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Pick n Pay posts healthy rise in FY earnings

The year was definitely a game of two halves, reports CEO Richard Brasher.

NASTASSIA ARENDSE:  Pick n Pay has reported a 7.1% hike in full-year profits as the grocer had to cut costs and increase productivity in their stores. I spoke to Richard Brasher, who’s the CEO of Pick n Pay, about the year that was.

RICHARD BRASHER:  Well, it was a tough year but an exciting year. We set out back in the end of last year, at the start of 2017 to reset our company. You remember, back then the economy was poor. I think people’s confidence was low, we were technically in a recession and it was our 50th year. So we said in our 50th year we could spend all our time looking back and patting ourselves on the back, or we could get busy making sure that we reset out business for the future.

So for at least the first half of the year we spent quite a lot of time making sure that we improved our ability to invest in the business for the future. So we took out quite a lot of our costs and we reset our business.

And then when we got to the end of quarter three, I felt that we’d saved enough money to pay down the R250 million severance cost of our voluntary severance packet with our staff, and we decided that it was now time for us to invest in our customers. So we accelerated our business quite significantly – and I shared that with the market today– in quarter four, and that momentum is continuing into the current year.

So I’d say, like someone who sounds like football commentator, it was definitely a game of two halves. And I’m happy that we are now a stronger, fitter and leaner company and ready for a slightly more optimistic 2018 that maybe we started as in 2017.

NASTASSIA ARENDSE:  On the process to become leaner, fitter and better for customers, you had to reduce the operating model as you rightly put it in your Sens statement. Going forward, are there any parts to the model that you are planning to adjust, or has Pick n Pay now become something that you envisioned it to be? Is there more to be done in order for it to be what you and your teams members have planned?

RICHARD BRASHER:  No. Look, in retail there’s always something to be done. It’s one of those jobs that never is done. I think that we’ve made a good step forward. I think we can still be more effective, I think we can still be more efficient. But what I’m excited by is that if we grow, which is obviously our ambition, we can still employ more people. So we won’t be employing people in our existing assets in this stage, but we did open 154 stores last year and two depots. So we still feel that we can be part of an improvement in employment in the country and supportive of the ambitious targets that we’ve heard from the country’s new president.

NASTASSIA ARENDSE:  On the topic of the voluntary severance programme that you rolled out, how much of a disruption did it have on the business process, if any? You mentioned 10% – how many is that 10% of staff who had to be let go?

RICHARD BRASHER:  Everything was voluntary. There were 3 500 people who took part in the process and clearly that’s a big change in an organisation. So I can’t think it made us better in the short term, but I think we are better for having done it. So when people who are long-serving leave, even if they leave voluntarily, it’s an upsetting time for them and clearly it was an upsetting time for the colleagues who weren’t leaving because the others were. But I think, like always in retail, we get on and we get over it. We wished everybody well. I think it was handled brilliantly by the business and by our labour partners, and I think we find ourselves fitter and stronger for the process. It’s not one I’m planning to repeat in 2018, but I think it was something important that we got done.

NASTASSIA ARENDSE:  I read the speech by Gareth Ackerman during the presentation, and he commented on the year and the new optimism that is the country. When you hear his words and then look back on the past couple of months and some of the changes we’ve seen in the economy, leadership changes in particular, and then you look at the relationship between Pick n Pay and Boxer, how do you take all that – this new wave of optimism – and try to drive it in order to capture the growth of a stronger South Africa that we all hope to see?

RICHARD BRASHER:  Well, I would say I couldn’t have predicted what happened during the course of the year, apart from what did. But, having done it, it feel like we are in great shape. If we are now going to get to play downhill with the wind behind us, then we are better doing it in the shape we are than the shape we would have been in if we hadn’t. Look, I’m an optimist. I came to Africa five years ago optimistic and faced some headwinds and some challenges, but I work every day hoping for the best. I think that we are in better shape today as a country and as a community that we were this time last year.

I think Boxer is in great shape. They went through this heavy-lift thing some three years back, and their business is performing well. And I think the Boxer brand and the Pick n Pay brand complement each other quite well. The Pick n Pay brand has a very good franchise. It has probably got the broadest franchise of any brand in the country, and in fairness probably any brand that I’ve seen. Boxer has a strong franchise in the less affluent part of the market and does particularly well in the rural areas of South Africa. So I feel that if there is going to be wind at our back, and there is optimism, then we should be part of that, creating employment, giving people new opportunities. And if the economy does grow, that’s going to be great for everyone.

