In an effort to claim back market share, Pick n Pay yesterday launched a new strategic plan, which will see the retailer transform into “two customer-facing brands” as it signs a partnership with online retailer Takealot and its Mr D service to ramp up its online sales.
The strategy was unveiled by chief executive Pieter Boone as he delivered the retailer’s results for the 52 weeks ended February 27, 2022.
He said the the goal of the four-year plan was to “deliver group turnover growth at a compound annual rate of 10 percent, resulting in market share growth for the group of at least 3 percent”.
The strategy was formulated after almost a year in customer research, with more than 7 000 customer interviews.
The group will be “redefining its relationship with the Pick n Pay customer”.
In this, the first brand will have about 18 000 products on the shelves that aim to “cater to customer aspirations” with “great value”.
The other, temporarily known as Project Red stores, will be smaller and cheaper. They will have a range of about 8 000 products, with an emphasis on essentials, a strong fresh offer, the company said.
The group also plans to expand its discount store Boxer brand, which caters to the lower income consumer, by opening 200 new stores over the next three years. It aims to double Boxer’s turnover by 2026.
Pick n Pay pledged to increase its profit before tax margin to above 3 percent by full year 2026 and to cut costs by R3 billion over three years.
With the commercial services agreement with Takealot, the retailer will see the launch of a dedicated Pick n Pay on-demand food, grocery and liquor offer on the Mr D app, which currently enjoys more than 2.5 million active customers. Pick n Pay has its own on-demand delivery service, Asap!.
“The service will launch in August 2022, and will be available nationwide by the end of the current financial year,” Pick n Pay said.
Pick n Pay, which has one of the lowest profit margins among big retailers such as Checkers and Woolworths, is fighting to gain more market shares as it upgrades its higher-end stores.
In an interview, Boone said for the affluent segment, the group would release 160 products between now and the next four months.
In the retailer’s results it declared a final dividend of 185.35 cents per share, bringing the total its full year 2022 dividend to 221.15 cents per share, a 23 percent hike in line with pro forma headline earnings per share (heps).
Pro forma heps were up 23 percent to 289.64 cents a share. Heps were 262.59 cents a share, up 14.5 percent from the previous comparable period.
Group turnover increased by 5.2 percent, despite an estimated R2.7 billion in lost sales arising from a large number of store closures due to the civil unrest last July and the Covid trading restrictions on liquor, largely in the first half of the year.
“Pick n Pay’s Smart Shopper loyalty programme drove loyalty penetration to 80 percent of Pick n Pay sales and is recognised as the most used loyalty programme in South Africa,” the company said.
Boone said: “It has been resilient results for the entire group under challenging circumstances for the entire group. Last year we were heavily impacted by the consequences of Covid-19, and of course the unfortunate events during July. It resulted that we had to close 763 stores.”
Looking ahead, Boone said: “Our management team has developed a strong Strategic Plan to bring Pick n Pay closer to the customer and accelerate the progress of our key growth engines, including the expansion of our Boxer, Clothing and Omnichannel businesses.”
Anchor Capital equity analyst Zinhle Mayekiso said Pick n Pay’s annual results were reflective of the group’s recovery from the depths of the Covid-19 pandemic as South Africa returned to normal with most lockdown restrictions finally lifted.
“I was pleased with the continued momentum in top line growth post year-end and I also thought there were some positive developments in terms of their strategy going forward.
“I believe that the market will appreciate improved disclosure around Pick n Pay’s food retail segment. Its strategy of keeping internal price inflation low in a tough macro environment could claw back market share from some of its competitors,” she said.
Umthombo equity analyst Nomtha Ngumbela said: “It was an important step for management to knowledge the lack of relevance and differentiation in the Pick n Pay store formats, which has undoubtedly resulted in the softer result and market share losses over the past year.
“However, re-establishing a value proposition at a time when competitors have to made strides with consumers is not an easy feat, and investors will need to employ patience before any true tangible benefit is seen.”
She said there did, however, exist significant execution risk, especially as the retailer embarked on the strategy in an economic environment where the consumer was particularly constrained and increasingly bargain hungry and value oriented across income groups.
“I look forward to seeing management implement an approach which I view as being more disciplined and deliberate in positioning the group as a true value building competitor in the food retail space,” Mayekiso said.
BUSINESS REPORT ONLINE