Pick n Pay eyes Massmart chains in discount push

Pick n Pay has expressed interest in buying two Massmart discount chains, joining rival Shoprite in exploring a potential deal at a time pandemic-hit consumers are spending warily.

Massmart, WalMart’s SA unit, is selling its Rhino and Cambridge stores as part of a plan to return to profitability. It has already sold eight stores under its Masscash division, which houses Rhino, Cambridge and other cash-and-carry outlets.

Richard Brasher, outgoing Pick n Pay CEO, said discount retail was a “core” part of the company’s offering.

“We’ve registered an interest because they operate in a space that we know. But we are only interested in paying the right amount, so if they get the price right, then we would be interested,” said Brasher, who left the company on Wednesday after eight years at the helm.

If the deal happens, Pick n Pay would bulk up its lowincome offering as it already owns a chain of budget-friendly supermarkets called Boxer, and would be better able to compete with Shoprite, which has largely cornered the market with outlets of the same name and USave.

As SA’s economy fails to grow, more consumers are searching for value and the lower-income market is expected to boom as the middle class stagnates. Retailers have been preparing for constrained consumers by investing in discount chains. Foschini owner TFG bought Jet in 2020 and Mr Price purchased Power Fashion.

Gryphon analyst Casparus Treurnicht said the discount market was a defensive move for businesses. “It’s one area that can act like a hedge as consumers trade down.”

Of the R200bn in sales growth expected in the SA grocery market to 2025, Brasher said R140bn will come from the discount market, where Pick n Pay is the least represented.

The retailer has more market share among middle-income and upper-end consumers. It wants to grow all parts of its business but is aware the “less affluent market will grow the fastest until we get more economic growth into the country”, said Brasher.

A 1% market share gain at the discount end of the market would equal R5bn in annual sales, he said.

Pick n Pay has 11% market

share in the lower end of the grocery market. But its Boxer stores have grown in market share in the past three years, said Brasher, quoting research firms.

Boxer opened 44 stores in the past year, the most in a single year.

“We plan to beat that next year. It is the fastest-growing retailer in the country. It is, I think, one of the best limitedrange discounters that I’ve seen around the world,” Brasher said.

New Pick n Pay CEO Pieter Boone, who started on Wednesday, said he would speed up the growth of the Boxer business.

Brasher was speaking to Business Day shortly after the company issued its annual results, which showed sales grew 4.3% to R93.1bn, with price inflation at 3.8% driving much of the increase.

Pick n Pay reported a 21.4% drop in annual headline earnings per share, hit by a ban on the sale of alcohol and other highmargin products, and voluntary severance costs and Covid-19 related expenses.

Pick n Pay’s share price closed 0.78% higher at R54.40