The Editor's Desk - Thur 11 Dec 2025: Mr Price’s R10bn bet, broken incentives and your money

I unpack Mr Price’s R10bn German gamble, misaligned executive incentives, and why OUTsurance and Famous Brands stay on his watchlist – not yet in the BizNews portfolio.PS. You can book tickets for the inaugural NdB Liberty Indaba by clicking here. And you can book tickets for the post BNC#8 golf day sponsored by Shyft, by clicking here..Don't miss out on future episodes of The Editor's Desk. Subscribe to BizNews Premium and get the podcast delivered to your inbox daily..Listen here.Read the full transcript of The Editor's Desk podcast below.Hello and welcome, I’m Alec Hogg. You’ve read the headlines on BizNews.com, watched the interviews on BizNews TV and caught up on BizNews Radio. So now let’s talk about what the latest developments mean for your money.This is the Editor’s Desk, exclusive analysis for BizNews Premium members. Today is Thursday, the 11th of December. I’m glad to have you with me.A little later today you’ll be able to pick up the conversation I had with Piet Viljoen about Mr Price – and why the market was so angry with what happened yesterday, when Mr Price announced it had decided to invest R10 billion into Europe, in particular to buy a German retailer with 2,100 stores.The way Piet frames it is to say you’ve got to look at the track record – and the track record of South African retailers internationally is abysmal. As good as Mr Price might be here in our country, to be going into Germany now, while you’re paying a hefty premium to what a similar investment in South Africa would be, really raises questions.You have to start wondering whether it makes any sense whatsoever. And I got thinking about this. I think what’s lacking here is incentives.Just step away for a minute: human beings act on incentives. I’ve seen this so often in my life. If I’m incentivised to do a particular thing, it’s far more likely to happen.I take this all the way back to when I was a youngster in what would now be Grade 9. I’d always been pretty good at school – I was lucky, I had that kind of a memory. Then in Grade 9, we had a maths teacher who wasn’t that great. As a consequence, the basics you need for maths kind of passed me by. Having never failed anything in my life, I came home with a report card showing 34% for maths for one of the quarters.My father then took it upon himself to teach me about incentives. He worked out my pocket money on the basis of my overall mark plus the maths mark, divided by two. It didn’t take very long for me to apply myself to maths, to really focus on what the teacher was telling us. She wasn’t that bad after all – it was more my own youthful self and perhaps the hormones bouncing around a little too aggressively. She was young and quite attractive.Once I focused on the message, it wasn’t long before maths was pulling up my average. My father achieved his objective. I can’t remember how long he kept that system going – I think he eventually abandoned the project because the pocket money I was earning was becoming a little ridiculous. We grew up in a pretty modest household, so by those terms it was probably just a couple of rand. But the point was made: there was an incentive.And then I thought about this with all those management teams at South African retailers who have blown so much. Take Steinhoff: their investment in Mattress Firm in the US cost shareholders billions. Yes, Steinhoff was a house of cards anyway – Markus Jooste and those close to him had been cooking the books for years. But even so, someone like Christo Wiese put real money into Steinhoff to effect the Mattress Firm acquisition, and that was an absolute disaster.I remember speaking to Sean Summers, who worked with Steinhoff for a period. After the collapse he was sent off to sort out Mattress Firm. It wasn’t an off-the-record conversation, but what I can tell you is that what they bought and what we were told as shareholders were two very different things.It occurred to me that executives of most companies have a one-way bet – and that bet is on the upside. Sure, you’ll say they get share options and if they make a bad acquisition, or if they mess up the company’s share price, they don’t get the income or bonus from those share options because the share price ends up below the strike price.That’s perhaps true up to a point, but the problem is that all they lose is something they never had anyway. And for most executives, the guaranteed salary is pretty attractive.I just wonder whether it wouldn’t be more effective for boards of directors to say to the management team – and in particular this group at Mr Price: “Okay, we can see you’re very enthusiastic about this deal. We can see you believe you’re going to do incredibly well and succeed in a graveyard for other South African companies. But here’s how we’re going to work it: you are going to cut your salary by half, and the half you give up will go into share options. If you succeed, you succeed alongside shareholders. But if there’s a disaster, you’re also on the hook.”Just a thought. Because the feedback we’ve had from the market on Mr Price has been appalling. The share price fell 13% in one day; then in early trade today it was down another 4%. They’ve wiped off more from the market cap of that company than the investment they’re planning to make – somewhere between R8 billion and R10 billion. They’ve already taken off more than R10 billion in market cap.So do listen to or watch the interview with Piet Viljoen, which is our Director’s Cut. That’s the one to watch. It will be published at 8:30 this evening, or you can pick it up tomorrow morning. Piet makes quite a compelling argument for this being a poor decision. And I do wonder if the whole incentivisation model hasn’t gone wrong.I remember talking to an anthropologist who said the big mistake mankind