Pick n Pay warning with stores closing across South Africa
Analysts warn that Pick n Pay closing supermarkets across South Africa will put it at a disadvantage against competitors like Checkers and Spar.
Pick n Pay’s financial and operational update for the 21 weeks ended 21 July 2024 revealed that it had closed numerous supermarkets.
The retailer closed sixteen supermarkets, including four corporate and twelve franchise stores. During the rest of the year, more stores will be closed.
Redefine Properties, which owns many of South Africa’s top shopping malls, is also taking back 10,000 square meters of floor space from Pick n Pay.
During its Capital Markets Day presentation, Redefine Properties said that taking back space from Pick n Pay will optimise space in its shopping malls.
Analysts have highlighted that Pick n Pay has been a drag on many shopping malls where it is the anchor tenant as it does not drive as much foot traffic as Checkers.
By taking back space from Pick n Pay, shopping malls will likely increase the rent they receive and add value to shoppers.
Even CEO Sean Summers admitted that South Africans have stopped supporting the retailer and that Pick n Pay has fallen out of love with retail.
Summers believes that, despite the company’s downward trend over recent years, “People out there in South Africa want their Pick n Pay back”.
He is on a drive to put his passion for retail back into Pick n Pay. “Every associate in the business should feel that same love and sense of belonging,” he said.
To stop the decline, Summers launched a six-point strategy to restore the Pick n Pay supermarket business to profitability.
The back-to-basics strategy has six priorities and will focus on simplicity, quality, affordability and sustainability to help the iconic brand reclaim its former glory.
The six strategic priorities include leadership and people, resetting the store estate, and improving offers to drive sales.
It will further focus on optimising the operating model, recapitalisation, and leveraging the strength of partnerships.
“This is a three-year turnaround programme. We will work with vigour, energy and passion to get it right,” Summers said.
“We have a strong operational leadership team to help us set the business on a path of long-term sustainability.”
Warning from analysts
Most analysts agree that Summers is the right man for the job. He was in charge during the 2000s when Pick n Pay achieved exceptional growth and outperformed its rivals.
However, turning the retailer around is easier said than done. It faces stiff competition from Checkers, Woolworths Food, and Spar.
Many analysts have warned that investors should be cautious before investing in Pick n Pay as it will struggle to gain market share.
Devin Shutte, head of investments at The Robert Group, highlighted that Pick n Pay has underinvested in their business for years.
This underinvestment has caused Pick n Pay to fall behind Checkers and Woolworths Food. Its store formats and look and feel are outdated.
This means that many South Africans have changed their shopping habits and moved to other retailers like Checkers.
It will be difficult for Pick n Pay to catch up to its competitors and lure these shoppers back. Shutte said it is not certain that Pick n Pay will flourish again and return to its glory days.
“Even with the multiple recapitalisations, including the rights offer and Boxer listing, the execution risk is high,” Shutte said.
Even though Pick n Pay is starting to improve, its competitors like Shoprite Checkers, Woolworths Food, and Spar are also improving their offerings.
Benguela Global Fund Managers portfolio manager Grant Nader highlighted that Checkers is aggressively rolling out new stores, and Spar is refocusing its efforts on South Africa.
“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 said.
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,” he said.
Cobus Potgieter from Southern Cross Capital was even more sceptical, saying he does not feel the Pick n Pay restructuring plan is credible.
He previously said the rights issue and planned Boxer unbundling and IPO would not unlock the value shareholders seek and put Pick n Pay on a path to profitability.
“Pick n Pay’s competitors are not sitting still, and we have seen that Shoprite is eating their lunch,” Potgieter said.