Pick n Pay, a household name in SA’s grocery retail industry, is in trouble. Its profit margin is the lowest among its peers, its share price has plunged by more than 40% so far in 2023, and it is expected to suffer a hefty half-year loss.
The company’s operational and stock market woes are partly due to the highly competitive retail environment, which has been worsened by the pandemic, the economic downturn and unemployment at near-record levels. But they are also largely self-inflicted as the retailer failed to improve its efficiency and competitiveness.
In a desperate attempt to turn around the situation, Pick n Pay has decided to bring back an old boss Sean Summers, who was CEO of the company for eight years until he left in 2007. Summers is widely regarded as a master retailer. He is also credited with making Pick n Pay the clear grocery market leader in SA during his previous tenure.
Summers, who is 70, said that he wanted to honour late founder Raymond Ackerman and his wife Wendy’s legacy by putting Pick n Pay back onto its rightful path to growth and success.
He hasn't outlined how he plans to do that. But his predecessor, Pieter Boone, who had been in the job for less than three years, had mapped out a coherent revival strategy, the cornerstone of which was Boxer, a discounter founded in 1977 and whose outlets are located at taxi ranks and rural shopping malls — the heartland of the vast budget-conscious customer base.
The bottom-of-the-pyramid plan to grow the business is brilliant from both a money-making and a competitive point of view. The grocery market is expected to soar to R850bn in 2026, and most of that money will come from low-income earners and welfare recipients, according to Pick n Pay’s own calculations.
To grab a bigger piece of that market, Pick n Pay has to expand its Boxer outlets. And it has done so impressively: Boxer, which opens five new stores every month on average, boosted its sales by more than 16% in the latest half year. It’s hard to imagine that Summers would want to unwind that strategy.
But Boone took his eye off the mainstay, Pick n Pay, which still accounts for roughly 60% of the company’s sales and serves the long-standing middle to upper-income customer base. Inevitably, the company’s profit margin took a knock. Pick n Pay barely makes 3% after paying for its costs, about half what its closest rival, Shoprite, grinds out every year, painfully illustrating the point that it’s easy to sell discounted goods but it’s hard to make money from it.
Summers can build on Boone’s success with Boxer, which is a promising commercial proposition in a country where more and more consumers are conscious about their budgets. Boone has laid the groundwork for Summers to grow sales profitably. Pick n Pay has offered voluntary severance packages to some managers. It would be agonising to watch, but Summers might have to launch a wider retrenchment process and set up a showdown with unions in a country where three in 10 people are without a job.
And Summers will have to balance the interests and expectations of the Ackerman family, which owns a controlling stake in Pick n Pay and enjoys much of the dividend payouts. Sure, the dividend payout ratio has been reduced from almost 80% to 56% but Pick n Pay still wants to pay at the top end of the new range. That is a pathetic sacrifice for a company in such a mess.
Summers has the potential and motivation to revive Pick n Pay but he also faces challenges that may include a showdown with unions over cost cuts and a confrontation with the Ackerman family over dividends. It would be interesting to see what effect he will have on the company and the industry.
• Motsoeneng is Business Day deputy editor
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