The Pick n Pay board has rebuffed several attempts to acquire the struggling retailer, or parts of it, because management is focused on returning one of South Africa’s best-known supermarket brands to its former glory.
That is according to CEO Sean Summers, who said in an interview with Business Times that the acquisition interest came as no surprise given the straits Pick n Pay was in.
“Obviously in the current situation people will see an opportunity, but now is not the time to monetise that. We see a clear trajectory towards reinstilling some of the value that has been lost in the company. Obviously, we are pleased to see the performance of the share price in the last week and it shows you the faith and the confidence that our investors have in the organisation, and the plans we have for the future.”
They basically appointed the most senior executives that oversaw this decline and approved the strategies that led to the underperformance. I think that substantial pressures from other shareholders for the family to take a step back was a prerequisite for supporting a rights issue
— Jan Meintjes, portfolio manager at Denker Capital
However, Summers appeared to indicate that the board had not closed the door on acquisition bids, saying that it would consider them as and when they were made.
Philip Short, portfolio manager at Flagship Asset Management, said: “If there is a buyer for the whole group, they will need two things in their favour: a low acquisition price, leaving them with extra capital to inject into the business, and an extremely astute management team to take the reins. Shoprite is far ahead and they’re not slowing down.”
Pick n Pay, once the biggest retailer in South Africa, is in the throes of a major operational overhaul following a slump in earnings and market share over the past few years. There are plans for a R4bn rights offer and the listing of the best-performing businesses, Boxer — which targets low-income earners — before the end of the year to raise funds to pay off debt and reinvest in the business.
This week the Ackerman family — which is expected to invest R1bn in the rights offer — announced it would relinquish majority shareholder voting control of Pick n Pay and the right to nominate the chair, CEO and CFO.
After 14 years at the helm, Gareth Ackerman will step down as chair next year. He and his siblings Suzanne and Jonathan will become nonexecutive directors. The family, which will remain a significant shareholder in Pick n Pay, has had control since 1967 when Raymond Ackerman bought a business that at the time had only four stores.
Jan Meintjes, portfolio manager at Denker Capital, said the business had declined materially over the past decade under the control of the family.
“They basically appointed the most senior executives that oversaw this decline and approved the strategies that led to the underperformance. I think that substantial pressures from other shareholders for the family to take a step back was a prerequisite for supporting a rights issue,” he said.
Given that the Ackerman family said they would follow the rights offer, “I do not see them reducing their shareholding in the short to medium term,” said Meintjes.
Sasfin Wealth senior equity analyst Alec Abraham said it was “quite plausible” that investors could see the company as being poised to turn the corner.
Summers, a former MD and CEO of Pick n Pay who was brought back in October last year, 17 years after he left, intends to close many loss-making stores and lease out part of its Easport distribution centre as part of his turnaround strategy.
The distribution centre “is too big for our current requirements”, he said. “So we are in discussion with various companies to offer them third-party logistical services, in the interim, until such time as we grow. So I have no doubt that within the next couple of years we will need it in full.”
Of the 100 stores that have been identified as part of the turnaround plan, a third will be closed as “there is no future for those particular stores because demographics have changed and some are in shopping centres that are not doing well”, said Summers. About 10-15 will be converted to Boxer stores while the remainder will be transferred to franchisees.
This year Pick n Pay will not open any new grocery stores, but will resume doing so next year. However, the Pick n Pay clothing and Boxer businesses will continue to expand their footprints.
Summers has reiterated the need to bring customers back into Pick n Pay outlets by improving customer service and ensuring stock is available across a wide range and of products.
“One of the first things I picked up is that we have lost our care for customers. It’s something that worries me deeply because we were in years past the best in customer services.”
He said the turnaround will take about three years to yield results. “The feedback that we’ve got from the market is that they are understanding and comfortable with the plan; now we have to execute on that. For the balance of this year, a lot of initiatives we put in place will come to the fore.”
Meintjes said Summers was not suggesting any “outlandish changes”; he wanted the business to be good at buying and selling goods and to provide customers with a pleasant shopping experience.
“This is a basic strategy but one that will take two to three years to deliver and it will take quite a bit of capital to get the store base in a condition where they can compete. The recovery path for Pick n Pay is a multiyear process and there are no guarantees that they will succeed.”
Abraham said while always carrying execution risk and the risk of conditions changing or things not going exactly to plan, the corporate plan to turn around the business appears comprehensively thought-through, providing some visibility on the targeted timelines, focusing on the key problem areas “thus plausible”.
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