Pick n Pay’s sweeping changes unveiled this week are a clear signal to rivals that the retail and grocery giant is on the offensive after years in defensive mode, a move welcomed by analysts as the best strategy to win back market share.
But it won't be easy; analysts point out that its peers haven’t been idle as they also fight for market share in an increasingly competitive environment. The moves will also add to costs at a time when retailers are battling rampant inflation.
JSE-listed company said this week it will split its core Pick n Pay offering into two distinct brands as it looks to make further inroads to the discount, convenience, and premium market segments over the next four financial years. The plan involves converting existing stores into these new brands, as well as rolling out new outlets in both formats.
The brand changes are part of a strategic plan conceived in September last year, called Ekuseni, or “dawn” in isiZulu. New Project Red stores will be aimed at the value and convenience market segments, while traditional Pick n Pay stores will be enlarged to target upper-middle to high-income consumers. The group has 1,913 stores in SA, including its Boxer brand, and just over 2,000 stores including the rest of Africa.
CEO Pieter Boone said the Project Red stores would end up comprising about 40% of the existing Pick n Pay brand.
He said the group’s new strategy was aimed at increasing its market share of 16% by about three basis points or by 20% over the next four financial years.
The group is also planning to accelerate its use of the on-demand market, announcing a commercial service agreement with Takealot that will see a dedicated Pick n Pay grocery service operating on the Naspers-owned group’s Mr D app. The deal, to be officially launched in August, will allow the retailer to tap into the 2.5-million active Mr D customers on the app. Pick n Pay hopes to increase online sales by eight times by financial year 2026.
Pick n Pay is also doubling down on its Boxer chain, reiterating its stated intention last year of adding another 200 outlets to its 350 stores over the next three years, and effectively double sales at the brand by 2026.
Pick n Pay’s new Eastport distribution centre, to be completed next year, will consolidate the Longmeadow distribution centre and three smaller facilities, supporting its expansion plans.
Its 2026 ambitions will be funded by cost savings of R3bn in the period along with capital expenditure, which includes R3.5bn earmarked for the 2023 financial year
Makwe Masilela, head of Makwe Fund Managers welcomed Pick n Pay’s plan, saying the group was “not just doing the right thing, they have to do this”.
The group stood a good chance of winning back the “loyal customers it used to have by differentiating” its retail segments, he added.
Citing Shoprite’s Checkers brand as an example, Masilela said it had made major inroads at the top end of the market in recent years, even though it had not previously operated in that segment.
“If Shoprite through Checkers just really started moving into the higher LSMs [Living Standards Measures] and is taking market share, what stops Pick n Pay from regaining those loyal customers they used to have?”
Boone makes no bones about being on the offensive. While competitors “are doing a great job”, the group is “operating in a market that is growing and we are not afraid to take off the boxing gloves” in its bid for market share.
Pick n Pay isn’t just doing the right thing, they have to do this
— Makwe Masilela, head of Makwe Fund Managers
“What we have learnt over the years, especially when you talk about Pick n Pay retail, is that we didn’t create enough differentiation; we tried to be everything to everyone.”
Boone said the splitting of the core Pick n Pay brand would “create a much better-tailored offer.”
Sasfin Wealth senior equity analyst Alec Abraham also welcomed the plan, but said none of Pick n Pay’s competitors had been standing still and it would not be easy to win back customers.
Abraham sees opportunities for Pick n Pay and Checkers in predominantly middle-class areas, but said the top end of the market will be harder because Woolworths is “extremely well represented in the upper-income areas”.
He said there are plenty of properties available to help the group realise its ambitions for more stores, given the dearth of space in the wake of the Covid pandemic and weak economic growth that led to many businesses closing down.
Cost savings through its new Eastport distribution centre were also positive, Abraham said.
All Weather Capital portfolio manager Chris Reddy said Pick n Pay’s agreement with Takealot is a good initiative because the group can also potentially cross-sell into Takealot’s existing client base, but more information is needed on the pricing strategy.
Reddy’s concern is that the plan to split the brands will cost much in a tough macro-economic environment characterised by rising inflation and tougher competition.
Global retail peers such as Target and Walmart have already sounded the alarm on profit due to rising freight, fuel, and labour costs, coupled with continued supply chain disruptions, said Reddy. He is concerned about the group taking on debt to fund the expansion in a rising interest rate environment.
Pick n Pay has seven pilot stores that are almost ready and plans to launch three upmarket Pick n Pay stores and two Project Red outlets this week.
The Pick n Pay stores are in Table Bay Mall and N1 City in Cape Town, and in Lonehill Shopping Centre in Johannesburg. Cape Town and Pretoria will each get a Project Red store at the Vangate and Nkomo malls, respectively. By June, two more Project Red stores will be launched in Goodwood and Eerste Rivier in Cape Town, with a Pick n Pay store in Hout Bay.
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