Pick n Pay battle with franchisee rages on

• Franchisee blames retailer’s franchising model and discounts for the stores’ poor performance

Ten Johannesburg stores belonging to Pick n Pay franchisee John Baladakis, who is in a court battle with the retailer, ran up losses of more than R115m in 2023.

The stores, nine of which have adjoining liquor stores, are situated in the middle-class suburbs of Edenvale, Eden Glen, Benoni and Kempton Park. Stores lost on average R4mR8m a year, with one racking up R16m in losses.

Only one store made a profit, of just R61,000.

The high losses may offer investors insight into how Pick n Pay stores in mid to low-income areas fare.

The listed retail group will report its first-yet full-year loss to end-February as its overall core business is not profitable and its debt rose from R3.8bn to R7.2m over the festive season, due to underperformance of many of its Pick n Pay branded stores. Baladakis has blamed Pick n Pay’s franchising model and discounts he had to give in promotions for the stores’ poor performance, saying he had raised issues with the retailer about it since August 2020.

But Pick n Pay has said there are larger and smaller franchisees who make a profit and owe it no debt.

The Baladakis family has owned grocery stores and traded with Pick n Pay for 30 years, with 2023 being a particularly tough year.

In a dispute beginning in 2018, Baladakis ran up R208m in debt linked to stock, franchise fees and interest. The debt has now been reduced through payment to R188m. Baladakis disputes the debt and calls it historical.

“The stock which Pick n Pay claims we have not paid for has been paid for and we have proof of payment for each of the invoices they rely on. The proof of payment was provided to the court,” he said.

Pick n Pay said in court papers last week that the Baladakis stores “have continuously since the conclusion of the franchise agreements, and even from 2018, ordered stock from the applicant, received the stock, sold the stock and received the proceeds therefor. The respondents’ debt to the applicant has ballooned from about R40m to almost R200m”.

Pick n Pay has only R47m security over the debt. It is not clear why the listed retailer allowed its franchisee’s debt to increase to three times that of the security they hold and if it can recover what it claims it is owed.

Pick n Pay spokesperson Tamra Veley said: “This is an unfortunate situation with this particular franchise group that has developed over a protracted period.”

In typical CEO Sean Summers’ no-nonsense approach, the retail group in January sought to take security or “perfect their debt” after they failed to come to an agreement on repayment.

Acting judge Nazir Cassim ruled in favour of Pick n Pay on Friday and ordered that the group can run the stores to recoup the Baladakis debt, including changing the locks on the doors. The parties also have to go into arbitration, he ordered.

Baladakis said on Wednesday he would appeal against the ruling as he stands to lose the family business.

Previous court papers blame the retailer for the mess.

“Trading policies and discount models imposed by Pick n Pay are not feasible, and have made it near impossible for the respondents, as franchisees, to operate their franchise businesses in a manner that is commercially viable.”

Veley said: “The court ruled in Pick n Pay’s favour and we respect both the court and their right to appeal. Our franchisees are a very important part of the Pick n Pay family, and it is sad when we are faced with little choice but to protect our position.

“In light of there being no improvement to the debt position of this group after numerous engagements, we were left with no alternative but to take action to protect Pick n Pay’s interests.

“While we do not agree with the allegations made by this franchisee group, the issues raised are complex and are the subject of legal proceedings between the franchisees and the company.”

OUR FRANCHISEES ARE VERY IMPORTANT AND IT IS SAD WHEN WE ARE FACED WITH LITTLE CHOICE BUT TO PROTECT OUR POSITION

Tamra Veley Pick n Pay spokesperson