Pick n Pay, one of South Africa’s longstanding retailers, is facing growing concern as it continues to shut down multiple supermarkets across the country. In a recent financial and operational update for the 21 weeks ending 21 July 2024, the company revealed that it had already closed sixteen supermarkets, including four corporate-owned and twelve franchise stores. This trend of closures is set to continue throughout the year.
Further intensifying the situation, Redefine Properties, which manages some of South Africa’s premier shopping centres, is reclaiming 10,000 square meters of retail space from Pick n Pay. Redefine Properties explained this move during their Capital Markets Day presentation, stating that it aims to optimise the use of space within its shopping centres. This development highlights concerns about Pick n Pay’s performance as the anchor tenant in several malls, as it reportedly does not attract the same level of foot traffic as its competitors, particularly Checkers.
What are Pick ‘n Pay Challenges?
Market analysts have warned that this reduction in space and closures will put Pick n Pay at a significant disadvantage compared to its primary competitors, Checkers and Spar. Analysts point out that shopping malls, by reclaiming space from Pick n Pay, are likely to benefit by increasing rental income and offering more value to consumers through alternative stores.
The retailer’s own leadership seems to acknowledge these difficulties. Pick n Pay CEO Sean Summers candidly admitted that the company has lost some of its loyal customer base, stating that South Africans have ceased to support the retailer in the way they once did. In his own words:
“Pick n Pay has fallen out of love with retail.”
Despite this, Summers remains optimistic, believing that Pick n Pay can regain its position in the market. He stated:
“People out there in South Africa want their Pick n Pay back.”
Summers has undertaken a passionate effort to re-invigorate the brand, emphasising that all employees should feel the same enthusiasm and dedication for the company’s revival.
Pick ‘n Pay Strategic Response and Turnaround Plan
In response to the retailer’s recent struggles, Summers has introduced a six-point strategy aimed at restoring Pick n Pay’s profitability. This “back-to-basics” approach focuses on simplicity, quality, affordability, and sustainability. The six strategic priorities include enhancing leadership, revisiting the store portfolio, and improving product offerings to attract more shoppers. The strategy also aims to optimise operations, recapitalise the business, and leverage the company’s existing partnerships to boost growth.
Summers outlined the importance of this comprehensive plan, which will unfold over the next three years:
“This is a three-year turnaround programme. We will work with vigour, energy, and passion to get it right.”
He also highlighted the retailer’s strong leadership, which he believes will guide the company towards long-term sustainability:
“We have a strong operational leadership team to help us set the business on a path of long-term sustainability.”
While there is optimism around this strategy, the competitive landscape remains fierce. The retail environment has evolved dramatically over the past decade, and Pick n Pay finds itself up against well-established competitors such as Checkers, Woolworths Food, and Spar.
Scepticism Among Analysts
Many market observers remain cautious about Pick n Pay’s ability to execute its ambitious turnaround plan. Devin Shutte, head of investments at The Robert Group, pointed out that Pick n Pay has lagged behind its competitors for years, mainly due to underinvestment. This has left the company with outdated store formats, which have alienated many customers. Shutte remarked:
“This underinvestment has caused Pick n Pay to fall behind Checkers and Woolworths Food. Its store formats and look and feel are outdated.”
As a result, numerous South African consumers have shifted their loyalty to other retailers like Checkers. Shutte warned that it may prove difficult for Pick n Pay to win these customers back and reclaim its former status in the market. He further emphasised the challenges:
“Even with the multiple recapitalisations, including the rights offer and Boxer listing, the execution risk is high.”
Though the company has begun implementing improvements, its competitors are not slowing down. Shoprite Checkers and Woolworths Food are continuously enhancing their offerings, and Spar is refocusing its efforts on the South African market.
Grant Nader, portfolio manager at Benguela Global Fund Managers, echoed these concerns, noting that Checkers is aggressively expanding by rolling out new stores, while Spar is also solidifying its position. He noted:
“It is competitive on all fronts. This is a scale game where price and margin are important. The retailer with the biggest scale has the biggest advantage.”
Nader pointed out that while Pick n Pay is shrinking, Shoprite, its main competitor, is growing, putting Pick n Pay at a clear disadvantage:
“Compared with Shoprite, which is growing, Pick n Pay is shrinking, which puts it on the back foot. They have less margin to play with. They are in a tough position.”
Concerns Over Restructuring Plans
Cobus Potgieter of Southern Cross Capital is even more sceptical of Pick n Pay’s restructuring strategy. He has questioned the credibility of the retailer’s plans, including the proposed rights issue and the unbundling of its Boxer stores for an initial public offering (IPO). Potgieter previously stated that these moves are unlikely to deliver the value shareholders seek or restore Pick n Pay’s profitability:
“Pick n Pay’s competitors are not sitting still, and we have seen that Shoprite is eating their lunch.”
With its competitors showing no signs of slowing down, and the complexities involved in reversing the decline, analysts are advising caution. Investors are urged to keep a close watch on Pick n Pay’s progress, as it will need to overcome significant challenges to regain its former glory in the South African retail landscape.
