Pick n Pay, South Africa’s once-leading grocer, faces a strategic overhaul led by its new CEO. Plagued by market share losses to rivals like Shoprite, the retailer grappled with profit declines due to past missteps in strategy. Over 100 underperforming stores will shutter or transform, aiming for a massive 850 million rand in savings. With plans for store conversions, cost cuts, and capital raising, Pick n Pay endeavours to revive its core business by 2027.
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By Nqobile Dludla
New CEO of South Africa’s third biggest grocery retailer Pick n Pay announced on Monday that over 100 loss-making core supermarket stores will either be closed or converted, in a group-wide revamp. ___STEADY_PAYWALL___
Here are the key details:
REASONS FOR THE STRATEGIC REVIEW
Once the country’s top retailer, Pick n Pay has been losing market share to Shoprite and other rivals for more than a decade.
In years of sluggish economic growth that followed the global financial crisis, the group struggled to balance the need to protect margins with aggressive discounts needed to woo bargain-hunting consumers.
Founded by the late Raymond Ackerman in 1967, Pick n Pay had opted to pay higher dividends, meaning it was not investing enough to grow its business and keep up with its competitors.
In contrast, Shoprite aggressively pushed into the mass market, while repositioning its Checkers chain for the affluent shoppers. The group also has spent heavily on technology and broadening product ranges, while also investing in on-demand grocery delivery and a centralised distribution, something Pick n Pay only did later.
Outgoing Chair Gareth Ackerman told investors on Monday that “inappropriate strategic initiatives” over the last decade have failed to prevent profit declines in the core Pick n Pay supermarkets business.
One of them was the conversion of some Pick n Pay stores into Qualisave brand stores focused on the low to middle-income market, which has not generated expected results.
PICK N PAY CORE REVIVAL PLAN
Over 100 loss-making Pick n Pay supermarket stores will be closed or converted to Pick n Pay franchise or discount Boxer stores, resulting in about 850 million rand ($46.16 million) of savings.
The retailer will convert the new Qualisave branded stores back to Pick n Pay stores, with expected 50 million rand in conversion costs.
The company said it would also reverse certain previously implemented range decisions that hurt its performance, but did not provide further details. It said it would also strengthen regional buying teams to secure more competitive prices and expand fresh food product ranges and private label products.
The remaining stores will be modernized.
Pick n Pay has 1,423 company-owned stores, of which 345 are core Pick n Pay hyper- and supermarket stores.
TARGETED COST SAVINGS
Pick n Pay is targeting about 1.3 billion rand of savings through cost cuts over the next three years as it streamlines its operating model by minimising waste and simplifying processes.
RAISING CAPITAL FOR INVESTMENTS AND DEBT REDUCTION
CEO Sean Summers announced a two-step recapitalisation plan earlier this year that includes a rights issue to raise up to 4 billion rand and Boxer’s listing.
Chief Financial Officer Lerena Olivier told investors on Monday that the retailer needed about 10-12 billion rand of capital, with 6-8 billion projected to come from the Boxer listing.
It will also reduce grocery inventory to free up cash tied up in working capital.
TIMELINE
The initiatives will be implemented in a phased approach until financial year 2027, when Pick n Pay core business is expected to break even. ($1 = 18.4150 rand)
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SOURCE: REUTERS
