The pick of the bunch?

The re­tailer out­paced all its com­peti­tors in vol­ume growth in one of the worst trad­ing pe­ri­ods in its his­tory, but it isn’t crow­ing

Financial Mail - - BETWEEN THE CHAINS - Ann Crotty

Fifty years ago, young Abe Gor­don’s boss at Old Mu­tual dis­missed the prospects for the about-to-belisted re­tail group Pick n Pay, be­liev­ing it wouldn’t have much chance com­pet­ing against the strong in­cum­bent, OK Bazaars.

This was a rea­son­able enough prog­no­sis, given that Pick n Pay was only 18 months old and com­prised an unim­pres­sive three stores. (De­spite his boss’s view, Gor­don be­came a long-term pri­vate in­vestor in the re­tailer.)

Group founder Ray­mond Ack­er­man, who is now 87, told the FM that, at the time, he thought list­ing was a great idea. “My brother had just com­pleted a case study on stock ex­change list­ings and I thought: ‘That’s just what we need’.” Ack­er­man was chat­ting af­ter the pre­sen­ta­tion of the group’s up­beat re­sults for the six months ended Au­gust 2018.

The group now com­prises 989 com­pany-owned stores and 686 fran­chise stores. And, in what was pos­si­bly one of the worst trad­ing pe­ri­ods in its his­tory, it man­aged to out­pace all its com­peti­tors in achiev­ing like-for-like vol­ume growth of 3.5%.

The strong vol­ume growth com­bined with sig­nif­i­cant im­prove­ments in oper­at­ing ef­fi­cien­cies have put the group on track to re­claim its for­mer glory as the re­tail sec­tor dar­ling. It lost this long-held sta­tus well over a decade ago when the need for cut­ting-edge man­age­ment came sec­ond to the found­ing fam­ily’s com­mit­ment to re­main­ing in con­trol.

For sev­eral years it looked as though Pick n Pay might go the way of its for­mer pow­er­ful com­peti­tor, OK, and end up as a slightly sad ad­junct to a more ag­gres­sive, nim­ble player.

Even­tu­ally the con­trol­ling share­hold­ers re­alised the so­lu­tion lay in ap­point­ing a CEO who would not be over­whelmed by Ack­er­man’s his­tory and would chart his own course. In Oc­to­ber 2012 the board per­suaded Richard Brasher, a for­mer top ex­ec­u­tive at the UK’S Tesco, to take the job.

“It’s been in­ter­est­ing,” was Brasher’s un­der­stated com­ment to an­a­lysts at the re­sults pre­sen­ta­tion this week.

It’s been a tough time for the

Brit who, de­spite much talk of new, more ag­gres­sive strate­gies, was ini­tially un­able to show re­sults. It seemed all the com­peti­tors — Wool­worths, Spar and Sho­prite/check­ers — were charg­ing ahead with even more ag­gres­sive strate­gies.

“On pa­per he [Brasher] was the right per­son,” says Sas­fin an­a­lyst Alec Abra­ham. “But it wasn’t com­ing through in the re­sults and I was get­ting very de­spon­dent.”

Abra­ham says he was ex­pect­ing a 23% hike in nor­malised earn­ings but is “very happy” with the 17% be­cause Pick n Pay has in­vested the dif­fer­ence in price re­duc­tions. “The group has been lag­ging the vol­ume in­creases achieved by the other re­tail­ers, so it was time they started to catch up,” says Abra­ham.

Low prices alone don’t guar­an­tee vol­ume in­creases — just ask Mass­mart.

Brasher’s team has also im­proved the en­vi­ron­ment in the store, in­clud­ing on-shelf avail­abil­ity. “We’re closer to our cus­tomers and our stores are in bet­ter shape,” says Brasher. “If you lose mar­ket share when the mar­ket is do­ing well, you have a prob­lem, your busi­ness model doesn’t work. If you gain mar­ket share in tough times, then the busi­ness model works.”

He “sus­pects” Pick n Pay is gain­ing mar­ket share.

That the group could af­ford wide­spread dis­counts — prices were cut on 2,500 ev­ery­day gro­cery lines — and re­port bumper

Bloomberg/si­mon Daw­son

Richard Brasher: The board’s pick is earn­ing his pay

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