The Pick n Pay final year results presentation last week was riveting and I left with the undeniable impression that CEO Sean Summers will eventually turn this ailing business around.
Two notable firsts arose in these results. This was the first time in the group’s 57-year history that it made a loss and this year will mark the first time that the Ackerman family will relinquish effective control of the group.
Pick n Pay is technically insolvent, with liabilities slightly exceeding assets and some debt covenants have been breached. But the group has reached an accommodation with its lenders whereby the covenant breaches have been waived and a turnaround plan is in place.
The reasons for it ending up in this unenviable position are many and various and include an inability or unwillingness to fully embrace central distribution, and an inability to retain top management with a clear retailing strategy. There were many other factors, of course, but they are beyond the scope of this article. Summers alluded to another reason; the loss of Pick n Pay’s identity, its innate humanity, in recent years as a result of unfettered “streamlining”.
Summers is, in my opinion, nothing short of a retailing genius, right up there with the late Raymond Ackerman, Whitey Basson and Pieter Engelbrecht of Shoprite and Clicks founder Jack Goldin. But the task that confronts him in attempting to turn Pick n Pay around is daunting. Lesser individuals would balk at the prospect but Summers has always relished the rough and tumble of a fight. It’s in his blood. And whether it’s the unions, the government or other retailers, he doesn’t care. He’s in it to win.
But realism needs to come to the fore in looking at Pick n Pay from a potential investment perspective. Comparisons with Shoprite are meaningless. Shoprite is so far ahead of Pick n Pay (apart from the very low end where Boxer appears to have the edge) that the two groups look like they’re playing different games altogether. And yet, in this food retailing cauldron, Pick n Pay still has to keep its prices keen and try to match Shoprite in certain other areas as well.
A sense of the catastrophe that has engulfed Pick n Pay can be gleaned from the latest results. Turnover rose by only 5.4% to R112.3bn and on a like-for-like basis it was even less, at 2.9%. Trading profit slumped to R385m, a fall of 87.4%. The Pick n Pay chain produced sales of R74.9bn (up 0.3%), while Boxer, half its size, produced sales growth of 17.3%. The operating profit split was even more revealing; the Pick n Pay chain suffered a trading loss of R1.5bn, while Boxer produced R1.6bn of trading profit.
My opinion is that Summers will succeed in stemming the bleeding at Pick n Pay and putting the company back onto a profit path. But it will be a substantially smaller Pick n Pay with a total market share considerably lower than today’s. Boxer will remain the driving force. Pick n Pay’s shareholding in this company will be severely diluted after the separate listing, though Pick n Pay intends to retain control of Boxer after the listing. And the clothing business also appears to be doing well, much better than the food side generally. That trend should continue.
The group has already closed a number of unprofitable stores and will continue closing or repurposing some of them as Boxers or franchise stores.
But the really big unknown is what happens after Summers. He’s 70 years old and with the best will in the world, he can’t carry on forever. It is thus critical that Pick n Pay appoints a sustainable successor soon, someone who can understudy Summers and take over once he eventually retires. The last thing Pick n Pay needs is a reprise of the situation that existed after Summers’ departure in 2007, when the group went through a variety of CEOs.
• Gilmour is an investment analyst.
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