Pick n Pay, fresh from reporting its first annual loss in its 57 years, will phase out the QualiSave brand and repackage most of its loss-making stores into Boxer as part of a sweeping overhaul to remedy strategic blunders of the past decade.
CEO Sean Summers said in a frank interview with Business Day that a lot of mistakes were made through the years, but he was determined to make “Pick n Pay beautiful again”.
To achieve this, Summers has been making calls to gifted former employees, enticing them back to help rebuild the group, whose share price is trading at 2004 levels.
“A lot of it [loss of talent] has been at the heart of the decline. People don’t leave companies, people leave people.
“And we lost a lot of very capable people to things like voluntary retrenchments. When a voluntary retrenchment comes along, a lot of good people leave because they have a concern about the company going forward,” he said.
“When the strategy in the company doesn’t work out and you offer them the opportunity to come back and be part of rehabilitating Pick n Pay back to its former position, they jump at the opportunity.”
Summers was brought back to the group about six months ago with the task of reviving its fortunes. One of his first tasks was to review the Ekuseni strategy, which divided Pick n Pay into two divisions: the core Pick n Pay brand and a lower-income brand named QualiSave.
Summers said QualiSave was forced down the throats of the group’s customers.
“QualiSave reduced the margins. There was about a 3% reduction in margin because they cut ranges sold at stores to just basic lines. Without additional ranges in the stores, the stores became unprofitable.
“And the customers wanted Pick n Pay — they didn’t want QualiSave. That has been the overwhelming feedback from customers, whether the customers are in Soshanguve or Katlehong,” Summers said.
“QualiSave as a brand will be phased out and will simply become Pick n Pay. We will have a wider range of products that appeal more to the markets that they serve. Those stores will become Pick n Pay over the next six to nine months.”
The new growth blueprint can be seen as a survival kit for Pick n Pay, which is spinning off and listing Boxer and tapping shareholders for R4bn cash after breaching debt covenants.
Shares in Pick n Pay rose as much as 7% intraday, potentially a sign that investors are buying into Summers’ revival pitch and may be willing to part ways with their cash to inject money into the veins of one of the biggest names in SA retail.
The turnaround plan came alongside an earnings report that showed the group suffered a loss after tax of R3.19bn for the year to February 25 compared with a profit of R1.17bn a year ago. Earnings were affected by a significantly higher interest charge resulting from increased gearing, as well as a store asset impairment.
Turnover was up 5.4% at R112.3bn, thanks to strong growth by Boxer, which grew 17.3%, and Pick n Pay Clothing stand-alone stores, which reported 17% growth.
Trading loss
The company has identified about 100 loss-making stores, with most of these set to be converted to its cash cow, Boxer. Some stores will be closed and others converted to franchise-owned stores.
Pick n Pay, whose share price is down 64% over the past five years, said it expected to return to profitability in the 2027 financial year.
The group reported a R1.5bn trading loss for Pick n Pay and a R1.9bn trading profit for Boxer. The trading loss reported by the Pick n Pay business triggered a R2.8bn non-cash impairment on the assets of Pick n Pay company-owned stores.
One of the biggest changes announced on Monday is the decision of the founding Ackerman family to relinquish control of the group. To give effect to this, the group’s chair, Gareth Ackerman, will step down in 2025 after serving 14 years in the role. In all, Ackerman has been on the board for four decades.
The family’s investment vehicle, Ackerman Investment Holdings, will immediately cease nominating the positions of chair, CEO and CFO, while the family’s representation on the board will be reduced from five to three.
Summers said such discussions had been in the pipeline for nearly 20 years. “The discussion about control of the group is not a new one. It was public when I was here 17 years ago. The family has come to the conclusion that Pick n Pay needs to evolve from a control structure.
“They are still part of Pick n Pay,” he said. “All they are saying is that they accept that they no longer want to exercise control of the group and we are going to let a new leadership take the company over.”
Self-reflect
In his address to investors, Ackerman acknowledged the group was in a crisis.
“I would like to thank the management team both for what they have done so far, and what lies ahead. I would also like to thank the board of directors for their ability to self-reflect, to accept what has gone wrong under their watch, and for the unbelievable effort they have put in to righting the ship,” he said.
Update: May 27 2024
This story has been updated with new information throughout.
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