CHRIS GILMOUR: Poor economy to blame as investors trash decent Pick n Pay results

Pick n Pay’s interim results to end-August left me with mixed emotions. After many years of minuscule sales growth as the group was streamlined by previous CEO Richard Brasher, Pick n Pay produced decent sales growth for the first time in ages. And yet the market slapped the share price down in response.

I listened to many reasons and excuses for the share price weakness (as much as 9% down in a day) but none of them were convincing, either wholly or partly. It appears to be due to a typical poor market environment, where even good results get trashed. Pick n Pay has turned the corner and is on the road to recouping lost profitable market share. But it will be a long, arduous journey and new CEO Pieter Boone is under no illusions.

This was the first set of results from Pick n Pay where a sales breakdown between Boxer, its low-end discounter chain, and the rest of the group was given. Boxer participated to the extent of 30% of total group sales, with conventional Pick n Pay supermarkets (including the new Qualisave chain) contributing 70%. Sales growth for the interim period was 11.2%, taking total sales to R49.5bn. Boxer’s sales grew 27.2% year on year, while the rest of the group grew at a far more pedestrian 5.4%. Figures from Stats SA for August reveal that sales in the general dealers category grew 15.8% year on year at current prices. Thus it would appear that Boxer gained market share, while the rest of the group lost market share.

However, if new space is excluded from the calculation, Boxer’s growth reduces to 14.2%, while the rest of the group falls to 4.5%. Boxer is undoubtedly on a rapid growth path and is operating in precisely the right segment of the market to achieve that growth. Management knows this and is committed to opening many new stores in the coming years. The plan is to double the number of Boxer outlets during the next four years. It is on track to open 61 new Boxer stores in financial 2023.   

Multiskilling agreement

Clothing is another area where Pick n Pay differentiates itself from its competition. Interim sales growth in clothing was 14.8%. This compares with 7.1% growth in year-on-year current sales growth in Stats SA’s retail sales figures for August in the clothing category. This suggests that significant market share gains were made. Clothing sales enjoy a somewhat higher profit margin than food and so it is not surprising that this area is receiving a lot of management attention.   

One area that only received cursory attention in the latest results is the multiskilling agreement that the group has reached with its main union, the SA Commercial Catering and Allied Workers Union, which allows Pick n Pay supermarkets, for the first time, to train staff to be scheduled for more than one task within a single shift. This might appear to be a small item but when viewed through the often historically fractious lens that exists in the SA retailing industry, in reality it is a major step forward. The German discounters Aldi and Lidl adopted this type of approach long ago and it serves customers and staff exceptionally well.  

There are certainly going to be challenges for Pick n Pay management in future, not least of which being how to persuade more customers to shop at the newly revamped Qualisave stores and the traditional Pick n Pay stores. Theoretically at least, Qualisave should be able to offer slighter better prices than traditional Pick n Pay stores, as it stocks a much smaller range of products (8,000 vs 18,000).

Boxer will be fine; discounters are the future of grocery retailing in SA and elsewhere and Boxer will be at least a match for Shoprite’s Usave.

Pick n Pay also seems intent on taking Woolworths Foods on at its own game in the top end. That could be the trickiest part of the whole plan.

• Gilmour is an investment analyst.