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Pick n Pay to woo customers with food price cuts and discounts

Company hopes new investment brings back the sparkle.

Pick n Pay is ramping up the next phase of its turnaround strategy by rolling out more stores and cutting food prices for hard-pressed consumers as the battle for their wallet share among retailers in SA rages on.

“Customers are shopping around for lower prices and the best way to improve Pick n Pay is to run a better shop. We have to be leaner, fitter and stronger,” CEO Richard Brasher told Moneyweb.

Pick n Pay is going back to retail basics of improving the customer experience, revamping stores and investing in price – which arguably it has neglected.

“We are now in a good shape and have not run out of ideas,” said Brasher, who was roped in nearly four years ago to turn around the fortunes of the then beleaguered chain.

However, the turnaround still has two-to-three years to go.

Underscoring this is that sales for the year to February 26 2017, grew by a moderate 7% to R77.5 billion. When comparing selling price inflation of 6.1% with like-for-like sales (existing stores) of 3.4%, sales slid by 2.7%.

Part of the catch up plan includes R1.8 billion capital expenditure into new stores and refurbishments in 2017/18, significantly up from R816 million three years ago.

Since 2015, the retailer has been rolling out convenient and “next generation” Pick n Pay and Boxer stores, modern formats with faster checkout points and a wider offering of fresh food, clothing and personal care.

It opened 150 new stores during the period under review – with 106 being next generation stores while it refurbished 62 stores.  And its next financial year won’t be different.

The new-generation store format is enabling Pick n Pay to better utilise store space, which has also been made possible by its back-end investments. It has invested in distribution centres over the past 10 years in the Western Cape, Gauteng and is filling a gap in KwaZulu-Natal with a new centre in the region. Supply chains enable grocery retailer to extend their fresh food offering, manage costs and control stock availability.

Cratos Capital portfolio manager Ron Klipin said Pick n Pay is behind the curve on distribution centre investments, but its making process in a very competitive market.

“It’s still lacking in terms of fresh, whereas Shoprite has put in a lot of time and money in making fresh available at its stores.  The Checkers brand is really starting to get on the Pick n Pay and Woolworths’ turf in terms of fresh and higher margin private label brands,” Klipin added.

To drum up sales, it has also committed more than R5oo million in slashing prices of key basket items, including meat, fruits and vegetables. Over the past two years, it has aggressively launched over 1 700 private label brands. And its loyalty programme Smart Shopper has been relaunched to offer weekly personalised discounts and coupon combinations to its 11 million customers.

Slashing food prices

But its efforts to woo consumers are coming at a cost, as it seems that Pick n Pay is sacrificing margin growth. Trading profit margins – a key metric used in the retail sector for profitability – increased from 2.1% in the previous year to 2.3%.

“In broad terms, Pick n Pay is just not getting sufficient top line growth, which is a bit worrying… Ultimately, it’s going to boil down to the retailer growing market share in a very difficult market where consumer expenditure is under massive pressure as is competition,” said Klipin.

Although portfolio manager at Rexsolom Invest Anthony Rocchi commends Brasher’s retail magic on Pick n Pay, he rated the retailer’s turnaround as “overpriced” given its stock that trades off a 19x forward price earnings at R64/share.

PnP share price graph


“The stock is priced like a growth stock. I don’t expect Pick n Pay to return to their former profitability because the competition from Shoprite and other retailers is much stiffer than it was back in 2008/9,” said Rocchi.

Listen to Pick n Pay CEO Richard Brasher’s interview on SAfm here.

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Just another marketing ploy, reduce on some of the basic basket and raise some of the others. The discount gets the feet into the shop, and then the customer spends more than what they saved on a few basics. Marketing knows what the customer buys most so any discount given gets recouped on other items. Been there done it.

It is fine to slash your prices with R500m in order to grow sales, but increasing turnover without increasing trading margin (profit) means nothing.

When last did someone from management walk into the once upon a time P&P Steeledale? I don’t think any maintenance has happened since it opened 30+ years ago. Probably the most depressing place to shop.

I have for the most part always been a supporter of the Pick & Pay Brand, but despite the habitual shopping stop over and the draw of the smart Shopper point system, Pick & Pay Hyper Faerie Glen has caused me to take my monies elsewhere due to numerous disappointing experiences, Rude staff, very unhygienic fresh food department and a management staff that absolutely refuse to be of any assistance when a suggestion or complaint is made. I find Checkers very much on par with where I would like to spend my money.

Started using the PnP app this year. Good savings to customers, way beyond just accumulating smart shopper points. You just load the weekly promotional items to your smart shopper card and discounts are deducted at the checkout. And it’s been significant discounts.

Use it, dont use it.

PnP need to up all the Hyperstores they are shockers, to say the least. They have not been remodeled since inception, all of them look like spaza shops, bulk display items for the wrong demographics to incompetent cashiers and never mind staff to ask where a product is? Product and stock availability is shocking to poor. Cashier availability is shocking at all PnP stores, these employees are your ambassadors to ensure you have purchased what you came for and more? Need to up your game PnP cause Game / Makro are closing in always watch your competitor behind you.

I know of a PnP shop that always has new employees every week. It has been like that for years. Each time you go there the whole staff has changed except for 3 senior ladies they always retain. I even know them now. Never seen that in any organization.

The cuts on food prices will just bring Pick ‘n Pay into line with the already low prices at Checkers. Maybe some cleaner stores and service which is more pleasant might be better.

Perishables that have a better shelf life such as the products from Woolworths may also help a little. Then one does not paying a little more. My guess is that when prices drop it will be on products that Pick ‘n Pay have been stuck with and that are close to expiry.

For the record, I have cut down on what I buy at Pick ‘n Pay as they are no longer my choice of grocer.

Some PnP stores give pensioners 5% discount on Tuesday.
You need to check before you get to the check out.

That’s the issue right there. This kind of information should be know widely and it must be on all their shops if that is the strategy they want to use to attract senior citizens.

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