made was attacking death, but not attacking birth. We closed off one part of the equation – prolonging people’s lives and, through medical science, reducing the number of people who die. But on the other side there wasn’t the effort to reduce the number of births.In rich countries today, they’re worrying about other things and having to bring in people. But generally, if you think about Africa, there are projections that the African population is going to go from just over a billion at the moment to four billion by 2050. Four billion – about half the people on earth. Already many of these people live in abject poverty. So what’s it going to be like in 25 years’ time?I thought that anthropologist had a very good point: there should have been equal effort given to helping people understand that birth control is a good thing – as good a thing as “death control” is. Incentives, incentives, incentives.Looking at investments, I mentioned earlier in the week that I was going to have a close look at Famous Brands and OUTsurance – and I did. I still like both companies, but there is a word of caution. I’m indebted, as always, to Piet Viljoen for this. I asked Piet his view on both and must admit I was swayed by his opinions.First, OUTsurance. It’s a fantastic company – a business that must be very close to the top of the list for a long-term investment. In fact, if you’re taking a 10- to 20-year investment horizon, I would certainly put it in the portfolio. But we’re looking more at a five-year horizon for our investments, and on that basis it might not be the right time in the cycle to be buying it.What Piet explained very well is that short-term insurance goes through cycles. It gets to a point where rates are too high and excess profits are made. Then companies start competing with each other, dropping prices, and profits get wiped out. This cycle has gone on for decades. Then rates harden again as everybody has to bump up their premiums, and it starts all over.His opinion is that we’re at the very top end of the cycle now, with excess profits being made. If you look through the cycle, this is not the time to be buying short-term insurance companies – and I get that.The other thing that worries me about OUTsurance is that it has recently invested in Ireland. Ireland has gone very well for SPAR – the only one of its European assets that has done well – but OUTsurance has made a big investment there. It’s going to take time, and one doesn’t know whether it will be successful. If it is, it’s a big boon; they’ve already been successful in Australia, where they’re now making profits. But if it’s not successful, or if there’s a spoke in the wheel somewhere, you get the opposite effect.So in the short term, I’m going to put OUTsurance on the side. It’s really priced to perfection. And remember, the dividend you get from OUTsurance is now about half of what you’d get from, say, FirstRand. I like the company and I love the way they treated me, including the pricing they gave me on my personal insurance – that’s one of the things that sent me digging into it. But for now, it’s not going into the BizNews portfolios.Famous Brands, on the other hand, is giving us a 6.5% yield. I really like what Darren Hele and his team have done with their latest deal going into Malaysia, and there’s huge potential there. However, they’re very exposed to the middle market in South Africa – and the middle market has been struggling.You don’t find Famous Brands’ restaurants booming, because the middle market is where people pay their PAYE. They can’t hustle or be unexposed in the way that the very bottom and the very top of the market can be. Middle-income consumers are under pressure – and that’s where Famous Brands plays.So for the moment, again, while there are green shoots of recovery in South Africa and they will be reflected in various areas, I’d like to have more positive messages about that middle market before committing. It’s not that I think Famous Brands is a bad investment – I think, through the cycle, it will do well. But from where I’m sitting right now, there seem to be better alternatives.I’ll be giving you those better alternatives on Tuesday, when we do the BizNews portfolio update – the last one for the year.Talking about “last of the year”, tonight at 7:30 we’ll have our final BizNews Briefing for 2025. We’re back with that product again on the 12th of January. I’m looking to take some well-deserved – I hope you agree – leave. It’s been a heck of a year for us at BizNews. We’ve made huge strides, and it does take it out of you. But all good things come with effort, I suppose.It’s been an absolute privilege to serve our community, especially with the new products we’ve introduced. I’ll be continuing next week anyway with Daybreak and with the Editor’s Desk, so you’re not rid of me just yet. But after that I’ll be taking a couple of weeks’ complete break – no business at all, just switching off.If you can, I really advise you to do the same. Those of us who have our own businesses find it very difficult, but if you can carve out that off-time to recharge the batteries, you get the creativity going again and come back in the new year fresh and excited to seize the day.I’m going to leave it there for today. Keep an eye on the Premium newsletter for links to our freshest published content, and thanks for trusting us with your time. I’m Alec Hogg. Until tomorrow – cheerio.

The Editor's Desk - Thur 11 Dec 2025: Mr Price’s R10bn bet, broken incentives and your money

Related Stories

Piet Viljoen: Sasol’s spectacular comeback turns a battered stock into a market star

BN Daybreak: DiData Campus confession, SA's crime rot, SAPS budget, Viljoen on JSE delisting wave

BN Daybreak: Sex offenders register still hidden; Joburg's 18-year red tape; Viljoen on SA

BizNews Edge: Piet Viljoen says smart money is buying South Africa