Can PnP play to win?
STRUGGLING: FIRST HALF OF FINANCIAL YEAR SHOWED NEARLY R1BN LOSS
CEO might turn around retail chain’s fortunes by changing brand’s perception.
Speak to any major supplier to Pick n Pay or anyone who worked for the retailer during Sean Summers’ first stint as CEO in the early 2000s, and the response is the same. They speak of the man with the utmost respect.
Words like “fearsome”, “formidable” and “ruthless” are used.
More than one agrees that “Sean”, as practically everyone calls him, is probably the only person who is able to fix Pick n Pay. One says: “If he can’t fix the business, then its unfixable.” This isn’t a unique opinion.
The first half of Pick n Pay’s financial year (March to August) was ugly – a nearly R1 billion loss before tax in South Africa. Net debt is R3.8 billion, more than double the amount a year before. By the end of August, PnP only had R1 billion undrawn of R5.5 billion in new loan facilities raised.
In truth, it’s likely to get even uglier. Pick n Pay will update the market at the end of February on its festive season trading.
Boxer is holding its own against Shoprite and USave, and arguably taking market share. The clothing business continues to thrive. The problem – that which Summers was hired to fix – is its core Pick n Pay business.
Fixing the retailer, which has seemingly been in a perpetual turnaround since Nick Badminton left more than a decade ago, is going to take time. And Summers knows this.
Pick n Pay isn’t going to be able to starve its way to profit and, while it arguably had some fat to cut under former CEO Pieter Boone, it simply centralised too much, too fast.
A lot needs attention. First is the proposition.
What is Pick n Pay? Is it going to compete head-on with ruthless Checkers and convenient, dependable but “pricey” Woolies?
Is it going to try to be everything to everyone (whether through the Pick n Pay and QualiSave brands or not)? Or will it focus squarely on the middle market, something the Ackerman family will almost certainly not find palatable?
Linked to this is the perception of the Pick n Pay brand in consumers’ minds and – crucially – the perception of price and value. There’s a perception that Checkers is “cheap” and Pick n Pay’s “expensive”. On some products, this is the case. On others, it’s the reverse. They’re often neck and neck. This perception needs changing. To address this, PnP must build better relationships with suppliers. Summers had great relationships with suppliers in his first stint at the retailer. Obviously, those executives
If he can’t fix the business, then it’s unfixable
are long gone, which is a massive challenge. Summers has the network to be able to phone a chair or director at one of these groups who he does know to get the direct line he needs to the supplier.
Pick n Pay needs to fix its estate. There is no time or space for loss-making stores to continue trading.
It is understood that Summers will announce the closure of several stores this year – as many as 30 or 40. This will be about 10% of its 324 corporate-owned supermarkets in SA – a big deal.
This will knock turnover in the year ahead but boost profits.
Pick n Pay is split into two businesses: one targets the upper-income market and the other (QualiSave) targets the middle market. But based on reported sales, this hasn’t worked.