Pick n Pay Hyper tries for stokvel boost
Thriving savings groups are key to growth, says retailer
PICK N PAY is entering a partnership with the National Stokvel Association of South Africa in a bid to widen its appeal to lower-income consumers and thereby revive its ailing Hypermarket division.
The food and clothing retailer, which operates 20 big-format stores under its Pick n Pay Hypermarket brand, would try to gain shoppers who belong to group savings investment schemes to make up for its “struggling division”, said Kyle Rollinson, an equity analyst at Avior Capital Markets.
Papi Rapolai, Pick n Pay’s head of wholesale and stokvels, said the relationship with savings investment groups was part of the retailer’s long-term plans for sustainable growth.
“Our strategy is to grow sales and to serve our customers better, and this plan falls squarely into that.
“Our emphasis is on helping stokvels and the people who depend on them and this is part of consistently seeking innovative ways to expand our offer to all segments of the market,” said Rapolai.
The partnership, which would apply to all Pick n Pay Hypermarkets and select supermarkets, would offer stokvel mem- bers a 1% discount paid back in Smart Shopper points.
Members would be able to convert the points into cash to pay for their groceries, based on the individual stokvel’s spending patterns.
Stokvel association CEO Andile Mazwai said Pick n Pay operated 20 big-format stores while Makro operated 19, “so Pick n Pay is right there — it does go toe-to-toe. It’s just Pick n Pay has not had the prominence of the other retailers.”
The association has also entered into partnerships with other retailers.
But Mazwai said that with Pick n Pay “we are doing it on a much bigger scale . . . so there is going to be a big drive towards pushing the Pick n Pay brand and pushing the Pick n Pay offering”.
The association will receive a fee for promoting the Pick n Pay brand, which Mazwai would not disclose.
According to a 2014 study by research group African Response, stokvels are estimated to be worth R25-billion, with a membership of 8.6 million, 23% of the adult population.
However, Mazwai said stokvels were now estimated to be worth about R50-billion.
Makwe Masilela, a portfolio manager at stockbroking company BP Bernstein, said Pick n Pay needed to increase the attraction of the brand to recover from the challenging business environment of 2013. In that year its annual profit fell by 51% to R550.6-million in the 12 months to March, from R1.11-billion in the previous year. Pick n Pay cited high costs and lower consumer confidence as reasons for the slump.
“[Pick n Pay] are playing catch-up in the sense that we know that it was struggling until they changed the strategy and appointed a new CEO.”
Masilela said the retailer would have to compete with Shoprite, which had been the largest recipient of the lower LSM consumer market with its Usave store formats.
Despite this, Rapolai said, the performance of the group’s Hypermarket stores in the six months to end-August had “improved through successful promotions and reducing costs”.
Some wholesale retailers have already seized the opportunities presented by stokvels.
Massmart’s wholesale division, Masscash, which operates retail brands like Jumbo Cash & Carry and Cambridge Food, has benefited from its saving scheme.
According to Massmart’s sales update for the 52 weeks to December 27, total sales increased to R84.7-billion, repre- senting growth of 8.4% over the corresponding period in the previous year, with Masscash sales rising 6.1%, compared with 5.8% in the previous year.
Rollinson said independent wholesale retailers had dominated the wholesale market.
“Massmart’s Masscash offering had come under pressure, but that’s mainly from independents. So I think Pick n Pay is going to be competing against independent wholesalers that are in touch with the consumer and that’s where the risk lies,” said Rollinson.
Retailers are not the only ones recognising the value in informal saving schemes.
The Banking Association of South Africa said it was in talks with the Gauteng provincial government about a possible role in the stokvel market.
Cas Coovadia, the association’s MD, said: “The banking sector is heavily regulated and there are limitations to who it can deal with.
“However, stokvels now operate under a Banks Act exemption and banks are developing innovative products for them.”
Despite the heavily contested market, Coovadia said, all retail banks would adopt strategies to engage stokvels as clients.