Boxer's shoppers fill their pantries in grant week and run short by mid-month. Diesel has pushed up taxi fares, rice is selling for a fifth less than a year ago, and like-for-like sales barely moved. Yet the discounter sold nearly 4% more goods, opened its 600th store and cleared its long-term bank debt. On results day, chief executive Marek Masojada told Alec Hogg what his customers are leaving on the shelf, how AI went from taking meeting minutes to the core of the business in six months, how deals with controlling shareholder Pick n Pay are kept at arm's length, and what stands between Boxer and a thousand stores. He also named the question he expected investors to press hardest..Listen here.Edited transcript of the interview.(00:01) Alec Hogg: Well, on BizNews Edge, we do try and get behind the numbers from time to time of those companies that we find particularly interesting. GG Alcock told us a little while ago, and 120,000 people have actually watched that interview, that there were certain companies that were going to be very successful into the future because of the expansion of the informal sector. Among those companies is Boxer.Now, Boxer's just released its financial results for the six months to the end of August. The numbers, though, tell us the consumer is constrained. Like-for-like prices fell, and like-for-like sales grew by just around 1.5%. That's in line with the economy generally. So where's the big boom? Yet volumes for Boxer grew by nearly 4%, and its 600th store was opened. Bank debt is also gone. Who's right about the township till? Boxer chief executive Marek Masojada is joining BizNews Edge.Marek, good to be talking to you again. Last time we spoke, you were worried about Black Friday. Feels like a lifetime ago. That was in the week of the listing. This week, two years on, 600 stores. What does the 600th store tell you that the 500th didn't?(01:28) Marek Masojada: Hello, Alec. Thanks for having me on the programme. Yes, it's been quite a journey from store 500 to 600, and I can promise you that each and every store that we put on the map is a massive project. We do relook at each store, the layout, the make-up, the range, et cetera, that's appropriate for the community which we serve. Obviously each one is a different size depending on the market.So I think we've learned a great deal over that time. And over the period, obviously, technology changes that have happened within our industry have also become prevalent within these stores, and they help us run our stores in a more efficient way. So we are an industry of constant change, always looking for ways in which we can strengthen the actual business model.(02:25) Alec Hogg: It's a lot of stores. Where was number 600?(02:30) Marek Masojada: Number 600 was situated at Daveyton, up in Gauteng, in quite a big regional centre called Etwatwa Crossing. It's about 18,000 square metres, a double-anchor centre with many different brands as line shops, et cetera. And our store is about 2,000 square metres big. So we're excited about that particular store.(02:56) Alec Hogg: You told us as well two years ago that every five years Boxer becomes a new company. So where are we in that five-year cycle today?(03:05) Marek Masojada: I think we're in a very exciting space on that evolutionary journey. In the last five years we spent a lot of time building infrastructure, getting our DCs up and running and able to support the growth ambition that we had to add to the store estate. And I think we're in a good space for the next three to four years on that score.The next five years, and I really believe that we are at a point of change, is to harness the opportunities of technology within the business. Specifically in the AI space, which has just come on leaps and bounds over the last six months. Six months ago we were using it in a very minor way, maybe taking minutes of meetings, et cetera.And now we are embedding it deep into areas of our business. It's shortened project times to be able to bring new things to the business, et cetera. And I think businesses themselves are having to go through some sort of internal transformation to actually grapple with what those opportunities are. So I do believe that the next five years is going to be one of big change.(04:27) Alec Hogg: Marek, who are you using on the AI front?(04:31) Marek Masojada: We use a number of people that we learn from, but Boxer has always had a philosophy to do as much as we can internally. So we've got some really good expertise that are leading the projects and developing super users around the business. But we've got some really strong partners that obviously live, work and breathe in the space every day, and they're bringing that expertise into the business.(05:02) Alec Hogg: I'm asking because we also use AI a lot. We love Claude, we use Gemini. But big corporations, I suppose, would be looking for the likes of Palantir or businesses like that. Have you tapped into those American go-go stories?