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Turnaround efforts put Pick n Pay back on its feet

Management shifts focus on retail basics such as customer service, store roll outs and measured moves into the rest of Africa.

The plan to restore Pick n Pay back to its former glory days remains on track, with the grocery retailer making gains on its sales growth, margin improvement and efficiencies in its operations.

The turnaround strategy has been two-years in the making, with Pick n Pay’s management working on stage two of its next phase of growth.

Pick n Pay has managed to ride out tough conditions as consumers are facing rising inflation and interest rates– dimming prospects of a revival in their spending.

The numbers attest to this. For the six months, Pick n Pay saw its headline earnings per share increase by 23.7% to 82.43 cents and marginally grew gross profit margins from 17.7% to 17.9%.

Although Pick n Pay’s management – led by CEO Richard Brasher over the past three years – has stabilised business, it’s not yet out of the woods.

“Our ambition is to make people still shop with us. Customer confidence has taken a battering but they still get up in the morning and they still need to get shopping and therefore it is our job to make sure that the shelves are full, staff a are great and they can get what they want,” says Brasher, the former chief of UK’s grocery and general retailer Tesco.

As part of its long-term turnaround plan, Pick n Pay shut down under-performing stores in a bid to curb spiralling costs; improved supply chain and buying functions; and refurbished existing stores.

The rest of the focus, says Brasher, will be on the basics of retail: improving customer service with more tills open during peak times, better technology at stores and faster scan rates times at tills.

Pick n Pay grew turnover by 7.2% to R37.4 billion, which Lentus Asset Management’s chief investment officer Nic Norman-Smith says is not exciting but “reflects an increasingly tough retail environment.”

Much of Pick n Pay’s resilience rests on the performance of its South Africa operations, where it has rolled out more stores, and has been aggressive in promotional activity and discounting goods while containing a rise in expenses.

Pick n Pay continues to spend on the business given its capital expenditure of R775.8 million during the period that was used to open 74 new stores in all formats such as Pick n Pay and Boxer Superstores, which typically focus on lower-end consumers. It refurbished 35 stores during the period, which is Brasher says it’s “three times more the refurbishments we did last year.”

Africa and growth opportunities

Pick n Pay has identified the African continent as the next engine of growth, with the retailer having opened seven stores across Zambia, Namibia and Zimbabwe. It will enter Ghana next year and Nigeria in 2018 despite the economic slow-down of both oil-dependent countries due to lower oil prices and currency volatility.

It plans to open five to six stores in the continent in the second half of the year.

Says Norman-Smith: “Africa is not an easy market. I don’t think they can afford massive distractions from a capital perspective, given that their turnaround efforts are on-going.”

In terms of retail operations, Pick n Pay kept its selling price inflation at 5.5%. Selling price inflation is a key metric used by retailers to measure the price movement of selected goods.

Sasfin Securities’ senior retail analyst Alec Abraham says Pick n Pay’s selling price inflation is indicative of the retailer’s attempts to claw back market share and compete with competitors Spar, Shoprite and Woolworths.

Pick n Pay can invest in price by focusing on investments in its back-end business. It completed the development of its new fresh distribution centre in the Western Cape, which enables the full centralisation of all fresh and perishable goods in the region. It also added 95 suppliers to its central supply chain. Investments in its supply chain will enable it to manage costs and control stock availability.

“However, Pick n Pay has been a Johnny-come-late in the back-end business. Its competitors such as Shoprite and Spar have been invested in distribution centres for more than 20 years,” he says.

Also listen to Siki Mgabadeli as she speaks to Pick n Pay CEO Richard Brasher:

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It is amazing how much damage was done to the company after the Ackerman boys took over.

Their stupidest move was deciding to play in the Woolworths space when they don’t even have quality on par with Checkers and Foodlovers.

I used to be a fan of Pick ‘n Pay, but I have found that the Checkers just around the corner offers better quality at a far lower price – especially for things like prepared fresh veg, and they have a wine market which is a bonus.

For the past 5 or 6 years, Pick ‘n Pay has come across as a confused brand.

As a consumer, I perceive it as not knowing where or what it wants to be. There seems to be a heck of a lot of money spent on telling people this is a “local” store or this is a “supermarket” or this is a “hypermarket” when frankly I really could not care less.

From an investor perspective when I walk into the store and look around, it doesn’t appeal to me.

Woolworths has a clear-cut high-LSM position and you can see it in its customers, its service and its value proposition.

Checkers has a clear-cut mid-range good-value position. Although that mid-range of Checkers is in fact a very broad mid-range since I see a lot of people in my area (upper LSM) shopping at both Woolworths and Checkers.

Pick ‘n Pay seems to be trying for higher-LSM but their value proposition isn’t there. There simply isn’t good value as with Checkers because their goods are too expensive and there simply isn’t quality as there is with Woolworths. Their shelves are typically untidy, their packaging very unrefined, their prepared foods are badly prepared, their staff are inadequately trained in customer service, and shelf pricing is often incorrect.

The customer experience is very poor.

Summarily, this is not a company where I would invest my money.

Did Richard Brasher also get a R50 million bonus???

End of comments.

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