PICK N PAY STRATEGY
Boosting sales of its in-house brands should help to improve its profits
PICK N PAY Stores plans to sell more of its own brand products in a bid to speed up sales growth and boost profit further.
The retailer posted a rise in profit in the six months to the end of August, mostly due to cost cutting, boosting headline earnings per share increased by 23.4 percent to 66.62c a year earlier. Sales rose 8.5 percent to R34.9 billion, outpacing a 6.1 percent increase last year.
The group raised profit by 23 percent to R322.5 million in the six months to August 30, compared with R261.9m a year earlier.
“We probably haven’t seen the sales-lead recovery that we talked about some two-and-ahalf years ago,” said chief executive Richard Brasher.
The retailer hiked its interim dividend by 24 percent to 24.20c a share.
Growth in stores
However, Brasher said momentum had improved in the first half and the company was now seeing growth in likefor-like sales, as well as sales at new stores.
Shares in Pick n Pay Stores climbed 3.27 percent to close at R63.15 compared with a 0.26 percent drop in the JSE’s general retailers index.
“Trading conditions remain tough in South Africa and other markets, with strong retail competition for customers who are coming under increasing financial pressure at all levels of society,” Pick n Pay said.
The company “has
remained focused on improving its operational efficiency”, it said. South African retailers are battling with consumer confidence that remains muted as shoppers hold back on spending even as fuel prices have fallen.
Unemployment of 25 percent and almost daily power cuts earlier this year also weighed on households.
Pick n Pay plans to increase the share of its own branded products, which account for about 15 percent of sales, to boost profit further.
Stiff competition
“I see no reason for it not being 30 percent,” said Brasher, adding that the initial focus would be on moving fresh goods through its centralised distribution centres.
“We’re playing catch-up on supply chain compared to Shoprite.”
Pick n Pay faces stiff competition from the likes of Shoprite at the lower end of the market and Woolworths among more well-to-do shoppers.
Local consumers are tightening their belts amid rising interest rates, higher energy costs and the first income tax hike in more than a decade.
Pick n Pay plans to claw back market share by keeping price rises low – they were only about half South Africa’s inflation rate during the first half – and by opening new stores.
The company is into the second phase of its turnaround programme, which has included closing some performing stores refurbishing others.
The retailer opened 83 new stores and refurbished 27 during the period, most of which now operate at a lower cost.
“Operational improvements include faster checkouts, Wi-Fi connectivity and automatic ordering and replenishment,” the company said.
Turning to Africa, Brasher said he believed Pick n Pay had the potential for strong growth.
However, Pick n Pay is expanding under
and cautiously into the rest of Africa, which accounts for about 12 percent of its operations.
Exited markets
It plans to open three new stores in Zambia and its first store in Ghana in 2016.
Pick n Pay has closed a few stores in Mozambique and Mauritius. It had exited those markets because the returns were not sufficient relative to the effort that the group was putting in, but growth in the rest of Africa was going well.
“Our business in Namibia, Botswana, Swaziland and Lesotho has moved forward well. We have a partnership in Zimbabwe which, despite the economic challenges in that country, has shown a marked improvement in underlying profitability year on year.
“Clearly Zambia is a challenging market with the devaluation of the kwacha and the low price of copper,” Brasher said.