(05:21) Marek Masojada: No. I mean, our route, Alec, is that we started our journey with the big names, the ChatGPTs and the Claudes, which we are using within our business. But we've got quite a strong desire, and Boxer has had it across its business, to use some of the open-source technologies that are available and to host our data within our environment, to protect it, et cetera. So those are big conversations within the business at the moment. Clearly you need both, and it's about deciding where and what's most efficient from a user point of view.(06:05) Alec Hogg: And I see you're already starting to make money out of this side of the business. Bmedia and B-Inside, R260 million, up about a third. That's an interesting new profit line.(06:21) Marek Masojada: Absolutely, Alec, and something that we're really thankful for in this environment. Boxer is relatively early into our journey on that side. Effectively, these are using data, our own data, and allowing our suppliers to access that data to get a better understanding of our customer. And then the Bmedia angle is about taking our brand and using it across different mediums.As I've mentioned, we started with a very exciting TV show that kind of put it on the map, where we collaborated with about ten different service providers and suppliers to Boxer in a street-vending food cook-off programme that ran for about twelve weeks. That was really launching Bmedia, but we're now taking that into other forms: big screens in stores, promoting product and experiences, et cetera, and obviously opening up these streams.And given the really challenging environment, particularly the impact of diesel costs, which are very direct costs in our business and obviously in the lives of our consumers, we've really been thankful to be able to drive these new income streams to give us some breathing room as we deal with the impact of diesel costs.(07:51) Alec Hogg: Well, you do seem to be the only proper competitor that Shoprite and Pepkor have got nowadays in your space, or is that a little unfair to others in this field?(08:05) Marek Masojada: No, absolutely, Alec. I mean, we operate in a highly competitive space. Clearly Shoprite is the giant of retail in South Africa. But across South Africa there are many other players, a lot of very strong independents that we trade against. So we watch everybody, and it doesn't just stop at looking at food retailers or grocery retailers. There are a lot of ancillary businesses that are also playing in our market, in the protein fields and the non-food fields, et cetera.Customers at the moment are really searching for value. They take our promotions, they take all the promotions of our competitors. They literally do their research before they go off on a shopping expedition. And it is really important to keep that perspective and earn their loyalty through providing long-term value.(09:08) Alec Hogg: Getting into the numbers for the six months to the end of August, and that's what you're talking to various people about today. Thanks for giving us some of your time on this very busy day. You called the first half of this financial year a challenging trading environment with a constrained consumer. Describe that consumer to us.(09:33) Marek Masojada: Yes. Unfortunately the consumer is facing a barrage, like we all are, from a diesel price that's 50, 60% up, that's flowed through into the price of taxis, public transport, et cetera. So they absolutely don't have the discretionary spend that they've had in the past. And, as mentioned, they're searching out value in the market. That's really what we're trying to appeal to, to help the consumer's money go further.The consumer has been fortunate in some ways that we have seen this deflation phenomenon in the lower end of the market and in commodities for the last 18 months or so. So there have been some significant reductions in the price of the likes of rice, of maize, et cetera, that have helped the consumer.But nevertheless, we see it in the spending patterns throughout the month. We see month-end, we see the social grant week, that's generally the first week of the month, when there's money out. Consumers are coming, they're filling pantries for the month ahead. But where we really see it is in the mid-months, when the money runs out fairly quickly after those periods. And that's really the behaviour that we're seeing in our consumer at the moment.(11:08) Alec Hogg: What is she leaving on the shelf, which she might have taken in the past?(11:14) Marek Masojada: I think there's always a move to basic commodities, and tummy fillers, if you like. So the discretionary spend: I think we've seen it in the likes of clothing, which has come under some pressure. Fortunately we're not in clothing, but we do see it in some of the more expensive cuts of protein, et cetera. So it is a drive and a move to value.(11:47) Alec Hogg: I'm trying to make sense as well of your price cuts. You've seen deflation, or your consumers have seen deflation, of about two and a half percent. Stats SA says there's inflation in food of about 2%. So it's quite a big gap there. How does one explain that?(12:07) Marek Masojada: Yes. The way in which Boxer measures our internal inflation and deflation is through what we term a volume-held-constant measure. Basically, we take the products we sell today and we compile a weighted average of those products, so taking into account the contribution of each product to the total, and we compare the price of those products to that same product a year ago, in the same month.So what we're seeing, for example, is that the price of rice during the course of the first half was some 20 to 27% lower than rice selling in the prior year. And as rice makes up a significant proportion of our basket, it means that our basket has deflation overall. So you might have certain categories, meat and chicken, et cetera, that might have seen inflation, but the weighting of commodities in our overall basket is higher and therefore contributes to a net deflation.(13:17) Alec Hogg: That's a huge decline in the price of rice. What caused it?(13:21) Marek Masojada: Alec, that was caused by the base. Rice is an imported product, and there was a shortage of rice on the world market. I think India closed its export borders at a point in time, and the price therefore rose all around the world. That situation reversed during the course of last year, and happily a stronger rand obviously contributed even more to the reduction in that price. With the rand being stronger for longer during H1, it has consistently kept that price low.(13:58) Alec Hogg: What about liquor? Liquor stores now equal about two thirds of your superstore count. Is liquor the real growth engine here at Boxer?(14:13) Marek Masojada: As we've articulated over the last two-year journey, liquor represents an opportunity for growth and market share for Boxer. We were late into the liquor category, and many years ago we started opening liquor stores adjacent to our main superstores. So it is an opportunity to catch up. And as you mentioned, we're nearly at two thirds of our superstores having a liquor store. We won't get to 100%, just because of the practical reasons of getting space in certain centres, et cetera. But we're very thankful for that opportunity for growth. It is the highest-growing portion of our turnover and is an important contributor to the business.(15:08) Alec Hogg: Who would you be taking market share away from there?(15:13) Marek Masojada: Interesting question. I can't give you a direct answer, but obviously, being a smaller player in terms of number of stores compared to our competitors, and the fact that we're opening many of these liquor stores in co-anchored centres with some of the big brands, there must be share coming from them.(15:39) Alec Hogg: We've just made an investment into Exemplar. I'm sure you know Exemplar well, the McCormicks.(15:45) Marek Masojada: Yes, yes, absolutely.Alec Hogg: I wanted to make that investment, first of all because they were really cheap, but secondly because they've got a lot of shopping centres in areas which do seem to be doing a whole lot better. Do you do much business with them?(16:04) Marek Masojada: We do, Alec. And I'm happy to say that our 600th store at Etwatwa was one of the Exemplar malls. So that was a reflection of the opportunity that we see with Exemplar, and we certainly have a lot of their centres planned for the future. So we've got a growing estate with them, and they're very good partners of ours.(16:31) Alec Hogg: And of course, any time one talks about Boxer, you also have to look at Pick n Pay. The one thing that I need a bit of help with: when we spoke in November 2024, you and Sean Summers were on BizNews TV. At the time, James Formby being the chairman would ensure Boxer's independence. But now Sean is your chairman. What's happening there?(17:00) Marek Masojada: I think during the course of, or at the beginning of, this financial year, on the first of March, with the retirement of Gareth Ackerman as the chair of Pick n Pay, James, who was the lead independent director of Pick n Pay, was obviously appointed as the chairman of Pick n Pay. And Sean then became the chairman of Boxer. From a Boxer point of view, we're absolutely delighted that James was able to remain on our board, and he does sit on our board. But we're very careful of the difference of having Sean and James on our board, and we have a lead independent director, Chichi Maponya, who takes over that role if there's any conversation that might cause a conflict.(17:55) Alec Hogg: I'm asking that because more and more we're now seeing this kind of governance coming onto the radar of investors, and of course of financial journalists as well. But you bought two stores from Pick n Pay in this half. How does that work? Who sets the price, and who signs off on behalf of the non-Pick n Pay shareholders, i.e. the minorities?(18:23) Marek Masojada: Good question, and those are carefully dealt with. Over the course of the last maybe six or seven years, there have been many conversions of stores. In the main, and as a generalisation, those stores are stores that are going to be sold off by Pick n Pay, either externally or passed over to ourselves. We take the view that if they fit our customer profile and the geographical location is acceptable to us, we will take them on. But it obviously goes through a thorough diligence process to ensure that they're arm's-length transactions. And, as I say, in many instances it's a loss-making operation, and therefore it's not a complex valuation exercise.(19:19) Alec Hogg: Right. Does your daily cash still run through Pick n Pay's payment system, and if so, when will that end, or would it end?(19:30) Marek Masojada: We piggyback off Pick n Pay's payment system at the front end. We get great economies of scale through combining our transactions together at the front end, but we settle overnight through a clearing service and we get our cash in the morning. So that will continue, because the benefits obviously outweigh the fact that the funds come the next day. There are substantial benefits in that regard, but everything's treated absolutely at arm's length.(20:06) Alec Hogg: Well, you can see that whenever someone looks at Boxer, they also look at Pick n Pay. They're still your controlling shareholder. Do you think that's a negative for Boxer? Some people might want to buy the Pick n Pay shares rather than Boxer as a cheap way in. Or that partnership, that relationship from the operational side, from where you guys sit, how are you seeing that?(20:32) Marek Masojada: Look, we've always regarded our Pick n Pay relationship as incredibly positive. It gives us the ability to talk to people within the industry. They are our biggest supporter in terms of encouraging our growth cycle, to expand the business, et cetera. So we're able to learn a great deal. We don't overlap very much in terms of competing out in the market, so that's not really an issue. But we do treat each other as competitors when we go and talk to our consumers.So yes, Alec, it's a common question. We're absolutely delighted to have Sean's expertise as chairman on our board. He's been associated with Boxer right from the beginning in 2002. We did that deal together, Sean, myself and the management at the time. And Sean stays properly in tune with our business and is able to give us guidance in that regard.(21:43) Alec Hogg: 2002, but going back even further to the Zululand Cowboys, as I think you described it to us. What is Boxer looking forward to now from that? What does it look like with a thousand stores?(21:59) Marek Masojada: Well, that would be our ambition. Four hundred stores going forward, I really believe that it is doable, between our superstore opportunity and combining with liquor stores. So those are exciting conversations that are going on within the business. We're ambitious for it, we're hungry for it. In fact, the only constraint at the moment is how fast we can actually unlock the property opportunities that are out there. So we need more Exemplars, et cetera, to bring these opportunities to us. But we have the infrastructure, we have the management expertise and we have the retail systems really in place to be able to continue our expansion at scale.(22:54) Alec Hogg: Marek, closing off: what are you expecting to be the toughest question from the investment community today?(23:03) Marek Masojada: I think the outlook is still uncertain. And I think we're obviously cognisant that there's a lot of expectation for Boxer to continue on its positive journey. Like everybody else, we have to be realistic about the environment in which we're operating. We live in constant hope that the situation in the Middle East will resolve itself and we'll see diesel come down by 50%. But these are most unwelcome elements that are having adverse effects on our trade.I think the position of the consumer is not likely to get better in any fast way. So these are the things that we're grappling with, and I think all of retail is. We're not getting help from the external economy. If you want to grow, you have to take market share. That's really where it's going to come from. So those are the conversation pieces that we will be having, and are having internally, but I think the investor and analyst market will be interesting, to get some insights into that.(24:21) Alec Hogg: Marek Masojada is the chief executive of Boxer. I'm Alec Hogg for BizNews Edge.