Pick n Pay needs more than Boxer to reclaim glory

We expect trading conditions to remain tough, with no predicted end to load-shedding and a depressed economy weighing down on consumer confidence says Pick n Pay boss Pieter Boone, laying out the outlook for the grocery sector in an annual earnings results presentation.

Official statistics back him up. SA’s retail sales fell for the third consecutive month in February, latest Stats SA data show, reflecting the effects of power cuts and elevated living costs for consumers already battling high personal debt levels amid rising interest rates. In further evidence of extreme concerns about SA’s economic prospects and household finances, the FNB/BER consumer confidence index slipped to -23 in the first quarter of 2023, the third-lowest reading on record since 1993.

To ride out the storm, Boone is betting on an aggressive pricing strategy through Boxer, the discount chain he described as a gem in the Pick n Pay business. Founded in 1977, Boxer’s outlets are located at taxi ranks and rural shopping malls, the heartland of the vast budget-conscious consumer base. With an aggressive store rollout plan, Boxer is taking the fight to Shoprite for a bigger slice of the grocery market, which is expected to top R850bn in 2026 with 60% of that money coming from low-income earners and welfare grant recipients.

Still, it is worth asking if Boxer is really a gem or just a shiny pebble. Sure, it grew its sales by one-fifth in the year to February, but that is not hard to do when you start from a low base and open an average of five new stores every month. Boxer is still a small player compared with Shoprite, which has more stores, more customers and more experience in serving the mass market. Besides, growing sales is one thing, doing so profitably is quite another. Pick n Pay has the lowest profit margin among the big four grocery retailers. It barely makes 3% after paying for its costs. Its share price has dropped by almost 35% in the past year.

Boone’s plan to grow sales profitably involves cutting jobs and dividends. He has offered voluntary severance packages to some managers, but will that be enough? What if not enough employees take up the offer? Will Boone have the guts to face the unions and fire people in a country with more than 30% unemployment? Will he have the support of the Ackerman family, which owns a controlling stake in Pick n Pay and enjoys much of the dividend payouts? Boone has reduced the dividend payout ratio from almost 80% to as low as 56%, but he still wants to pay at the top end of his new range. That doesn’t sound like much of a sacrifice for a company that has ambitions to become Africa’s No 1 discounter.

Boone may have a sound vision for Pick n Pay, but he also has a lot of challenges ahead. He will need more than just industrybeating sales growth from Boxer.