NASTASSIA ARENDSE:  On the issue of your customers and their needs and demographic, what have you learnt about them over the past couple of years? How have their needs changed for Pick n Pay?

RICHARD BRASHER:  I think irrespective of income, nobody gets any more time, do they? Everyone ends up being busy, and therefore they want things to be convenient, things close to where they live. As traffic becomes more challenging they want to spend less time on the road and more time doing something more enjoyable. So we have to adapt to the ever-changing needs of customers. For some people it’s running a good online business for them, because they don’t want to go to a shop at all, and for some of them it’s giving them more of a convenience offer that’s closer to where they are or on the trip home from work. If we went back 20 years, people wanted to do a massive monthly shop, when they’d load up the kids in the car and head off to do a huge shop. Then it turned into a weekly shop. Now quite often people will shop two or three times a week, and they use the local shop as their larder.

So I think all of these things have changed and we have to change with them. I think we need to recognise that South Africa is a diverse country and not one size fits all. So what people want in our Nicol in Sandton versus what they want in Dunoon in Cape Town or in Gugulethu, then the reality is our job is to meet their needs. What we have found is that the better we get at meeting their needs, the more they give us their custom. So it’s not a complicated job, retail, you have to do it. If they like it, do more of it, and if they don’t like it, change it. I think retail is a bit like Pick n Pay – if we don’t change then we become less relevant. And that’s what I’ve put a lot of my energy into with the team over the last five years, to make us more relevant again.

NASTASSIA ARENDSE:  On the financial services side, the group partnered with TymeDigital, and that was to provide access to banking services at a lower cost. And then you also launched the Pick n Pay store account this year, in partnership with RCS. What has been the feedback and response you’ve received from customers with regard to the actions you’ve taken on the financial services side?

RICHARD BRASHER:  Well, it’s been very positive. We’ve only started it, to be honest. We introduced the money transfer process, which I think is market-leading, with Commonwealth Bank of Australia. So that was our first foray with them. That’s got about 300 000 customers taking part, and we think there is more growth there. Now we’ve got it both in the Boxer business and our Pick n Pay business.

RCS – on the store card. We’ve been quite cautious about the way we do it. I know there was some alarm when we announced we wanted to try and give credit to people who couldn’t afford it, which couldn’t be further from the truth. We don’t intend to make anybody money out of offering that store card. What we want to do is give people the lowest interest rate and actually basically encourage then to pay it off every month so it gives them certainty that if they come and shop at Pick n Pay with their card they’ll get the best deAl in the marketplace. So it think we are up to about 50 000 people who’ve got one of those cards, and I’m very comfortable that we are not providing in any shape or form unlicensed, unregulated credit to people who can’t afford it.

Those things I think are the start. Clearly Commonwealth Bank and TymeDigital, as they are called in tis country, have only recently got their banking licence, and I think that they’ll be interested in coming to the market sometime in the course of year with a sweeter product that will achieve the ambitions that we both talked about when we met some sort of 18 months, two years ago.

NASTASSIA ARENDSE:  You have presence outside South Africa. What can you tell us about the different businesses there in terms of highlights and lowlights regionwide?

RICHARD BRASHER:  Standout performance for us, interestingly was in Zimbabwe, which is arguably an economy that people have wanted to replicate. But they also have a new president, they also have a new sense of optimism about the future and a team who run Pick n Pay TN stores in Limpopo delivered a very significant year. We’ve got solid businesses with our franchise partners in Botswana, Namibia, Lesotho and Swaziland. And our corporate business in Zambia, that’s been a tough year. The economy there is challenged, inflation is certainly a lot higher than it is in South Africa, but the team have produced a creditable result. But we’ll continue to invest there. It’s a long-term game, not a short-term game.

But overall the Africa result I think is a good, solid result and we are still optimists about the future in Africa. It’s just not a quick journey. It’s a long journey.

NASTASSIA ARENDSE:  Speaking of that journey, what will you and your team be focusing on going forward, say, for the next six months or so?

RICHARD BRASHER:  I think we are focused on implementing the plan that we set out a year ago. It was always to take three quarters to start the process of creating our investment fund, and then start investing it. So I think we’ve still got a lot of unfinished business, but those things are mostly on how we trade, how we take more money, and how we give our customers more of what they want, rather than some of the more awkward things like how we reduce our costs and how we drive efficiency. I think our efficiency going forward will come from better trading and satisfying more customers rather than cutting and removing costs from the business.

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