Time was when Pick n Pay was SA’s pre-eminent supermarket chain. It held this position all through the late 1960s, 1970s and 1980s. It wasn’t really until the end of the previous millennium that it started getting serious competition from a hitherto little-known operation from Brackenfell called Shoprite.
But Pick n Pay was way ahead of Shoprite on virtually every retailing metric imaginable with better profit margins and trading densities. So it was Pick n Pay’s game to lose.
Shoprite was moving ahead rapidly, mopping up market share in a series of audacious moves, culminating in the acquisition of Checkers from Sanlam and OK Bazaars from SA Breweries in 1997 for R1. By this time, Shoprite was more than a match for the iconic Pick n Pay and the game truly was on.
But while Shoprite was concentrating its efforts locally (and from 1995 onwards in the rest of Africa), Pick n Pay was distracted with Australia. In the mid-1980s, it opened a hypermarket in Brisbane and was about to open a second one when it was forced out of Australia by the combined forces of the Australian government, trade unions and supermarket chain Coles/Myer.
Pick n Pay was far ahead of the Australian competition at that time, offering scanning at its checkouts long before its Australian competitors. Unfortunately, Pick n Pay returned to the country a few years later, acquiring the Franklins chain and persevering with it for a decade before limping away.
Pick n Pay received another huge blow in 2006 when long-time CEO Sean Summers resigned. Then began a seven-year search for a new CEO, which ended with the appointment of Richard Brasher in 2013. But the cumulative damage to the group over a number of years had been done.
Particularly challenging
While Shoprite was highly focused on SA, the rest of Africa and retailing technology, Pick n Pay was following, not leading. This manifested itself in the fact that Shoprite was taking market share away from Pick n Pay and had greatly superior profit margins. While Shoprite fully embraced new retailing technology and concepts such as centralised distribution, Pick n Pay persevered with supplier deliveries to its stores and was one of the last big supermarket chains to adopt centralised distribution.
After the release of Pick n Pay’s financial 2023 results, it is obvious that Shoprite is pulling even further ahead of its old rival in this particularly challenging consumer economy.
As the two groups have different year ends, making simple comparisons is not necessarily all that meaningful. But Shoprite’s sales to end-December 2022 rose 16.8%. This compares with 8.9% (4.8% like for like) for Pick n Pay for the year to end-February 2023. Pick n Pay’s trading margin fell 40 basis points to 2.7%. This compares with a trading margin at Shoprite of 5.7%. That was down from the previous interim at 6.1% but is in a different league altogether from Pick n Pay’s margin.
Both groups rightly highlight the devastating impact that load-shedding is having on their businesses. Shoprite incurred extra spending of R560m on diesel to operate generators in the half year to end-December, while Pick n Pay spent R652m on diesel in the year to end-February 2023.
Clearly, this type of extraordinary expenditure is unsustainable and something has to give unless load-shedding can be reduced to far more manageable levels. But as things stand, there is no sign of this on the horizon and the outlook for large food retailers is bleak.
By May 10, Eskom will have load-shed more gigawatt hours in the year to date than in the whole of 2022. For calendar 2023, it is likely be 2.5 times the figure for 2022. If diesel costs can’t be reduced substantially, the spectre of food shortages, with all that it entails, could soon become a real possibility.
• Gilmour is an investment analyst.
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