Pick n Pay is closing stores and Checkers is taking their spots

As Pick n Pay is closing stores across the country – with more closures to come – its competitor Shoprite is actively expanding its store network.

Once the biggest food retailer in South Africa, Pick n Pay has struggled to compete over the last few years. 

The company implemented its Ekuseni strategy a few years ago to turn things around, but it was a disaster which cost the retailer billions.

The company’s latest annual financial results revealed the extent of the challenges Pick n Pay faced.

Pick n Pay reported a 373% decrease in net profit. It swung from a R1.17 billion profit to a R3.2 billion net loss.

For the first time, Pick n Pay became technically insolvent, with its liabilities exceeding assets by R183 million.

Drastic action was needed. The retailer replaced its chief executive, Pieter Boone, with a company stalwart and former CEO, Sean Summers.

Summers appointed a new management team to lead the company and implement its turnaround plan.

It also launched a R4 billion rights offer to strengthen the balance sheet and started closing struggling Pick n Pay stores.

In addition to the rights offer, Pick n Pay plans to list its Boxer business separately on the JSE as a second step of the recapitalisation programme.

While its turnaround plan is starting to show promising signs, Pick n Pay is still reversing many of the changes implemented under its Ekuseni strategy and closing poor-performing stores.

In the first 21 weeks of the financial year, Pick n Pay closed 16 supermarkets, including four corporate stores and 12 franchise stores.

Redefine Properties, which owns many of South Africa’s top shopping malls, also recently announced that it is taking back 10,000 square meters from Pick n Pay.

The company owns many of South Africa’s largest shopping malls, including Centurion Mall, Blue Route Mall, Cradlestone Mall, and East Rand Mall.

Its portfolio includes Benmore Centre, Centurion Lifestyle Centre, Kyalami Corner, Goldfields Mall, Golden Walk, Kenilworth Centre, and Horizon Shopping Centre.

In a recent Capital Markets Day presentation, it said the 10,000 square meters it is taking back from Pick n Pay will optimise space in its shopping malls and increase trading density.

On the other side of the spectrum, Pick n Pay’s biggest competitor and South Africa’s largest retailer, Shoprite, is going from strength to strength.

In its most recent annual results, Shoprite – which owns brands like Checkers and Usave – showed a strong performance.

Revenue was up 12.1%, which saw trading profit grow by 11.7% to R13.40 billion. 

The largest part of this growth was driven by the group’s Supermarkets RSA division, which saw its trading profit grow by 11% in the period.

Checkers and Checkers Hyper saw 12.3% sales growth, opened 26 new stores and underwent 12 store upgrades. 

Excluding Shoprite and Checkers LiquorShop businesses, which increased sales by 20.0%, Shoprite and Usave increased sales from a base of R90.0 billion last year by 10.7%. This equates to an additional spend of R9.6 billion in stores this year. 

Individually, Shoprite increased sales from a substantial rand value by 10.3%, and Usave increased sales by 13.2%. 

Therefore, Pick n Pay is in the process of rolling back old strategies and rebuilding its company while Shoprite continues to grow.

In April this year, News24 reported that this has led to Shoprite taking over a number of Pick n Pay stores.

The publication said Shoprite opened eight new supermarkets at sites previously occupied by Pick n Pay on the East Rand.

One of these supermarkets is a Shoprite store, while the remaining seven are branded as Checkers stores.

The company said a further seven Checkers supermarkets were anticipated to start trading from the second week of April. 

These included Checkers Brentwood, Checkers Glen Balad, Checkers Stonehill, Checkers Edenvale, Checkers Eden Terrace, Checkers Elgin and Checkers Kempton Gate.

Light at the end of the tunnel

While Pick n Pay’s growth significantly lags Shoprite’s, the struggling retailer’s turnaround plan is taking shape and showing promising signs.

Its recent rights offer was a smashing success, as the offer was 106% oversubscribed, with total subscriptions reaching over R8 billion.

The retailer said 98.7% of shareholders followed their rights, and the retailer received R4.3 billion in excess applications.

Pick n Pay said this underscores shareholders’ strong confidence in the retailer’s turnaround strategy, leadership team and future growth plans.

The proceeds of the Rights Offer will be used to pay down debt, stabilise the balance sheet, and invest in Pick n Pay’s turnaround strategy, which CEO Sean Summers is driving rapidly.

The recapitalisation of the business is one of six strategic priorities – aimed at revitalising and restoring profitability in its core Pick n Pay retail business while driving growth in its high-performing Boxer and Clothing businesses.

The first priority of establishing new leadership and operational structures in Pick n Pay strengthened with seasoned executives, is already complete, and the retailer is seeing measurable improvements in its core Pick n Pay retail business. 

With the successful completion of its Rights Offer, Pick n Pay has now completed the first step to recapitalise the business. 

Step two is Boxer’s initial public offering (IPO), which the retailer said is progressing well and is on track for a JSE listing towards the end of the year.

Pick n Pay plans to list Boxer separately on the JSE in 2024 in an IPO to raise R6 billion and R8 billion.

Another intervention is that 112 Pick n Pay stores will either be closed or converted to Boxer franchised stores.

Summers said the retailer is “really pleased” with the result of the Rights Offer. 

“The successful conclusion of the Rights Offer demonstrates the market’s strong confidence in our iconic brand and in our turnaround strategy,” he said.

“It marks a crucial first step in our recapitalisation plan, positioning the group well to fund long-term sustainable growth.”