the systems that we have in the stores, the SAP systems, the supply chain, the distribution centres, a lot of the work that we’re doing in store in terms of products, all starting to payoff, nowhere near finished but it is definitely a journey that we believe is going to start paying fruit much more profitably in the next couple of years.
ALEC HOGG: And the mood from the audiences that you’ve been addressing post results?
GARETH ACKERMAN: We’ve had very positive, we’ve spoken to a lot of the financial community, the analysts and the buy side and the sell side, as well as the investors and obviously to our staff. We’ve had a very positive response. I think there’s been a bit of scepticism that we’ve said this before but I think now we’ve gone a couple of steps beyond just saying that we actually believe we’re starting to deliver on it.
ALEC HOGG: It was interesting when I discussed this with David Shapiro, who’s a well-recognised investment manager on our radio show, he said he felt that Pick n Pay had already discounted or shareholders had already discounted your turnaround or your growth into the future. Do you think that he’s a little unfair?
GARETH ACKERMAN: Well, if you look at what our PE ratio is at the moment it’s still pretty high and I think the market is waiting, giving us a chance to actually deliver on it. So I wouldn’t say it’s discounted, I’d say a lot of it’s in…there’s some of it in the price already but we’re seeing a lot of upside potential if you look at some of the analysts’ reports that are coming out, which seem to be changing from they would hold or buy and they’re starting to be slightly upgraded with one or two that we’ve seen coming through. I think the market is starting to understand what we’re doing at Pick n Pay. Retail turnarounds aren’t easy, they are not quick either, these are huge ships with multi-systems and multi-ways of doing business that we’re turning around and changing the total business operating model. The business of Pick n Pay will be a totally different business within two or three years when we’re totally finished what we’re doing.
ALEC HOGG: And this deal today with BP, another module, another, maybe, block in the wall?
GARETH ACKERMAN: Yes, well, it’s another format in our armoury. It helps us leverage off our existing supply chain, it helps us leverage off our existing buying and it’s going to help the small operators obviously be profitable themselves but we’ll get a return out of it because we’ve got the backend to be able to support it. If we were going in from scratch and starting a chain like this I don’t think it would be viable, you need to have decent infrastructure to be able to do it properly [UNCLEAR 5:45]
ALEC HOGG: Gareth Ackerman is the chairman of Pick n Pay.
It’s not just about a feasible business plan.