Pick n Pay’s shares dropped almost 15% during the day on Wednesday as the retailer detailed a “disappointing” interim loss — its first yet — which resulted in it taking the unusual step of not declaring a dividend.
New CEO Sean Summers wasted little time in jettisoning much of the Ekuseni turnaround strategy, which was announced with much fanfare by previous CEO Pieter Boone in May 2022.
“Those Ekuseni numbers and targets are going to be revisited,” Summers said. “As circumstances change, you need to change your realities,” he said, adding the business would not use the Ekuseni name in future.
The Ekuseni strategy divided Pick n Pay into two divisions: the core Pick n Pay brand and a lower-income brand named Qualisave, which sells a more limited range. It aimed to improve customer service and customer ratings, cut operating costs and expand the number of Boxer stores.
Summers was critical of the multilayer plan, which he said tried to achieve and measure too many things at once.
Pick n Pay will stop converting lower-income shops into the Qualisave brand, while still refurbishing some stores. So far, 160 Pick n Pay stores have been converted into Qualisaves.
Summers said, however, “the investment is not gone. We’ve got 160 stores that are bright, fresh and cleaned up with new lighting and [fixtures].”
Boone had reported in May that the strategy was working, but Summers admitted that Qualisave’s revamped stores are not producing the expected financial return.
He will investigate whether the Qualisave strategy is “a valid strategy, [that is] poorly executed or a poor strategy [that has been] well executed”.
long time
Summers said problems at Pick n Pay were a long time coming, suggesting that it is not Boone who is to blame for the group’s challenges but his predecessor, Richard Brasher.
“Sadly, we have lost our way over a period of time. And this is not the last two or three years that this has happened. This is a 10- [or] 15-year problem.”
He said the Ekuseni strategy diverted too much attention from Pick n Pay’s main brand, which he will be focusing on.
“One of the things that’s happened in this process is too much attention was being taken away from the core business.”
Pick n Pay will continue its strategy to roll out discount Boxer stores, with a plan to have 200 by 2026. This profitable division of 145 stores accounts for a third of revenue and is growing sales at a faster pace than Pick n Pay.
Loss making
Summers, who led the business from 1999 to 2007 and returns to replace Boone, was honest about the challenges and competition the retailer is facing.
“The shine has gone off Pick n Pay. Of that there is no doubt.”
The group’s core Pick n Pay business, which accounts for about 60% of revenue, is making a loss even as its Boxer discount supermarkets and clothing and liquor businesses do well.
Analysts have long suspected that Pick n Pay branded supermarkets owned by the company, rather than franchisees, were making a loss, which was denied by Boone. But Summers was honest about the disappointing results and challenges.
“During our earlier years, consumers felt a close connection with Pick n Pay. They felt the group was on their side and that sentiment made our group the clear grocery market leader in SA,” chair Gareth Ackerman said on Wednesday during the results presentation.
“Sean’s task will be to re-establish that connection, to rekindle customers’ love for the Pick n Pay brand, and to make it a meaningful part of their lives once more,” he added.
The retailer’s pro forma headline earnings per share to August 27, which accounted for one-off insurance proceeds, fell 245.7% from 88.76c to a loss of 129.3c as the total loss came in at R571.3m.
Pick n Pay said its trading margin, which reveals profit after most expenses, dropped 2.3 percentage points to 0.1%
By contrast, Shoprite and Woolworths’ trading margins are about 6%, showing just how uncompetitive Pick n Pay is.
In SA, the like-for-like sales of Pick n Pay improved a mere 0.8% and Boxer 4.2% against the group’s internal selling price inflation of 8.3%. Both chains are selling lower volumes than before, with all growth explained by price increases.
Summers said that to improve, Pick n Pay needs to focus on buying a better selection of goods and fostering better relationships with suppliers.
Three rounds of retrenchments under the past three CEOs have damaged the “social fabric” of the business and staff are disengaged, he said.
Summers will focus on improving customer service and store energy. “Retail is about passion.” He admitted that Pick n Pay is “a large ship to turn around” and fixing it will be a “multiyear journey”.
The share price closed 12.45% lower at R25.95, down more than 49% since January.
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