Western Cape Business News

Send  Share  RSS  Twitter  16 Nov 2011

RETAILING: Picking Up The Pieces


Recent Western Cape Business News

PICK n PAY CEO Nick Badminton described the Cape-based supermarket giant as “a solid and stable business with incredible potential and strongly motivated people who are looking forward to the future with enthusiasm.”

That’s a helluva bold pronouncement on a company that has just reported a nearly 40% plunge in fully diluted interim headline earnings per share – a performance that one simply does not associate with a company of the calibre of Pick n Pay.

Although Pick n Pay earlier signalled to the market that its interim numbers could be down between 35% to 45%, the half-year performance did not entirely snuff out – despite Badminton’s reassurances – questions around whether the company was firmly on the comeback trail.

Certainly the decision by the cash flush Pick n Pay to slash its dividend payout by 40% suggests management remain extremely cautious around prospects and perhaps an admission that there’s a snowball’s chance the full year profit forecasts will be achieved.

The one positive was that Pick n Pay grew its turnover by an encouraging 7.4% to R27 billion - which, Badminton noted, was above the market for the first time in a few years.

But top line gains count for very little if the business is not churning efficiently, and in this regard one sincerely has to hope Pick n Pay has put the worst behind it.

Worryingly Pick n Pay’s trading margins – possibly the most important performance measure in mass market retailing – were crunched to 1.8% from 2.8% in the corresponding interim period in 2010. It’s been a while since any major supermarket group has traded under the 2% margin level… It really means Pick n Pay is banking less than 2c in every rand of sales, which leaves very little room for error.

By way of comparison…Shoprite, Pick n Pay’s bigger rival, is earning a 5.5% trading margin. That’s three times Pick n Pay’s trading margin, and a worrying statistic bearing in mind that the differential in margins suggests Shoprite has some leeway should it want to aggressively chase market share.

Badminton pointed out that Pick n Pay’s gross margins only declined slightly from 17.8% last year to 17.7% this year.

He believed the company could strengthen its margins over the next few years while still holding its competitive price position thanks to work on category management and supply chain improvements.

The slip in trading margins – which saw trading profit down 32% to under R500 million – appears mainly due to the significant costs stemming from strategic transformation initiatives. Badminton explained that a major portion of these costs were the initial set-up costs relating to Smart Shopper and category management – an exercise that will hopefully pay back in bundles in ensuing years.

As regards efforts to restore the trading margins, Badminton stressed that going forward Pick n Pay management would be closely focused on improving its customer offer and streamlining its operations.

We are consolidating and upgrading our support functions…to deliver outstanding products in great stores at competitive prices.”

He said the first steps in this consolidation were setting up specialist category buying functions and the centralisation of the company’s supply chain.

The customer offer, Badminton added, would be significantly enhanced by the recent launch of the Smart Shopper loyalty programme.

In CBN’s mind the Smart Shopper initiative could be a make or break for Pick n Pay.

Badminton said the Smart Shopper loyalty programme – introduced in March – had been extremely well received. “We aimed to sign up three million cardholders in the first year and achieved 4.1 million in the first six months. We believe the encouraging growth in turnover is due in part to this programme.”

He conceded that substantial set-up costs had impacted first half earnings, but expected the programme to drive turnover growth in the medium to long-term as well as generate additional value through more effective marketing to customers.

The revamped specialist buying function could also be a key performance driver in the years ahead. Badminton said a great deal of time and resources was being invested in transforming Pick n Pay into a focused, centralised category management function. “This will enable us to improve our customer offer and work more efficiently with our suppliers.”

He said regional work undertaken to date had already made a positive impact on gross margins.

Obviously costs associated with this project also impacted interim earnings.

Then the touchy topic of centralising distribution – where many market watchers feel Pick n Pay has battled. Badminton said the company planned to optimise the Longmeadow operation before proceeding with new distribution centres in the Western Cape, KwaZulu-Natal, Eastern Cape and Gauteng over the next five years. He said Pick n Pay had achieved operational improvements at Longmeadow over the last six months, with a decrease in distribution cost per case.

Badminston said the Western Cape distribution centre was due to open in May next year.

While we noted earlier that the slashed dividend did not reflect a certain caution around prospects, at least Pick n Pay has continued to expand its footprint.

In the interim period four corporate supermarkets, five franchise supermarkets, 14 corporate liquor stores, six franchise liquor stores and nine clothing stores were opened.

Pick n Pay also converted three franchise supermarkets to corporate stores, and Boxer opened four new superstores, six Punch stores, a Boxer Build and a liquor store.

Badminton said the company planned to open nine new supermarkets (six corporate and three franchise), a dozen liquor stores, six clothing stores, and nine Boxer superstores as well as three Punch stores.

Overall, it seems we are looking at a great business in a not-so-great space, but a business that is still clearly determined to get back to its growth ways. In this regard Badminton’s reassurances about the business holding “incredible potential” and “strongly motivated people” become all the more important.

Afriwire and Steel (Pty) LtdBusiness Profilesvillaformosadecor-and-furniture-cape-townrock-art-gallery

Online Foreign Exchange
Foreign Exchange


Fax 2 Email



Online Casino


Shop Online

Study IT
Study IT Online

Web design
Web Design


Work from Home
Company News


© 2020 All rights reserved.

Daily Newsletter Subscription


Subscribe to the Western Cape Business News Daily News and information email (it's free).

Thank You
Your email address has been added.

Email Address: