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
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